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Wednesday, September 10, 2008

Sarah Palin's Tax Problem

From today's Washington Post:  Palin Billed State for Nights Spent at Home; Taxpayers Also Funded Family's Travel, by James V. Grimaldi & Karl Vick:

Alaska Gov. Sarah Palin has billed taxpayers for 312 nights spent in her own home during her first 19 months in office, charging a "per diem" allowance intended to cover meals and incidental expenses while traveling on state business.

The governor also has charged the state for travel expenses to take her children on official out-of-town missions. And her husband, Todd, has billed the state for expenses and a daily allowance for trips he makes on official business for his wife.

Palin, who earns $125,000 a year, claimed and received $16,951 as her allowance, which officials say was permitted because her official "duty station" is Juneau, according to an analysis of her travel documents by The Washington Post.

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.

Jack Bogdanski (Lewis & Clark) outlines the tax problems Governor Palin faces as a result of these per diem payments in Governor Palin, Your Tax Return, Please:

"Per diem" allowances received by an employee can legally be omitted from her gross income if they constitute reimbursements for amounts that the employee could have deducted as business expenses had the employee paid for them out-of-pocket and not been reimbursed. Thus, for Palin, the tax question would appear to boil down to whether, had she not been reimbursed for the $60,441 of travel, meals, and lodging expenses, she could have legitimately taken business deductions for them.

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.

See also:

http://taxprof.typepad.com/taxprof_blog/2008/09/sarah-palins-ta.html

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Comments

Can she really declare Juneau her "tax home" if she has spent 312 nights in a 19 month period in her own home, apparently commuting to an Anchorage office? 19 months times 22 workdays per month (surely she didn't claim per diem for weekends?) is 418 workdays, and she claimed 312 days of home time per diem - that's almost 75% of her time!

Posted by: Tom Severns | Sep 10, 2008 7:14:40 PM

I think the conceptual problem here is the idea the a Governor is an employee just like any other. In reality, a Governor is always the governor 24/7 for the term of their office. A governor does not "commute" instead the work of the office follows the governor wherever he/she goes. As such, the necessity to remain in communication and to make decisions at a moment's notice means that a governor is never conducting purely private travel or business.

A better standard would be to apply the accounting standards used by the military to reimburse soldiers traveling while on duty. Treating a governor like an ordinary business person is just silly.

Posted by: Shannon Love | Sep 10, 2008 7:29:06 PM

So how do we get her tax return to ensure she claimed the income? Income taxes or record and achievements, face it Governor Palin is a fraud.

Posted by: Rich | Sep 10, 2008 10:47:59 PM

Treating a governor like an ordinary business person is just silly.

But it's the law. She does respect the law -- doesn't she?

Posted by: Jack Bog | Sep 11, 2008 1:15:20 AM

Sorry Shannon, your logic just doesn't follow. I'm a lawyer. I'm always a lawyer, 24/7, and my work does follow me everywhere: a.k.a. a blackberry. I frequently make "decisions" and send e-mails all of the time.

Has she released her tax returns yet? When will the press start calling for that? Wasn't there a big to-do about Hillary's not so long ago?

Posted by: mmm | Sep 11, 2008 11:15:51 AM

This discussion is so ridiculous.
Alaskans See No Scandal in Palin's Routine Travel Reimbursements
http://www.cnsnews.com/public/content/article.aspx?RsrcID=35409

Some of you will demand that she pay rent to live in the Vice President's house in Washington.

Posted by: Woody | Sep 11, 2008 1:55:41 PM

Professor Bogdanski's reasoning appears solid. For Palin to have legally taken those deductions, we would need an act of Congress.

Posted by: Rachel | Sep 11, 2008 2:47:13 PM

I am also a lawyer and I have a couple of comments. First, all of the arguments along the lines of "she should be considered as this or that" are irrelevant. The law sets out her status and which expenses are covered by her per diem. But if you want to daydream about how nice it would be if the rules were different that's fine by me.

This looks really, really bad for her. Even if everything she did was totally above board - and I think that is extremely unlikely - I certainly wouldn't consider that sort of behavior the mark of a "reformer".

Posted by: Marshall | Sep 11, 2008 4:00:32 PM

Wow! Déjà vu all over again! More corruption in the Republican Party. Can it be? Why did they pick her? She is a newby to this game but she has the right credentials. Palin knows the people and is willing to bully her way to change Alaska's laws to allow oil companies to drill in northern (environmentally sensitive) Alaska for oil. If the Republicans win, she delivers oil-rich Alaska. I believe that we have only seen the tip of the Alaskan iceberg! Corrupt practices have no boundaries. Fire people without cause (same as Bush's problem with judges), personal use of taxpayers money under false pretenses (same as Bush's approach to funding Iraq war), attempt to cover-up abuse of power in political office... Déjà vu all over again!

Posted by: Linda | Sep 11, 2008 8:11:24 PM

Looks very much like she broke the law, albeit the tax code. $60,000 is a lot of money - enough to get a CEO fired, if he or she had misappropriated this amount from company funds. For the CEO of a state with the power to tax citizens, she must answer for this.

I bet nothing comes of this, even if she does have to repay the per diems. She would have to be caught having sex with a moose on the front lawn of the statehouse for the Republican Base to repudiate her.

Posted by: Donny Trump | Sep 11, 2008 8:19:38 PM

I am an Enrolled Agent. This is all I do for a living. I would research more for a client, but in brief:

You all don't know what you're talking about. Per Diem reimbursements are the tax responsibility of the employer. They may be deductible or non-deductible to the employer. Non-deductibility to the employer does not automatically mean they are taxable to the employee. Do your research.

In any event, they are not the employee's problem unless they show up on a 1099. Until then, the Gov has no tax problem. Even if she does, one of those two sites is her tax home, and she is entitled to per diem whilst in the other. So any tax liability would be limited to the tax on the difference. And Alaska probably excludes the per diem, so it may well be a federal issue only.

This fact pattern is duplicated by every state and federal legislator, elected office holder, and appointee who is working full time in one place and "living" in another. They are frequently covered for trips home as a business expense.

Additionally, if your job away from your residence is your tax home, there are circumstances where travel back to your home on days off is a deductible expense, not an extra long commute.

This is just another failed attempt to embarass the Govenor.

Posted by: Bob | Sep 11, 2008 8:27:29 PM

"Some of you will demand that she pay rent to live in the Vice President's house in Washington."

Kind of like her having the rape victims of Wasilla pay for their own rape kits? Considering AK leads the country in rape & incest, and the good governor is against all abortion, including in these cases, no birth control ... must've been lucrative income. Probably cut down on reported cases, too. Maybe dropped AK back to number two. The government of AK actually passed a bill specifically for Wasilla against this practice.

http://www.feministing.com/archives/010930.html

Posted by: Kat | Sep 11, 2008 8:44:33 PM

Thank you, Mr. Trump. So many people these days are tripping over each other in the great rush to discredit Sarah Palin in some way. Supposedly intelligent people ignore logic and seem to think facts are irrelevant in their desperate effort to smear this woman. Your comment was a breath of fresh air.

Posted by: Carol Cooper | Sep 11, 2008 9:00:46 PM

Carol...ahhh...kinda like you repugs tripping over yourselves trying to discredit Obama? What goes around, comes around I say. She deserves all this, since she is the only one who is brand new to the national scene. Shall we treat her any differently than you treat Obama, I mean she's the untouchable, badazz Celebrity Messiah now right?

Posted by: mandm | Sep 11, 2008 10:40:24 PM

What did I say about Obama?

Posted by: Carol Cooper | Sep 11, 2008 11:28:35 PM

Mr Trump, When attempting to dazzle folks with your tax experience it would be suggested by me, just a taxpayer, that you not use phrases like in line 8 of you post, "Probably excludes per diem" Just the fact that you used that phrase would scare me away from letting you even look at my tax report! "Probably" just don't work in the real world.

Posted by: Jack Maddox | Sep 12, 2008 9:50:04 AM

Actually, since Alaska has no individual income tax, Mr. Trump's "probably" was in fact correct.

Posted by: Carol Cooper | Sep 12, 2008 10:30:05 AM

I Cant see how anyone from the IRS would logically conclude that a 600 mile trip is commuting, as without her "private" jet she tried to sell on Ebay, a 600 mile morning commute even in good warm summer weather, would still be about a 9-10hour trip unless she is allowed to drive 120mph the whole way, in which case it owuld be about a 5 hour commute not including stops for gas, potty, and food.
The facts point to a logical conclusion that she created a culture of corruption in which she improperly billed Alaskans over 60,000.00 in her first year and a half for travel, per diem food, and other expenses in a fraudulent way, and refused to pay taxes on it.
Essentially living beyond her means with $60k of perks for her and her family at the taxpayer's expense.

Posted by: Steve | Sep 12, 2008 11:12:50 AM

Blah, blah, blah. Every election it's the same old garbage, smear tactics 101. Haven't we evolved enough to move past all of this? I would hope our Presidential candidates have at the very least, but it appears that McCain and Putin...oops, I mean Palin, have nothing else to offer than slanderous attacks on a good man, Obama. Let's face reality people, McCain is old, has lived his life, and is not facing the same struggles that the vast majority of Americans are. McCain is looking back, and Obama is looking forward, plain and simple. Obama is young and is looking for ways that he can improve the quality of life as a whole for himself, his family, and all of America, as he will be here in the trenches for a long time to come. McCain simply is not, and will be lucky to make it through a single term given his age. I am a middle thirties father of five children, three pets, and one house payment. When I look into the future of what I would like to see happen in America and the world, I would like the leader of our great nation...to be living it, planning it for their retirement, and most of all, in the trenches with all of us!

Posted by: politicallycoy | Sep 12, 2008 11:34:15 AM

What is both sad and MONSTROUS is that "Sarah would have to have sex with a moose on the front lawn for the Republicans to repudiate her" - as remarked above. -except that its not the republicans (who know that these are the "dumb ones" they've gotten stuck with as they lose, more and more, anyone with real integrity- as said to Gulianni by a reporter, making ol' Rudy look silly) that need to repudiate her - its those supporters of theirs who fancy themselves rather worshipping a hero in the White House; looking up to, happy that "someone like me" is in charge. They don't "get" that this sarah is NOT "someone like me", but someone who is AS WILLING to fleece them as GWB but "look so adorable" doing it. These folks cannot imagine themselves actually leading, and won't imagine the truth about the way Sarah would lead: trigger happy with the nuke button, not really as bright as she pretends (says "regine" instead of "regime", and "nukeler" - JUST LIKE GEORGE BUSH does!)
WORST OF ALL: her supporters don't give a rat's booty that she is a liar - and aren't they supposed to be the "Christian right"? She is neither Christian, nor "right" when she mocked the Christ-like actions by Obama in Community Service in her first speech to the nation, and her constant lies, ever since. Our enemy, nationwide, is that huge portion who parade themselvs as ethical, moral, and "Christian", when they betray all of that to look away from the truth at a false god(ess..
... and if WE LET THEM GET AWAY WITH THAT AGAIN we'll suffer once AGAIN these people's corrupt voting habits, for which they've never apologized for voting Bush in, creating the destruction of America, our deteriorating reputation overseas (4-1: the ratio of foreign nations who pray that Obama gets elected)and the selling of America, outright. WHEN ARE WE AND THE PRESS GOING TO HOLD THESE HYPOCRITES ACCOUNTABLE?
LOOK: Some people are destined -born -to be of the sort that Palin proves herself to be: shallow, ambitious, vain, not troubled by ethics - and some people are born to squash them like a bug.

Posted by: Martha Glinski | Sep 12, 2008 2:08:29 PM

There are 50 state governors. I am curious how many live more than 50 miles (100 miles? 200 miles?) from the state capitol. How is this situation handled in other states? Surely there are analogous situations. What deductions to state legislators in Alaska routinely use? that has surely been tested in the courts.
Also, why didn't Palin move to or establish a residence in Juneau? It seems a Juneau residence would facilitate better governing.

Posted by: tax attorney's wife | Sep 12, 2008 2:33:33 PM

The administrative agency charged with oversight of Alaska's State Travel Agency is the Division of Finance. You can reach the Alaska DoF at the following website: http://fin.admin.state.ak.us/dof/sto/index.jsp

There two separate issues raised by Sarah Palin's per diem travel reimbursements. One is the policy relating to remibursment for work done at home and the other issue relates to reimbursement to Governor Palin for family travel.

==============================================================================================

1. REIMBURSEMENT FOR WORK AT HOME

Here's my take on the Division of Finance's agency regs on collecting per diem reimbursements as Governor Palin did for "working at home: :

Section 60.020 of the Division of Finances regulations under Travel Definitions (04-08) defines "travel" as the use of :

A commercial lodging facility that is a licensed entitiy that is the business of selling lodging to the general public and includes hotels, inns, motels, apartments and campgrounds.

Under the same chapter of law, a duty station is defined as:

The city town or village within a 50 radius where the traveler spends the major portion of their working time.

So the entire meaning of the Alaska Division of Finance's regulations governing travel reimbursement is based on the premise that one has to travel to some destination in order to receive travel reimbursement. As uncomplicated as that seems, Sarah Palin broke the law because she wasn't traveling.

A large portion of the "duty station" reimbursement taken by Governor Palin was for "dining out" in her hometown during her 312 days "at home." So it would appear that the taxpayers of Alaska were picking up the tab, for Governor Palin's meals with her family at the local Wasilla Red Lobster or Pizza Hut.

On those 312 days in question Sarah Palin wasn't a traveler, she did not commute 45 miles from her home in Wasilla to the duty station in Anchorage, nor was she staying at a commercial lodging facility. She was at home presumably governing Alaska. Therefore Sarah Palin was falsifying her expense report according to the Alaska Division of Finance regulations.

=======================================================================================

2, REIMBURSEMENT FOR FAMILY TRAVEL

A separate issue is Governor Palin's collection of per diem reimbursement for family travel.
Here's the my intrepetation of the agency regs pertaining to family travel:

Palin's husband and children have charged the state $43,490 to travel over the past year. The department regulation on travel for is that when the governor travels with a companion or spouse she is reimbursed on a 50/50 basis for the expenses of "both" travelers. If she travels with more than one companion, she's on her own and is required to pay for full travel and lodging expenses for any and all travelers other than a single companion. See companion fare waiver memorandum under travel regs of the Division of Finance.

So if Governor Palin was traveling with more than one family member and claimed reimbursements for more than one, she is not in compliance with her own Division of Finance regulations on travel.

That's my own reading of the regulations so feel free to go to the site read the regs and see if you come up with a different intrepetation.

Posted by: Gavin B | Sep 12, 2008 3:00:04 PM

If this is the logic, then speaker of the House Nancy Pelosi should claim as income the difference between a regular size airplane and the one she ended up with because she is carting her entire family around, including grandchildren.

Posted by: Concerned Citizen | Sep 12, 2008 4:11:03 PM

You can't treat her like the soldiers who are on official travel. We always had to produce reciepts to file our claims, that seems to not be the case here. How could she claim per diem when she was staying in her own home?

Posted by: jifler | Sep 12, 2008 5:36:43 PM

Wow. Some of the comments I wouldn't expect on a board where you're supposed to be talking about something substantial, such as talking about tax law and tax problems. That being said, let me add my own silliness: if the best you can do to try and bring down Sarah Palin is to see if she possibly did not properly claim per diem expenses, then your candidate is in trouble. Besides, I'm still waiting to see the tax implications of the disappearing $50 million that happened at the Chicago Woods Foundation when Obama served on the board with his terrorist buddy, William Ayers.

Posted by: Chris | Sep 13, 2008 12:56:23 AM

A lot of commenters are saying this is a scandal, that she is in trouble, that this shows corruption.

One problem with that, even if you presume that everything said about her tax liability is correct.

We do not know that she didn't pay taxes on the per diem.

If they were on her 1099, and if she, as a busy governor and with a working husband, hired a tax preparer to do her taxes, it is actually likely that the taxes were paid.

We have absolutely no evidence she did NOT pay taxes on it.

When she releases her tax records, which I presume they will do in some form soon, then we can discuss whether there is some tax problem.

Of course, it is common when tax forms are released to find people made mistakes, and this is the kind of mistake that wouldn't be hard to make (especially if the per diem was not on a 1099).

When the Clintons released their tax returns, they found they owed thousands of dollars, which they paid. Charles Rangel is having a bit of tax problems now as well, he will repay what he owes and still be in his position in congress.

What this shows is that our tax laws are way too complicated When the smartest man and woman in the world (Bill and Hillary) can make a $60000+ mistake on what they owe in taxes, even after deducting used underwear, it's clear the average person has no chance of getting their taxes right.

But we don't know if she owed taxes, and we don't know she didn't pay what she owed. Just as we don't know lots of things about all the candidates.

Up until recently, we've generally left scandals for when we actually learned a fact that indicated one. Recently, and particularly with Palin, we seem to have assumed scandal until we are given facts to prove there is none.

Both sides do this, but it makes it hard to discuss the issues. In this case, I hope the campaign itself doesn't get involved with rumor-mongering.

Posted by: charles | Sep 13, 2008 8:18:13 AM

Sounds like her! She is not only a F R A U D, but a L I A R as well....McCain is even worse! He is running for the highest office in the world....What a fantastic JOKE!!

Posted by: R.Hovorka | Sep 13, 2008 1:16:18 PM

i think she is a ass !

Posted by: john | Sep 13, 2008 1:19:58 PM

Want a real bombshell. Between 1982 and 2008...the Palins neglected to file a tax return for eight..that's right..eight different years!

Posted by: james doyle | Sep 14, 2008 9:01:17 AM

She was also gone from her Governor's job so much that folks took to wearing yellow, "Where's Sarah?" pins.

Posted by: | Sep 15, 2008 5:42:54 PM

What is wrong with you people? Tax attorneys wife- I see why you are the wife. I must be the ONLY person from Alaska that has read this comment section, so let me just remind people how large the state is and how EXPENSIVE EVERYTHING there is:
-1 one-way ticket to Juneau 300-400$(there are NO roads to drive there)
-Commute from my parents house,(same lake as Palins), 45 minutes to 1 hour, up to 3 in winter! If there happens to be a bad accident, on the only road in and out of anchorage to the Mat-Su valley, it can cause more than 12 hour delays!
-Gas for larger, 4 wheel drive vehicles at at least 4.00$ a gallon for over two years for a 45-3 hour commute gets rather expensive. I've done the daily commute! Our gas prices have also been well above average when compared to the lower 48.
I can't imagine they eat out that often as the entire Mat-Su Valley area have about 5 restaurants (only two are even edible really!)
I have been embarrassed and amazed at the ignorance that everyone from reporters to average americans display when asked about Sarah Palin and especially Alaska. I'm not sure some people realized that it was even a state. One thing about Alaska is that it's not like any other state. I guarantee the difference in expenses between an Alabama governor and an Alaskan one will be vast!
Do some research then rant and pretend to know! But some of you should be embarrassed. I agree Donny Trump was a breath of fresh air though!

Posted by: liz | Sep 16, 2008 1:30:58 PM

Also we receive the PFD (permanent dividend fund) and in order to get it you HAVE to file taxes!!!! She should have gotten on average 700-2000 for each member of her family every year for the past 8 years! No one is stupid enough to give that up and certainly not when you have a family of 7!

Posted by: liz | Sep 16, 2008 1:35:01 PM

Sure, living in Alaska is hugely different and I'm sure that lots of us in the lower 48 don't really understand how expensive it is and all. There is a legal side to this, which people will debate, and there is also the optics of the situation. This is a federal election, and all the candidates have to meet the same standards (legal and ethical). Many of us in the lower 48, however, travel for work and there are a few fortunate ones who occasionally work from home. (The work from home option is great for the working mom for sure!). That said, charging a per diem for those days when one is really just working from home seems ill-advised, and it seems extremely naive to imagine, as governor, that this would not attract some close scrutiny. To me, legal questions are rather beside the point; and if/when her tax returns are released, I cannot see this breaking in Palin's favor. If she did indeed do her patriotic duty and pay taxes on the non-expensed per diem income, then that act is de facto admission that she is essentially used the provision as a way to pad her salary. If she didn't pay taxes, then there will be mounting questions as to whether or not she broke the law.

Posted by: | Sep 20, 2008 5:53:00 PM

This is simple, It's done all the time when an employer moves an employee. Family travel, food, lodging, it's all covered up to an IRS max. Over that the employer grosses up the expense check by the amount of the tax. You put the overage down as income but the employer has cover the tax. It's a non issue.

Posted by: Bandido | Sep 21, 2008 7:14:28 PM

I am an Enrolled Agent. This is all I do for a living. I would research more for a client, but in brief:......And Alaska probably excludes the per diem, so it may well be a federal issue only.

If you're really an EA, you should probably learn which states don't have income tax. Alaska is one of them.

Posted by: panther1970 | Oct 2, 2008 9:00:52 PM

This is just par for the course. What made her think that she could pass all the media scrutiny? Hubris?

www.palinspin.com the scandals, palinisms, incompetence, lies and deceptions of Sarah Palin!
www.obamamate.com social news for the Barack Obama nation

Posted by: beingajoe | Oct 4, 2008 4:27:19 AM

FYI. Turbo tax won't let you do it. I am a tax lawyer and work out of my home and in another state for my employer. They don't pay per diem for me to travel to and from both sites, but none of my travel expenses or additional living expenses are deductible. They would only be deductible if this was a temporary relocation, which has a very limited reach. I believe it is about 6 months but no more. The job of Governor would not qualify.

Posted by: Lois | Oct 4, 2008 4:58:00 PM

Le't calculate this...Sarah billed for 312 days per diem....ok so let's say she worked 20 days a week and times that by 18 months that means she worked 360 days. Which means she only worked 48 days in the governors office. Would that be correct?

Posted by: diane williams | Oct 23, 2008 11:19:50 PM

First she is governor 24/7. Now do some accounting folks instead of politics.
How much did the plane she sold cost?
Was that money returned to the treasury?
What would simple interest on that be during the termo of her governorship.
What is the cost of a pilot to transport her?
What is the cost of the jet fuel?
What is the cost savings of a gournet chef?

Crunch those numbers and then act like you are all concerned about a per diem. She is saving alaska a ton. Quit being childish.

Posted by: John Du Bois | Nov 1, 2008 1:23:09 PM