James Fallows on Gwen Ifill
Washington Post Death Spiral Watch (David Broder Edition)

A Jury Would Not Convict Sarah Palin of Criminal Tax Fraud

But she does owe substantial back taxes. Jack Bogdanski:

There's no debate: Palins owe thousands in back taxes: On Friday afternoon, just at the time of the week when people unveil unhappy news releases in order to minimize media coverage, the McCain-Palin campaign released Sarah and Todd Palin's federal income tax returns for 2006 and 2007. The returns do not include as taxable income any of the per diem allowances or travel expense reimbursements that the State of Alaska paid.... [T]he campaign also handed out an opinion from a Washington, D.C. tax lawyer... Roger M. Olsen, an M Street solo practitioner who was a tax official in the Reagan administration. His specialty appears to be the criminal side of the federal tax laws. Olsen's three-page letter never comes out and directly says "It's my opinion that the travel payments the Palins received were not taxable"... it bobs and weaves a fair amount and never lands squarely on point:

Unless employees have reason to know that the W-2 is incorrect, the IRS expects employees to rely on the employer's W-2 as prepared & filed with the IRS, as Governor Palin did. The income tax aspects of fringe benefits are complex and highly technical, and not subject to second-guessing by laymen. The State of Alaska is confident that its position is correct. Its employees were entitled to rely on that determination....

[T]he spouse of the Governor (or other family members on occasion) is entitled to payment of travel costs by the state when conducting official State business.... [P]ayments for family members traveling on state business would not properly be included as taxable income on Governor Palin's federal tax returns.

Let's take the two paragraphs in order. The first one never actually says the payments weren't taxable income. It says that the Palins were "entitled to rely" on what the state did and didn't include on the W-2.... If Olsen is saying that the federal tax consequences of payments from one's employer are conclusively determined by one's employer's treatment of the payments on the W-2, that's just flat-out wrong.... The Palins, who had their tax returns done by HR Block, simply got it wrong. And the fact that the state payroll office got it wrong, too, doesn't erase the Palins' unpaid tax liability.

On to the second paragraph.... Olsen finally... comes close to saying... amounts the Palins received for travel were not taxable.... But... here is no question whatsoever that the payments for the Palin children's travel -- $24,728.83 -- were indeed taxable to Governor Palin.... [P]er diems and other travel payments to the governor herself ($16,951) may or may not be taxable, but certainly not because state law or the state payroll office says so.... The key case on deductibility of family travel expenses in this circuit is Stratton v. Commissioner, decided in 1971. In Stratton, a State Department foreign service officer's own travel expenses were ruled deductible, but his wife and children's travel expenses were held to be nondeductible. The court of appeals declared, in a passage that would seem quite applicable to the Palin children, if not also to Todd Palin:

Mrs. Stratton and the children are not employed by the Department. There is no mandatory requirement either by statute or regulation, that they accompany the employee.... [T]he Secretary of State is authorized to pay their travel expenses to and from this country... represents an accommodation by the Department to enable the family to fulfill its personal needs in reacquainting itself with the homeland at the same time that the employee is renewing his knowledge for business reasons. Finally, the asserted "public relations" duties of Mrs. Stratton are unspecified and, without further support in the record, must be considered to be incidental...

The Palin children cannot be performing more than incidental services for the state -- if they provide any at all. Under Stratton, then, there is no "business purpose" for their travelling between Juneau and Wasilla, and thus their travel payments are taxable....

As for Governor Palin herself, questions have been raised as to how she could be "away from home" for tax purposes -- that is, away from her principal place of business -- when she was in Wasilla. Olsen's opinion baldly states that her "tax home" was Juneau... but that is hard to square with the fact that the governor spent the majority of her time in Wasilla and in Anchorage, where she works at a state office building. If Olsen is wrong and Anchorage was her "tax home," reimbursements for time spent in Anchorage and vicinity would appear to be taxable. Even if Juneau is her "tax home"... her frequent trips between Juneau and Wasilla are simply long-distance commuting, which is a completely nondeductible, personal expense....

[T]hey are in the hole to the government for more than $6,000, plus interest since at least April 15 at the rate of between 5 and 6 percent a year. They should file an amended return and pay the resulting tax and the interest...

Comments