Is Palin also a tax cheat?

by clammyc
Sat Sep 20, 2008 at 07:07:11 AM PDT
Recently, there was a lot of talk about the per diems that Sarah Palin charged for staying at home, and while there may not have technically been anything illegal about it, there was another part of this story that got little to no attention.


The part that I am talking about is this:

The governor's daughters and husband charged the state $43,490 to travel, and many of the trips were between their house in Wasilla and Juneau, the capital city 600 miles away, the documents show.

Now, being a tax guy (and one that specializes in employment taxes and personal income taxes), the per diem may have been a bit sleazy for a fake reformer that wanted to cut government spending, but I knew that they were technically legal. In fact and as a somewhat coincidence, I have done some research and work for clients recently with respect to travel and business expenses as it relates to the "primary" or "secondary" place of business, and expenses when "away from home".


clammyc's diary :: ::
But I also do a lot of work in helping clients determine whether travel and business expense reimbursements are taxable to the recipient, and therefore should be declared on the individual’s personal income tax returns. And one thing is clear about travel expenses related to family members and spouses - there are specific requirements that must be met in order for these expenses to be nontaxable to the recipient. And since Palin has not released her tax returns, we do not know whether she reported the $43,490 in family travel on their personal income tax returns.


As pointed out over at Talk Left, some of the expenses are certainly not business related - including the following:

One event was in New York City in October 2007, when Bristol accompanied the governor to Newsweek's third annual Women and Leadership Conference, toured the New York Stock Exchange and met local officials and business executives. The state paid for three nights in a $707-a-day hotel room. Garnero said the governor's office has the authority to approve hotel stays above $300.


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The family also charged for flights around the state, including trips to Alaska events such as the start of the Iditarod dog-sled race and the Iron Dog snowmobile race, a contest that Todd Palin won.


Meanwhile, Todd Palin spent $725 to fly to Edmonton, Alberta, for "information gathering and planning meeting with Northern Alberta Institute of Technology," according to an expense report. During the three-day trip, he charged the state $291 for his per diem. A notation said "costs paid by Dept. of Labor." He also billed the state $1,371 for a flight to Washington to attend a National Governors Association meeting with his wife.

Now, as I said above, there are specific requirements that generally apply in order for family travel and business expenses to be nontaxable. In short, they include a requirement that (1) the spouse or family work for the employer (certainly not the case here, but for official state business, let’s give them this one, at least for the time being), (2) the expenses must be related to business, not personal and (3) would otherwise be able to deduct the expenses on their own.


The Tax Prof and Jack Bodanski have good write ups on this as well, expanding on it to include a conclusion that Palin can either deduct the expenses for being home, or for being in Juneau, but not both:

It does not appear that such deductions would have been allowable for any amounts attributable to travel by her husband and children. Section 274(m)(3) of the Internal Revenue Code strictly forbids deductions for bringing spouses and dependents along on business travel unless the spouses and dependents (a) are employees of the taxpayer (here, the taxpayer is the governor), (b) are travelling for a bona fide business purpose, and (c) would otherwise be entitled to deduct the travel on their own tax returns. Unless Palin's spouse and kids are also her employees and she can show that they were away on their own businesses, their expenses would not be deductible by the governor. And therefore she cannot exclude from income any per diems attributable to any of them. (By the way, since she's the employee, the income would be required to be reported on her own return, not her kids'.)


As for her own travel, Palin could also run into tax problems. Only travel "away from home" qualifies for tax exclusion (or deduction), and for this purpose, one's "home" is generally the principal place of one's business. In this case, the governor reportedly works out of offices in both Anchorage and Juneau, but since she has only one state job, she can declare only one of those as her tax "home." If Juneau is her tax "home" (which would seem to be the case, since that's the capital), she cannot exclude or deduct meals and lodging expenses incurred in Juneau, and if Anchorage is her tax "home," she cannot exclude or deduct such expenses incurred in Anchorage or Wasilla. If she got per diem reimbursements for stays in both places, stays in only one place would appear to be excludible or deductible. And perhaps more importantly, the cost of regular commuting between one's residence and one's tax "home" is not deductible at all, no matter how long the distance between them; it is certainly possible that Palin's treks between the two locales are simply long-distance commuting for tax purposes.

In summary - the ethical question of someone who claims to want to cut wasteful spending and takes advantage of the tax laws to fill her wallet aside, there are questions as to whether the amounts reimbursed by the state were actually reported as income by the Palins. If so, then that is fine - at least in terms of her paying tax on income received for expenses that were taxable to her and her family.


But if not, then we can add the title "tax cheat" to the long list of other very real problems that Sarah Palin and her family have. And the only way to know for sure is to have her release her tax returns. Just like the Obamas did. Just like Biden did.


http://www.dailykos.com/storyonly/2008/9/20/10542/7899/533/604584