Sarah Palin may be going to great lengths to great lengths to sling Barack Obama today, but such tactics aren't likely to deflect attention from the apparent situation that Palin may have underreported her income for the purposes of paying federal taxes. Here are some of the numbers, put together by ABC News:
Of particular interest: roughly $17,000 in state-issued per diems for evenings spent in her own home in Wasilla. The Washington Post recently reported that the per diems and associated travel costs from the state capital in Juneau for Palin's family could mean a tax liability of more than $60,000 for Palin's first year and a half as governor.The address listed on the 1040's is Palin's family home in Wasilla, which would seem to suggest Palin considers that, not the governor's mansion in Juneau, her "tax home." However the McCain-Palin campaign maintains that her "tax home" is technically the governor's mansion in Juneau.
The point is potentially significant because any per diems and travel reimbursements received in connection with someone's "tax home" would likely be taxable as income. According to IRS regulations: "If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home."
The IRS also strictly forbids deductions for expenses incurred bringing a spouse and kids along on a business trip. Tax authorities say any reimbursement for travel costs for family members would likely incur income taxes.
But Palin's tax returns indicate she paid no taxes on the disputed per diems and travel expenses.
Paul Caron of the TaxProf Blog, who knows a whole lot more about the tax code than I do, takes a look at the excuses pushed by the McCain campaign for the Alaska Governor having paid less in taxes than some in the business believe she should have and comes away unimpressed.
Both conclusions [that an employee can rely on the W-2 from the employer and that the travel benefits enjoyed by a spouse are not taxed] seem problematic. If an employer mistakingly fails to include an item of income from an employee's W-2, does that really relieve en employee of her obligation to report the income on her tax return? How does Mr. Olsen's conclusion regarding the reimbursement for expenses of the Governor's spouse and children square with § 274(m)(3)? Undoubtedly the most amazing (brazen?) aspect of Mr. Olsen's opinion letter is that he cites absolutely no law in the four pages to support his conclusions -- no code or regulation sections, cases, or rulings.Another discrepancy is the $196,531.50 income as Governor reported on her financial disclosure form (with the notation "[a]s reported to filer by State of Alaska"), compared to the $107,987 wages, tips, other compensation and $122,401.43 Medicare wages and tips reported by the state of Alaska on the W-2 attached to her tax return.
At this juncture, this is a bunch of jargon -- and not a lot of hard conclusions. But it seems to me that there does lie within these tax returns, which were dumped (unsurprisingly) late Friday so as not to give reporters a great deal of time to look them over before having to file their stories, some real potential headaches for Palin, and thus for the McCain campaign. Many will recall how Al Franken's Senate campaign was derailed for a time earlier this year in dealing with a tax issue. But while Franken was able to recover -- he now leads, in fact -- he had significantly longer to do so than Palin would just one month from election day, were the implications of underpaid taxes to pan out.
This story may still go the way of the pet rock and the pog, without having made an indelible impression on the country. But if it lingers, even for the next few days, there could be some real problems for the Republican ticket.
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