Between the Republicans and the Democrats, it's little wonder that ordinary people don't always show enthusiasm for taxes and following the rules. Too many politicians have been careless with the rules, or have taken advantage of possible reimbursements under the law that appear greedy and inappropriate, even if legal, in context. It appears that Democrat Charles Rangel and Republican Sarah Palin are no exceptions.
In the news the last few weeks have been the tax woes of Representative Charles Rangel, Democratic chair of the House Ways & Means Committee that initiates tax legislation. Remember that earlier there was some controversy about his office in a rent-controlled building, which he ultimately gave up. Now it seems Rangel will have to pay back taxes on income from an offshore villa that he has owned (with the help of an interest-free mortgage) since 1988. Turns out he hadn't reported the rental income (amounting to about $75,000 overall) on the villa on his federal income tax return or his congressional disclosure forms. He'll owe "several thousands" in New York and again in federal income taxes. See Kocienieski, Rangel Owes U.S. Back Taxes, Lawyer Says, NY Times, Sept 9, 2008.
My plaintive appeal: why can't we all--politicians and ordinary citizens, rich and poor--just do the right thing and file returns that report all of our income, without playing games, taking aggressive positions, or depending on the audit lottery to save us from paying a few thousand more in taxes? Maybe this was inadvertent, as Rangel claims, but doesn't it behoove prominent politicans to think carefully and try to err, if at all, towards overreporting rather than underreporting?
Also in the news the last few weeks has been John McCain's choice as vice presidential candidate, Sarah Palin of Alaska. According to a story by the Washington Post writers Grimaldi and Vice yesterday, Palin Billed State for Nights Spent at Home, Sept 9, 2008, Palin has continued to live in her small home town of Wasila, hundreds of miles from her job as governor in Juneau ,and to conduct much of her work from nearby Anchorage (about 45 miles away from Wasila). She's apparently felt no qualms about charging the state, under what appears to be a rather generous "per diem" and transportation expense reimbursement policy, for her travels back and forth to her home, and her children's and husband's travels with her when she goes on state business (e.g., her husband's accompanying her to a National Governors Convention), and for meal and incidental expenses while living at home in Wasila. The total amounts to about $60,000.
My plaintive complaint: why do politicians feel that it is okay to take advantage of generous reimbursement provisions, even if they are entitled to do so, and at the same time claim to represent frugal government that is getting rid of feeding at the public trough?
At Governor Palin, Your Tax Return Please, Jack Bogdanski posts an analysis of how Palin's reimbursements likely should be treated for federal income tax purposes (neither he nor I claim any expertise on whether they are appropriate claimed expenses for Alaskan state law purposes). Here's a summary of part of Jack's analysis.
- First, employees are not permitted to deduct the costs of bringing family along on business travel, unless the family members are also employees traveling with a valid business purpose. Accordingly, any reimbursement from an employer for those non-deductible expenses would be treated as compensation income to the employee.
- Second, assuming that Sarah Palin does not have a business reason for being in her home town of Wasila, and that Juneau, where the governor's mansion is located and her job of governor is heaadquartered, is her "tax home," her (and her family's) travels between Wasila and Juneau may be nothing but a commute (not, in other words, "travel while away from home" for purposes of I.R.C. section 162(a)(2)). As a commute, it would be a personal expense that cannot be deducted on her federal income tax return, making reimbursement by the state of Alaska for those trips additional income to her that should be claimed on her return. Also, under those assumptions, her meals in Wasila are personal consumption and not deductible. Accordingly, any per diem reimbursement for those meals in Wasila would also be compensation income that should be reported on her federal income tax return.
There seems to be some uncertainty about the importance to the governor of being in Anchorage--is she working there for business reasons, or like the man in a frequently read case in first year tax courses, did she choose to keep the Wasila home and have access to a state office in Anchorage so that she could remain living in her old home even with her new job. (The case is Flowers , 326 US 465, in which a railroad professional, who chose to continue living at home in Jackson and working out of a law firm's office there when he took a job in Mobile and therefore had to commute to Mobile frequently, could not deduct the costs of travel to Mobile or the costs of meals and lodging at either place.) The IRS also issued a revenue ruling --Rev. Rul. 99-7--dealing with the "travel while away from home" issue, since it is necessary to distinguish between commuting between home and workplace (not deductible because it is a personal expense) and travel from one place of business to another (which is deductible). Addition: For further taxprof commentary on this, see this post by Tony Infanti, with comments by Francine Lipmann and Bridget Crawford, over at the feminist tax prof blog.
The Palin case, and our inability to know for sure whether she has handled these reimbursements appropriately for federal income tax purposes (whatever we think of her decision to claim per diem and travel expenses for family members from the state), is just one example of the reasons it is important for candidates for the highest office to release several years' worth of their federal tax returns in full (i.e., the schedules and attachments as well as the initial two pages.) In some countries, this is a given for everyone, because tax returns are published annually, for everybody. See Jeffrey Stinson, How Much Do You Make? It's Be No Secret in Scandinavia, ABCnews.com, June 22, 2008. Voters have a right to ask whether a candidate for high office reported items correctly on their returns. It is part of their ability to assess their integrity by verifying their compliance with federal tax laws, and to understand something about their decisions, such as the decision to accept travel expenses for family members from the state. It should not rest on a claim of privilege and trust--the vote is our only chance to arrive at a decision about trust, and we should do that based on facts. Accordingly, Palin should release at least 10 years of her federal tax returns, with schedules, as a vice presidential candidate, so that these and other matters can be considered.
In addition, of course, McCain's wife Cindy still has only released the first two pages of her 2006 return. it is critical that she release the last ten years of returns, with the full schedules, so that voters have a chance to understand the nature of the McCains' assets and wealth (even if John McCain can't remember how many houses they own).
Rangel, to his credit, has asked the House ethics committee to review this additional situation. That is appropriate, and that review should go forward with full information (including Rangel's full tax returns).
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