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Monday, October 6, 2008

Tax Profs Agree: Gov. Palin's Tax Returns Are Wrong

Jack Bogdanski (Lewis & Clark) & Bryan Camp (Texas Tech) have independently reviewed the tax issues raised by the release of Gov. Palin's 2006 and 2007 tax returns and financial disclosure form, as well as the remarkable opinion letter issued from Washington D.C. tax lawyer Roger M. Olsen.  Jack and Bryan conclude that there are serious errors in Gov. Palin's returns as filed and that she and her husband owe tens of thousands of dollars in additional taxes.

Jack Bogdanski, There's No Debate: Palins Owe Thousands in Back Taxes:

There is no serious debate (at least, none that has been brought to our attention) about the fact that at least the amounts paid for the children's travel -- $24,728.83 in 2007, according to the Washington Post -- are taxable. The campaign's tax lawyer has got at least that much of the law, and perhaps more, 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.

Bryan Camp, A Brief Analysis of Governor Palin's Tax Returns for 2006 and 2007:

The release of an opinion letter by attorney Roger M. Olsen dated September 30, 2008, has stirred up the pot once again about the accuracy of Sarah and Todd Palin’s 2006 and 2007 tax returns. Not only that, but Mr. Olsen’s letter raises a couple of new issues.

This paper focuses on five problems: three raised in the tax returns and two new ones raised by Mr. Olsen’s letter. Here’s a summary of the five problems and my conclusions, for those who want to cut to the chase. My analysis will follow.

  1. The Palins did not report as income some $17,000 that Governor Palin’s employer (the State of Alaska) paid her as an “allowance” for her travel. Can they do that? Yes, most likely.
  2. The Palins did not report as income some $43,000 that the State of Alaska paid the Governor as an “allowance” for her husband and children’s travel. Can they do that? No, most likely not.
  3. The Palins deducted $9,000 on their 2007 return, claiming it was a loss from Mr. Palin’s snow machine racing activity. Can they do that? Most likely not, but more info could make the deduction OK. If any of the above issues goes against the Palins they then risk getting hit with the section 6662 penalty for “negligence or disregard of rules or regulations.”
  4. Can the Palins avoid the section 6662 negligence penalty by claiming that they reasonably relied either (a) on the W-2’s sent to them by their employer, which did not reflect either the $17,000 or the $43,000, or (b) on their tax return preparer H&R Block, or (c) on Mr. Olsen’s opinion letter dated September 30, 2008? The three reliance defenses are unlikely to succeed, but more info may make the (b) defense a good one.
  5. Does Mr. Olsen have any exposure to sanctions by the IRS because of his letter? I believe Mr. Olsen’s letter probably violates 31 C.F.R. section 10.35. If so, he would be exposed to possible sanctions from the IRS Office of Professional Responsibility.

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Comments

So, if I understand this post correctly:

a) The tax code is has been made so complex that the Governor of a US state in conjunction with the best professional experience of H&R Block, are unable to file an accurate return.

b) Whether you filed an accurate return is based on someone's subjective opinion (allowing for the possibility of bureaucratic abuse).

This country used to be great, but I agree with Obama. It's not great anymore.

Posted by: irsguy | Oct 6, 2008 7:11:51 AM

"This country used to be great, but I agree with Obama. It's not great anymore."

so let's elect obama and get an even more complex and onerous tax code?

right.

Posted by: | Oct 6, 2008 7:29:58 AM

Hey! Yet another way to criminalize opposition!

Posted by: Alex | Oct 6, 2008 7:36:34 AM

Hey! Yet another way to criminalize opposition!

Posted by: Alex | Oct 6, 2008 7:36:42 AM

Wouldn't it be great if we had a flat tax with no social engineering deductions or sanctions? Wouldn't it be great if issues like this didn't exist because anyone capable of basic arithmetic could successfully complete their taxes without the help of expert professional assistance.

Of course, we don't live in that world. We live in a world where few can understand the tax codes because it is too big, too complex and ever changing.

Sadly, folks will use this as a bludgeon against Palin while I see it as an indictment of the current tax code. If they owe money - fine, they should pay it, but it is clear there is a problem with the code when even tax professionals are unable to file returns without several significant errors.

Posted by: PunditJoe | Oct 6, 2008 7:44:26 AM

"The Palins did not report as income some $17,000 that Governor Palin’s employer (the State of Alaska) paid her as an “allowance” for her travel. Can they do that? Yes, most likely. "

Are you supposted to report travel allowances as income for real? I have never, ever done that. Granted, I don't get 17k, but that money is for travel. I hope you really aren't supposted to count it as income because if my agency gives me money to go somewhere they sent me, and I spend it to go there, how the hell is that income?

Man, taxes suck.

Posted by: Lea | Oct 6, 2008 7:47:34 AM

Perhaps my memory fails me... for while I remember financial disclosures from previous candidates for high office -- and minor scandals from candidates who refused to release them -- I can't recall another instance of IRS whistle-blowing like this.

Don't get me wrong; if the Palins failed to meet their obligations to the IRS, they should fix the problem, whether it was their fault or not. But the level of scrutiny Gov. Palin has received, down to tax attorneys volunteering their time to serve as unpaid auditors for the IRS, simply boggles my mind.

respectfully,
Daniel in Brookline

Posted by: Daniel in Brookline | Oct 6, 2008 7:49:01 AM

I have contended for years that the IRS is the most benevolent taxing agency in the history of the world. Why you say? Because if it weren't every American would be serving time at lesat for perjury and in most cases for that and innumerable tax frauds. Every April, every American plces themselves at risk of imprisonment when they sign something they have absolutely no reasonable way of understanding and swears it to be true.

The US tax code is the greatest abomination in the history of the human race, and we've got some doozies in our history. And we have the Congress of these United States to thank for it.

Posted by: John Steele | Oct 6, 2008 7:51:20 AM

I don't know for sure, but I suspect that H&R Block "guarantees" its work, and represents you in case of an audit. That also means if there are errors and back taxes owed, it might be their money (and reputation) on the line, not the Palins'.

Anyway you look at it, this is bad publicity for H&R Block. Shoulda gone with TurboTax. ha

Posted by: Citizen Grim | Oct 6, 2008 7:52:33 AM

How many six-figure income families would welcome an audit by a hostile party? And the dirt that audit finds results in "Can they do that? Yes, most likely." Along with "No, most likely not."

So that tax profs can't even definitely decide if the returns are wrong.

Posted by: Ken | Oct 6, 2008 7:57:46 AM

Um... Googling >"Jack Bogdanski" + obama< produces interesting results. He is, perhaps, not perfectly neutral.

"Bryan Camp" is too common a name to search quickly.

Posted by: PersonFromPorlock | Oct 6, 2008 7:58:33 AM

"This country used to be great, but I agree with Obama. It's not great anymore.

Posted by: irsguy | Oct 6, 2008 7:11:51 AM"
__________

This is one of the few times I will EVER agree with Obama. We have different reasons, of course, for coming to that conclusion. I contend that it is not great because of people like him, and because of the points "irsguy" raised (above). But hey--at least we agree!!!
__________

Posted by: RJGatorEsq. | Oct 6, 2008 7:59:21 AM

Why do I get the feeling that we're never going to see a similar "analysis" of Obama's tax returns from you guys?

I think we all know why, don't we?

Posted by: Larry Gwaltney | Oct 6, 2008 8:13:56 AM

Oooooh, the tax professors are so smart; H&R Block must be wrong! The saddest part of this whole debacle is that (1) liberals will do and say anything to get the messiah elected next month and, (2) most people believe anything they are told. You guys are too transparent...

Posted by: scooter55 | Oct 6, 2008 8:28:09 AM

Wow, so if I take my taxes to H&R Block and pay them to take care of it for me, I can later find myself subject to public condemnation and tax penalties for their screwups.

Who cares about Palin? H&R Block is the one who looks pretty bad in all of this.

(Yeah, I know, the odds of me having a hundred ideologically motivated academics singularly focused on slinging mud at me are pretty low. But still, that's why you pay H&R Block, to get it right. By the way, how's the review of Obama's tax returns shaping up...)

Posted by: Not Gonna Use H&R Block Anymore | Oct 6, 2008 8:29:06 AM

LOL, I just wing-it when I do my taxes. What's the freeking point otherwise?

Posted by: deek | Oct 6, 2008 8:31:27 AM

Maybe these professors should offer their services to H&R Block. Imagine how many of Block's other clients might have similar problems.

Posted by: Frank Wilson | Oct 6, 2008 8:35:03 AM

irsguy: It's unclear whether you're making it an either/or, but if so, the answer is "yes."

I find myself locked in battle with the IRS annually, and I bet my one-income tax situation is a lot simpler than the Palins'.

Unrelated question: On which 1040 line does a legislator record bribery and extortion income? Or is that non-taxable?

Posted by: no, not THAT Glenn | Oct 6, 2008 8:41:36 AM

Jerry Pournelle refers to this as Anarcho-Tyranny: Miles of rules to hammer you with, and so capriciously enforced you can't be sure, even with help, that you aren't breaking them.

Posted by: SDN | Oct 6, 2008 8:52:31 AM

This is, of course, a very minor scandal. You're busting this woman's chops over about $20k in unpaid taxes. Fine, she owes the tax, she'll pay it. But there's no evidence here of an effort to "dodge" paying her taxes, and frankly, it's not like the Palin family is rolling in the dough.

I am a little surprised that the governor would use H&R Block. You'd think they'd get a decent CPA somewhere to do their taxes.

Posted by: Outlander | Oct 6, 2008 9:02:38 AM

I hope any analysis based on Sec. 274(m)(3) takes into account Reg. Sec. 1.132-5(t). That subsection appears to expressly delink determinations of employer deductions for related-person travel expenses from those of employee inclusion. If one must therefore revert to plain vanilla Sec. 162 business-purpose analysis, all that stuff therein about Congresspersons and state legislators seems to provide at least some rationale for a governor's excluding arguably similar income, if a governmental business purpose can be shown (e.g., the politics of presenting a functional family to the world, or some such.) Certainly there's enough authority to defer hitting the Sec. 6662 panic button.

Lord knows if the 1040 and W-2 preparers were looking at this, but it seems to present a problem for quickie web critiques based in the Sec. 274 language. Of course, the business-purpose sifting is thankless, probably indeterminate, and may ultimately dictate inclusion.

More to the point, the Palin returns reflect the kind of rough tax justice that fills the working world. One can argue that the return positions lack a certain sophistication. However, to get a little meta here, they also arguably better represent the true dynamics of taxation policy and practice that do more technically careful analyses.

Posted by: Facile | Oct 6, 2008 9:11:45 AM

Your country is what YOU make of it.

Posted by: gijoe | Oct 6, 2008 9:17:55 AM

Isn't H&R Block on the hook for any penalty?

Posted by: edh | Oct 6, 2008 9:21:11 AM

If there are this many income-reporting "mistakes" on these two returns (that are missing Schedule B which would provide some clarification) - what does anyone think they'll find in the filings for the years that Todd Palin was a card-carrying member of a treasonous Alaskan separatist group that advocated not paying taxes to the US Government?

I would be willing to bet that one of the things to come out soon is that the Palins either didn't even file sometime during this period, or that Todd played very fast and loose on what income the US Government was owed taxes on.

Just speculation, I know. But what would surprise you now after looking at 2006-07 returns?

Posted by: Paris Sailin | Oct 6, 2008 9:22:20 AM

If Gov. Palin gets a penalty before Charlie Rangel gets prosecuted, there's something wrong.

Posted by: Jim | Oct 6, 2008 9:31:40 AM

My God! If this post isn't an argument for the fair tax, I don't know what is. What could a normal person do if 1) the state of Alaska can't provide an accurate W2 (apparently); 2) a nationally recognized expert company can't fill out the forms correctly; AND 3) that a tax attorney would commit to paper an opinion that is so far wrong?

Either the two experts noted in the post are expressing bias in their interpretation of the returns and laws, or the system is so fatally flawed that it should be scrapped and redone in simpler form.

Posted by: Steve G. | Oct 6, 2008 9:40:12 AM

When these circle-jerking tax profs start looking critically at Democrat politicians' tax returns with the same microscope (they won't need one) i will start to believe they may be truthful.

Posted by: Red Erick | Oct 6, 2008 9:42:02 AM

Not to mention:

c) If, despite the best advice of professional tax preparers, you get it wrong, you can be penalized for "negligence or disregard of rules or regulations."

And don't forget that every year there are studies that show even the IRS' help line gets nearly half the answers wrong. But the IRS will remind you that even that is no defense if you file incorrectly!

Posted by: Formerly known as Skeptic | Oct 6, 2008 9:59:29 AM

Can't speak for Mr Camp, but Mr Bogdanski's clearly (and somewhat comically) an Obama advocate.

As for the previous commenter 'irsguy' - the conditions he noted have long been the case, through Democrat and GOP regimes alike, and if he thinks an Obama administration is going to produce a cleaner tax code (much less a cleaner tax code than a McCain administration) he's dreaming.

Posted by: mrkwong | Oct 6, 2008 10:41:52 AM

Ah, irsguy, but which party do you trust more to continue the trajectory of ever-more-complicated tax law?

That's the question before us, isn't it?

Posted by: NPJ | Oct 6, 2008 10:43:54 AM

irsguy,

congrats! you hit the nail on the head. if someone needs more proof for how bad the tax code is, look no further than good old Charlie Rangel, our congressman who chairs the tax writing committee - apparently he doesn't know how to get his taxes right either (with professional help).

Fair Tax or Flat Tax without all these deductions and tax credits and complications is what we need. Then we won't need tax profs either:)

Posted by: rex | Oct 6, 2008 11:09:46 AM

I completely concur with irsguy.

Posted by: Joe | Oct 6, 2008 11:25:20 AM

Doesn't H&R give some kind of guarantee? You know, if we screw up, we'll pay the difference, or soemthing?

One would think so. One would also be hard-pressed to hold the Palin's in the wrong when the best name in tazes did their taxes for them.

And IRSguy's first two points are spot on.

Posted by: Deoxy | Oct 6, 2008 11:35:38 AM

Hmm ... I've never seen this kind of analysis before. I assume these guys go through all candidate's returns and just haven't found anything so far. I'd hate to think this was a Palin special.

Posted by: Kevin Murphy | Oct 6, 2008 11:46:55 AM

Yes, the tax code is complex. The best solution is to simplify it. That won't happen with an Obama administration. Obama believes all your money belongs to the government.

America is still great. Once we jettison the Democrats who brought us this overly complicated tax code, this mortgage crisis, and the current financial meltdown, we'll be even greater. It'll be morning in America again.

I agree with Obama on absolutely nothing. If he says the sun is shining, I'm going to go look outside just to make sure. Then I'll take a stick and poke at the sky to ensure that he didn't put a blue covering with a bright light out there.

Posted by: SilentWatcher | Oct 6, 2008 11:51:21 AM

"The tax code is has been made so complex that the Governor of a US state in conjunction with the best professional experience of H&R Block, are unable to file an accurate return."

Indeed. And given the above, you will excuse my skepticism that an academic, who has probably never filed his own taxes (at least since he got out of grad school), is better equipped than HR Block at doing so.

Pardon me while I laugh.


Posted by: rightwingprof | Oct 6, 2008 12:45:17 PM

"Bryan Camp" is too common a name to reward a quick Google search, but >"Jack Bogdanski" + Obama" yields interesting results. Suffice it to say that Bogdanski isn't a Palin fan.

Posted by: PersonFromPorlock | Oct 6, 2008 12:51:57 PM

What about Iron Dog Winnings?


Familiar faces on the verge of Iron Dog victory

Author: CRAIG MEDRED
Anchorage Daily News

Staff
Date: February 18, 2006
Publication: Anchorage Daily News (AK)
Page: C3


Word count: 1109

A nightmare of trail behind them, Scott Davis and Todd Palin were in the Interior village of Tanana on Friday night poised to win another Tesoro Iron Dog snowmobile race. Barring the unexpected, the F6 Arctic Cats of Kenai's Davis and Wasilla's Palin will purr across the Iron Dog finish line in Fairbanks around noon today to claim a top prize of more than $25,000 from the race's $90,000 purse.

For Palin, this would be a fourth victory with a third [Read article (fee)]
http://nl.newsbank.com/nl-search/we/Archives?p_product=AS&p_theme=as&p_action=search&p_maxdocs=200&p_text_search-0=todd%20AND%20palin%20AND%20wins&s_dispstring=todd%20palin%20wins%20AND%20date(all)&xcal_numdocs=20&p_perpage=10&p_sort=_rank_:D&xcal_ranksort=4&xcal_useweights=yes

Posted by: Soldier | Oct 6, 2008 1:14:45 PM

"...in conjunction with the best professional experience of H&R Block..."

Sorry, but HR Block hires some of the least prepared tax preparers on the planet.

Anyone with a pulse and couple of hundred bucks can take the course.

Posted by: Buzz Windrip | Oct 6, 2008 1:18:12 PM

i don't think you understood that post correctly.

and when did obama say the US isn't great?

Posted by: cy | Oct 6, 2008 1:18:53 PM

I doubt the H&R Block office she used in Alaska contains their "best professional experience."

Posted by: bob | Oct 6, 2008 1:20:56 PM

irsguy - while I'm in general agreement with you on both points a and b, I have to ask what in the world any person or couple with income in excess of $100,000 - and two separate business enterprises (this is assuming that the hobby of "snowmachine racing" can legitimately be called a "business") - is doing having their taxes prepared by H&R Block. I have my own business, make about half what the Palins reported, and I have a CPA handling my affairs. You'd think they would at least know enough to do that...unless the only consideration they give to tax prep is the cost (which can be written off a business expense anyway).

Posted by: Jennifer | Oct 6, 2008 1:23:19 PM

ummmm
Treasury Regulation 1.132-5(t)

"(t) Application of section 274(m)(3)—(1) In general. If an employer's deduction under section 162(a) for amounts paid or incurred for the travel expenses of a spouse, dependent, or other individual accompanying an employee is disallowed by section 274(m)(3), the amount, if any, of the employee's working condition fringe benefit relating to the employer-provided travel is determined without regard to the application of section 274(m)(3). To be excludible as a working condition fringe benefit, however, the amount must otherwise qualify for deduction by the employee under section 162(a). The amount will qualify for deduction and for exclusion as a working condition fringe benefit if it can be adequately shown that the spouse's, dependent's, or other accompanying individual's presence on the employee's business trip has a bona fide business purpose and if the employee substantiates the travel within the meaning of paragraph (c) of this section. If the travel does not qualify as a working condition fringe benefit, the employee must include in gross income as a fringe benefit the value of the employer's payment of travel expenses with respect to a spouse, dependent, or other individual accompanying the employee on business travel. See §§1.61–21(a)(4) and 1.162–2(c). If an employer treats as compensation under section 274(e)(2) the amount paid or incurred for the travel expenses of a spouse, dependent, or other individual accompanying an employee, then the expense is deductible by the employer as compensation and no amount may be excluded from the employee's gross income as a working condition fringe benefit. See §1.274–2(f)(2)(iii)(A).

(2) Treatment of tax-exempt employers. In the case of an employer exempt from taxation under subtitle A of the Internal Revenue Code, any reference in this paragraph (t) to a deduction disallowed by section 274(m)(3) shall be treated as a reference to the amount which would be disallowed as a deduction by section 274(m)(3) to the employer if the employer were not exempt from taxation under subtitle A of the Internal Revenue Code."


Posted by: Bridget | Oct 6, 2008 1:27:19 PM

To "irsguy," H&R Block is only as good as the information their client provides them. If Governor Palin did not tell H&R Block about (for example) travel gifts to her children, then H&R Block isn't going to be able to file an accurate tax return.

Posted by: Timothy | Oct 6, 2008 1:28:14 PM

I agree with irsguy; as much as I dislike Palin and wouldn't mind seeing her getting in trouble over this, the screwed up tax code is the real problem. Of course, the source of that is people exactly like our current batch of politicians who insist on making the code inanely complex.

Posted by: Midnight Rambler | Oct 6, 2008 1:28:54 PM

With respect to the W-2 defense, even if the Palins can't rely on it, I think H&R Block can to avoid any tax preparer penalties, so long as they did not have a specific reason to know of the unreported travel allowances. Regs indicate H&R Block doesn't have an obligation to ask searching questions about possible other sources of income. E.g. Treas. Reg. 1.6694-1(e).

Posted by: Susie Morse | Oct 6, 2008 1:29:05 PM

irsguy:If one wants to be willfully ignorant yes the laws are complex, but if one wants to honestly report and pay their taxes its not all that tough. I work with school district payrolls. There are a lot of little perks that the Administration type employees get. (per diem, cell phone bill, car, meals, tax deffer comp.) The little old lady sitting in the district office figures out which should be taxed and which not. Day in and Day out.

If our tax laws are complex it is so because of the folks like the McCain campaign's lawyer lobbying congress for loop holes for their high buck clients. I put the Palins in that category.

Posted by: Henk | Oct 6, 2008 1:29:43 PM

Its actually pretty basic stuff that appears to be wrong. If H&R Block is responsible for the errors, its a very unprofessional job.

First, there is a great chance that Todd's snow machine racing is a hobby loss, and not deductible, he would have to prove that he previously made money at it, possible, but most auto racers, and probably snow machine racers don't.

The $43,000 allowance for husbands and childrens travel seems to be more gross, virtually anyone knows better than that. It would be difficult to prove the non-taxablility of the husbands allowance, the childrens,' probably impossible.

I can't believe a person who is a governor could be so naive to file a return like that.

Posted by: rfk | Oct 6, 2008 1:30:36 PM

They used H&R Block? I would think someone as important as the Governor of Alaska would of hired their own personal accountant and tax preparer rather than relying on the store front walk in generic McDonald's of tax preparation.

The Palin's must be cheap as well as dishonest.

Posted by: Unrepentant Liberal | Oct 6, 2008 1:41:14 PM

having worked for block for 10 years i can tell you that "the best professional experience of H&R Block" can be pretty bad. i worked with preparers that i wouldn't have trusted to prepare my high school son's tax return. some of block's preparers are worse than bad.

Posted by: cdrr | Oct 6, 2008 1:43:14 PM

Wow, irsguy, what a way to show your McCainista colors!!!! Obama has NEVER claimed America is "not great anymore". That is a smear, plain and simple.

As for the "best professional experience of H&R Block", that's a riot... Most H&R Block clerks don't know the first thing about tax law, and have received a 60-hr course on how to fill a tax return. They are NOT, for the most part, tax lawyers (although H&R Block does employ a significant number of such). Having your returns prepared by H&R Block is no guarantee of accuracy or legality.

The tax code is quite complex, and the very rich have had a tendency to attempt to game this system for years. Palin is no different here. I cannot say whether the "error" was voluntary or innocent, but it is far too early to simply dismiss the possibility of outright tax fraud. It wouldn't be the first time...

Posted by: DR | Oct 6, 2008 1:47:43 PM

Actually, the sub-point here is that H&R Block is good for run-of-the mill returns, but someone (say, a governor) with any chance of having their return examined might want to hire someone a lot more qualified to make it squeaky clean.
Addendum: tax lawyers shouldn't be stupid enough to endorse an errant return for purely political reasons.

Posted by: Casper | Oct 6, 2008 1:49:41 PM

I'd say rather that "the tax code is has been made so complex that the Governor of a US state in conjunction with the best professional experience of H&R Block" is able to find plenty of wiggle room to allow her to avoid paying her fair share of taxes. As long as no-one's looking too carefully.

Posted by: Tom Ames | Oct 6, 2008 2:01:52 PM

"a) The tax code is has been made so complex that the Governor of a US state in conjunction with the best professional experience of H&R Block, are unable to file an accurate return."

I think the problem was relying on H&R Block. But that's just my biased opinion.

Posted by: TonyDogs | Oct 6, 2008 2:05:21 PM

Tax rules are too complicated, but this is a case where the Palin's are pushing for unjust tax breaks and H&R Block just mindless went along for the ride.

You can bet H&R block didn't think up the idea.

Plus.. these are Alaskans remember. They are so lazy up their the sun doesn't even set sometimes.

Posted by: Matt Everett | Oct 6, 2008 2:05:25 PM

The a) part could also mean that the tax code is not that complex but that a Governor of a US state and the local office of a franchise purposely mislead or were incompetent.

b) see a

Posted by: steve talbert | Oct 6, 2008 2:06:59 PM

"the best professional experience of H&R Block" - is your tongue in your cheek irsguy?

Posted by: whit | Oct 6, 2008 2:08:43 PM

I think the suggestion is that palin's returns do not even come close to being correct, not that the Code is so complex that H&R Block could not figure it out. Besides, H&R Block can only deal with the information given to them. If they are given misinformation, the returns will reflect that. Garbage in, garbage out.

Posted by: ann benefield | Oct 6, 2008 2:20:12 PM

Having your tax returns done by H&R Block is just plain risky when you have a complex tax return. These preparers are paid per return...they crank them out as fast as they can. You can't tell me there's no CPA's in Alaska! I've had 30 years experience in tax prep, and while I'm not a CPA, I saw several red flags just glancing at the returns. Someone is making big fat guesses with big round numbers.

Posted by: MizLiz | Oct 6, 2008 2:36:35 PM

The tax code is complicated, sure, but it is NOT complicated to know that you can't write off your husband's and children's state-paid travel as legitimate work-related expense. And is snowmobile racing REALLY a "business"? How many employees does Todd support with that "business"? Looks like a hobby to me, and taxpayers SHOULD be pissed off that they are paying to support Todd's hobby. It's simple. Like many Republicans, the Palins deeply believe that government's proper role is to respect their greed. They raise naked self-interest to high principle. Christian my ass. The Palins are the kind of people Jesus kicked out of the temple.

Posted by: the exile | Oct 6, 2008 2:44:27 PM

On it's face, Palin's tax positions are a crude and obvious disregard for the law. Not that someone smarter than she is couldn't get her out of some if it. If I had done that I would have been fired and prosecuted by the IRS.

SGM, CPA/EA Internal Revenue Agent, retired

Posted by: susan g mulhall | Oct 6, 2008 2:44:34 PM

Yeah, "unable." You betcha. No way they were trying to cut corners and get out of paying taxes they knew they owed.

Posted by: Craig | Oct 6, 2008 2:45:25 PM

Evading taxes was good enough to nail Al Capone. It's good enough for Sarah and Todd. Ignorance is no excuse.

Posted by: Anna Catherine | Oct 6, 2008 2:52:14 PM

Two comments:

1. This is what got Capone, too. Another victory for tax fraud enforcement!

2. Palin's tax policy: lowering taxes by "forgetting" to claim 1/4 of your income.

Posted by: Tom Dibble | Oct 6, 2008 3:06:16 PM

Well...

It's not exactly too difficult for most people to figure out that if your employer is, for no reason, paying you to live at your primary residence, you might have to pay taxes on such an allowance.

Also, the state of Alaska is paying to fly this woman's entire family around on "state business." The tab came to nearly $50,000. Her 8-year-old daughter and infant cannot possibly be conducting "state business." Therefore, she ought to pay taxes on that allowance because she is choosing to fly her daughters around at public expense. I'm incredulous that these children have any compelling reason to be taking so many business trips with their mother. They ought to be in school...

Posted by: DCNJ | Oct 6, 2008 3:14:37 PM

Gov. Palin's travel etc. reimbursement schedule for 2007 is also online at http://fin.admin.state.ak.us/dof/financial_reports/resource/SB155Report2007.pdf

Posted by: gwailo | Oct 6, 2008 3:21:45 PM

IRSguy:

"the best professional experience of H&R Block"
you're kidding I hope. Seasonal temporary workers = "best professional experience?". She's the governor, not a typical salaried worker. You'd think that tax issues would a) get more complicated when you become governor, and b) you'd want to make damn sure for your political career that you got it right.

Posted by: skunky | Oct 6, 2008 3:21:53 PM

Hardly suprising that there might be mistakes here, considering the head of the committe that actually writes tax laws can't get his returns straight.

Posted by: Pat In Colorado | Oct 6, 2008 3:33:58 PM

But what about the $25,000 .. (not $2,500) in GIFTS??

See Washington Post article:

http://www.washingtonpost.com/wp-dyn/content/story/2008/09/25/ST2008092504011.html

Posted by: Lisa G | Oct 6, 2008 3:53:10 PM

IRSGUY: So, if I understand this post correctly

====
No, you don't.

I think my favorite aspect of the tax returns is the obvious liberal use of estimates and the equally obvious unlikelihood of supporting documentation, particularly written evidence of claimed business use of vehicles.

Posted by: david | Oct 6, 2008 3:55:56 PM

The test are pretty clear, and it's abundantly clear that the Palins jointly and H&R Block are pushing the boundaries here.

To the extent that payment in advance, or reimbursement of, reasonable travel expenses for the Governor herself exceed deductible expenses associated with official travel, that amount is taxable. If they reported NO expenses, then it is all taxable.

The allowance paid for her family members, including her husband and children, are decidedly NOT deductible, and are quite likely paid in violation of Alaska law.

The losses associated with 'snow machine racing activity' are deductible only if this activity represents reasonable business expenses, and only to the extent that it is not declared the hobby that it quite likely is. Expenses must have a business—not recreational or pleasurable—basis, must be reasonable and must be supported by adequate documentation.

Short synopsis: they are previously undiscovered 'tax cheats.' Cloak it nicer language if you will, but that's what they are, based upon the facts reported.

It is important to understand that they have an obligation to truthfully report income, including that not reported by others to the IRS. The failure of their employers to report such income does not absolve them of a tax liability, though it may mitigate the penalty if they find a sympathetic examiner or auditor.

It is quite likely that the explanatory letter provided does, in fact, subject the author to sanctions. They all maximize the benefit of tax law for clients, but willful, intentional misrepresentation and violation is unlawful.

Did I mention the term 'tax cheats?'

Posted by: Michael Lafferty | Oct 6, 2008 4:12:58 PM

So, if I understand this post correctly: a) The tax code is has been made so complex that the Governor of a US state in conjunction with the best professional experience of H&R Block, are unable to file an accurate return.

If given a choice between having H&R Block or Governor Palin filing my personal or corporate income taxes I think I'd just refuse to file and take my chances!

Posted by: Davebo | Oct 6, 2008 4:15:54 PM

H&R Block works with the information they are given, but they may well not be the best choice for complex business filings like Todd Palin's two businesses, BP compensation, and competition winnings. And I doubt many tax professionals would be prepared to account for his "shadow governor" activities properly.

No one accused the tax code of being simple, but some people's lives are a lot messier than others and they require serious professional help, at many levels.

Posted by: carolita | Oct 6, 2008 4:18:51 PM

This is too bizarre! The idea that self-proclaimed "experts" would presume to "audit" Gov. Palin's tax returns on the internet, and render an public opinion there, is as repellant to me as the kid cracking into her email account. Have they done a similar analysis of Sen. Obama's returns, or Sen. Biden's? What about the Clintons? Or is only Governor Palin to be subjected to this scrutiny? If so, the rank hypocrisy stinks in the nostrils of Heaven!

Posted by: Old Soldier | Oct 6, 2008 4:30:45 PM

If H&R Block fouled it up, then H&R Block should pay the deficiency or at least the penalties and interest.

Sarah can thank these profs for bringing these blunders (if that's what they indeed turn out to be) to her attention. Her use of H&R Block adds her image as a "regular person", who uses a generic tax service to prepare her returns.

Posted by: Ridge Runner | Oct 6, 2008 4:38:34 PM