Paul L. Caron

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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Tracked on Feb 18, 2009 4:32:40 PM


Ok if the Dems are subject to their tax issues why are not the Repubs??? Trust this if the Rabid right had any inkling that PRESIDENT Obama had tax issues they would have disclosed them long ago with relish! Exactly what kind of state business were her kids and husband involved in? She was elected Gov. not her kids or husband. And I am sorry if I lived in Alaska I would really want to know what her husband did to receive 43,000 in state funds. Travel expenses are one thing and the state is required to foot the bill when its officials are on state business, but when your family goes along for the ride those are personal expenses. and then additional 43,000 in per diem for her husband? Come on! Is he a state employee? If so what is his job and is it in conflict with her holding office? These are legitimate questions. her state has a balanced budget so does Illinois and our disgraced Blogo he has been impeached for trying to get the state to give money to his wife and family members and keep a little for himself. LOL! Does that mean the rules should only apply to liberals? You people are funny!

Posted by: Dee Dee | Feb 21, 2009 11:54:14 PM

Who says obama's tax code is gonna get more complicateD? I hope not!!

Posted by: NIck P | Nov 9, 2008 4:45:26 AM

The IRS Code is not that difficult on this issue - What is income??? Furthermore, a flat tax would not solve this issue. Under a flat tax, everyone pays a certain "flat" tax on any and all "income" -- the question would still exist: What is income? Regardless, in any state in the union and any federal law, a stipend/money to support your family on the road is always "income". They are not needed for you to do your job, and you were aware of the travel requirements when you ran for the job. That is simple. Furthermore, you make $100K per year and you are Governor of a US state, and you want to hide behind the opinion of some seasonal-minumum wage tax preparer at H&R Block? Give me a break!!! Maybe we need to look at her state campaign finances too, since she must not know any Accountants . . .

Posted by: Michael | Oct 22, 2008 4:57:17 PM

If the tax preparer says "Do you have any other income to report?" and you say "No." what exactly should the preparer do? Go through your pockets? Follow you home and look under the mattress? The Palins 'forgot to mention' $43,000 in income.

Posted by: sharonb | Oct 12, 2008 7:20:30 PM

Her 2007 returns are dated 9/3. The same day she accepted the nomination !!!!!!

This shows her lack of judgment and perspective by not engaging an appropriate professional to properly handle her obvious and unique issues.

Posted by: CPA | Oct 9, 2008 5:38:30 PM

Daniel in Brookline: Your memory is faulty. Shortly after Kerry released his return, a CPA noticed a mistake (improper tax rate used on sale of colletible). He amended his return as soon as the error was pointed out.

To those who advocate a flat tax: the issues that arise include (1) what is subject to tax or deductible, (2) who reports the income or deduction, (3) when the item is included/deducted, (4) how much is reported. None of those issues would be corrected with a flat tax.

Posted by: Susan Winchester | Oct 9, 2008 8:34:20 AM

I don't see the problem with the snowmobile racing business. There was income both years and a profit in one of those years.

Block (or any other preparer) is not responsible for information not shared with them. Did The Palins tell their preparer about the travel income? And if the State of Alaska W-2 is incorrect (non-qualified benefits), why would the burden be on the preparer to disagree?

Posted by: Brew1 | Oct 8, 2008 3:05:10 AM

It's amazing to me how so many socalled Republicans in these posts defend Palins for under reporting income on tax returns. I guess when you are from the party of "patriotism" it doesn't include paying for your country's government. As for Obama's IRS returns, if there's any dirt or deception there, the McCain campaign would be digging in it. For one, I'm glad the Palin's are getting scrutiny. Their Republican legislators in Alaska are digging into accusations of abuse of power. Remember, it's Palin's Republicans who are seeking to make her accountable. Face it, McCain did a lously job vetting his VP choice. She's turning into a big liability for McCain. Her maveric ambition has exceeded her competency and good sense. Most of us, if we pulled the stunts on our tax returns that Palin's have done, would be facing stiff fines and possible jail time. Maybe Justice will catch up to Sara Palin and her pals?

Posted by: Don Knudson | Oct 7, 2008 10:16:25 PM

@wig: Most of us are taxed that way, based on our wage. At the end of the year we get a statement from our employers (the "W-2 form") telling us how much they nominally payed us in income, and how much of that was diverted to pay taxes.

Usually, too much is withheld, and the result of filing a return is getting the excess back -- effectively making an interest-free loan to the Government. Sometimes, too little is withheld, and when you file a return you also have to send the Government what you still owe. The system works beautifully -- it keeps money flowing into the Treasury on a regular basis year round, rather than one large lump; it prevents people from being bankrupted at years-end by a large tax bill they didn't save for; and (if you're cynical) by taking the money out of their pay before they get it, it keeps the punters from realizing how much they are being taxed.

For the simplest case, a taxpayer with a single job and no unusual deductions/adjustments, the system works pretty well. Even for the majority of not-so-simple cases, it does a decent job. But when you have many sources of income, are self-employed, have lots of investments, deductions, or other things which make your taxes complicated, it doesn't make the tax filing any easier.

I haven't looked at any politician's tax return, but I strongly suspect that all of them have complicated returns which wage withholdings form a minor part of the complication.

Posted by: Blaise Pascal | Oct 7, 2008 7:45:29 PM

I have done taxes for years and see several major problems with the Palin return as shown, however without the missing documents, Page 2 of Sch C and the other Sch C that shows a gain and their capital gains documents it is hard to say their wrong. I know that there are some vague entries that if I was reviewing it would want more information. Truly believe that income was undereported and that return is wrong on first look.

Posted by: RThomas | Oct 7, 2008 5:11:29 PM

RJGatorEsq. said "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?"
Just like most right wingers he spouts off with derisive statements without doing any research. Palin and McCain also make statements with no basis in fact, outright lies actually, hoping that their followers will blindly accept everything they say as gospel.
Well, Mr. Gator, try looking at .
You can even look at Sen. Obama's actual tax returns from 2000 to 2006. Before you start squaking like Donald Duck about the lack of a 2007 tax return posted I must point out that his 2007 return wasn't available when the article was posted in March of 2008. The fact that there aren't any improprieties pointed out about Mr. Obama's returns is simply because he hasn't bent the rules for his personal financial benefit the way the Palins have done. It's probably not all the Palins fault though because H.&R. Block is to tax preparation what McDonalds is to dining.
One last thing, H&R Block stands behind their work and will pay any penalties and interest that are owed due to their error. they will not, of course, pay any additional tax that is assessed.

Posted by: ChuckM | Oct 7, 2008 5:09:08 PM

As usual the libertarians that infest the Internet come out and declare tax too onerous. They may be right. What they're wrong about is a flat tax rate. They claim a progressive tax rate is "social engineering" -- how about this, flat tax is social engineering in that it takes into account zero personal circumstances and treats losers and winners exactly the same. That is not fairness: that is communism.

Meanwhile it's clear from the information that it's not just HR Block's fault. Firstly, the Palins have such complicated income that they shouldn't be going to the neighborhood HR Block (laugh) but hiring a personal accountant. I can do taxes at HR Block and so can *anybody* once they take a few of their courses. It's a Governor's tax return for god's sake. Second, the Palins did not report certain allowances as income. Anybody with a brain realizes that almost every and any allowance is taxable, and everybody tries to take shortcuts. The problem is the Palins didn't own up to their mistakes and say they would pay back taxes. That makes it look like tax evasion, and it probably is.

From the information it looks like the Palins lied to HR Block or gave them incomplete information, and moreover shouldn't have hired HR Block in the first place (no duh). And of course conservatives will be hypocrites: they will blame the corporate machine of HR Block rather than applying the same standard they apply to everybody else: their worship of personal responsibility. Well if you worship personal responsibility, the Palins are responsible, period. Don't blame big business.

Posted by: Brian | Oct 7, 2008 4:59:56 PM

I just saw this article. I am not at all surprised that Palin is a tax cheat.

To all of those that would pass this off as resulting from the "complexity of the tax code" I would suggest that they would also give her a pass on any behavior, possibly including cannibalism.

Posted by: SMS | Oct 7, 2008 4:41:56 PM

Great posts! I find this discussion fascinating, especially the post at Oct 6, 2008 2:44:34 PM. When I first found out about the per diem issue, it struck me as clearly taxable.

Simply, Palin was reimbursed for "travel" when she stayed in her family home. That should raise a red flag in anybody's mind when it comes to taxes and reimbursement of business travel. A reasonably competent person would have either consulted Pub 511 or gotten the advice of a tax lawyer.

Now, the question becomes how did Palin come to be "assigned" to Anchorage as a "temporary" work location, and then receive compensation for staying in the family home. If she directed such an assignment, and then additionally directed per diem be paid, it would seem that we're seeing a little attempt to line her pockets at taxpayer's expense. There may be a case for tax fraud here depending on the extent of the Governor's involvement in determining her per diem status. Which is a big deal.

What is interesting is that Schedule B is missing from Palin's return. While her reimbursement's are small potatoes, it appears that Todd Palin and her children stand to benefit mightly -- to the tune of hundreds of thousands if not millions of dollars -- from drilling in the ANWR. If true, this is the kind of clear conflict of interest that releasing tax returns is attempting to reveal.

Why didn't the Palin release Schedule B?

Posted by: DanInDC | Oct 7, 2008 3:28:44 PM

If taxes were made simple, only simple people would do them. The reason there is no flat tax is it would be easier for the masses to realize that 50-60% of what they currently make is going to taxes, fees and interest charges.

There should be a cap somewhere between 20-30% FOR ALL TAXES, "fees" and interest rate charges. The reason there is an economic "crisis" is that the common person cannot take on any more debt. This means the very rich can't keep making their ponzy schemed profits anymore, but our system is not flexible enough to recognize that this is the problem, that and relying on oil with no plan b.

If you are worth "20 billion dollars", why should you get another 5-8% in interest from the banks for doing nothing but letting the money sit in a bank? The fact the person doesn't have to employ a militia to safeguard their wealth should be payment enough.

After one billion dollar, no more interest should be paid to billionaires.

Posted by: Alessandro Machi | Oct 7, 2008 2:02:22 PM

What a surprise. Palin is a liar, so she is also a tax cheat. Send her up the river when McCain goes down in flames in Nov. Hope we never hear of her again.

Posted by: jen hutchin | Oct 7, 2008 1:56:23 PM

Aside from the inevitable crybabies who carp about any criticism of their preferred candidates, the dominant theme of the laymen's posts on this thread seems to be the trope that the tax laws are needlessly complicated (probably on purpose, to serve the vaguely nefarious ends of evil bureaucrats). OF COURSE the tax laws are complicated. That's not due to any shadowy conspiracy of the Illuminati, but due to two simple and unavoidable facts:

1. Calculating income is complicated. Tax accounting is a thin layer of complexity atop the hugely sophisticated business of reporting income for financial purposes (for shareholders, creditors, etc.) Check out the course catalog for a college accounting program, and you'll find thirty courses in accounting and five in tax accounting. Most companies with a full-time accounting department just call in a CPA for a couple of weeks a year to do their taxes.

2. People try to avoid taxes. For every $40K-a-year IRS staffer, there's a dozen $120K-a-year CPAs scheming away, trying to find technical ways to say that the money you make isn't taxable income. The IRS has to constantly clarify and refine its regulations to hold back the scams.

Posted by: Realist | Oct 7, 2008 1:55:30 PM

So when do I get to read an analysis of BHO and Bidden's tax's? FFFFNNN Liberals Suck. Nice hit piece by the leftist media in this country.

Posted by: LibHater | Oct 7, 2008 1:50:00 PM

I'm surprised (well, not really) at the number of folks who think this review of Palin's taxes is somehow unfair. I guess that because it's happening so late and with so little other information about her out there, it seems unusual. What's unusual is that the McCain campaign didn't check it out themselves long ago. What's unusual is that she's hiding from the public. What's unusual is that she's a completely unqualified, unprepared candidate for the vice presidency.

Posted by: BobN | Oct 7, 2008 11:24:55 AM

This isn't H&R Block's fault anymore than if I had two jobs, but brought only one W-2 in with my paperwork. It's obvious that the Palins were hiding something from the start. How are the tax filers supposed to know she received an allowance to shuttle her hubby and kids around? Is there anyone out there that can honestly say that their job would do the same thing?

The most amazing thing to me is that the rank-and-file Grover Norquist acolytes on this post that spew small-government-at-all-costs nonsense aren't outraged at the obvious liberties that Ms. Palin has taken with her job title: SOME MAVERICK!

Posted by: d | Oct 7, 2008 11:16:26 AM

Bogdanski is still trying to prove that Trig Palin is not Sarah Palin's child on his blog . . .

Posted by: Savannah Lawyer | Oct 7, 2008 10:57:11 AM

This reminds me of a situation not too long ago, when the guy heading up the Medicare Part D program screwed up his own parent's paperwork for Medicare Part D.

I mean, if the guy in charge doesn't understand the rules, how are the rest of us supposed to? IRS taxes are the same in my book, and I don't fault the IRS itself for it. The people I've spoken to and communicated with at the IRS have been pleasant and helpful (mostly).

Our senators and congressmen on the other hand.....

Posted by: EEJ | Oct 7, 2008 10:10:26 AM

OR rather, irsguy:

a) people has incentives to evade as much taxes as possible and will utilize complexity to do so and/or obfuscate their attempt at it;
b) Almost everything has some measure of subjectivity, but thankfully the IRS and tax courts (often with the help of "tax protesters") offer thousands of documents, manuals, instructions, software, and good & bad examples to educate you as to what is and is not acceptable.

Posted by: MLE | Oct 7, 2008 10:06:48 AM

First Dud and Caribou Barbie are tax cheats too?

Now can we find out why Trig's name isn't listed on babies born at the Mat-Su Medical center?

Posted by: Ron Reagan | Oct 7, 2008 8:22:11 AM

As a tax attorney myself, appears that these claims are valid - especially point 2 about not disclosing the $43k as compensation.

Posted by: Mike | Oct 7, 2008 8:08:19 AM

for you people arguing for a more simple tax code, that's all fine and dandy, but let's follow the tax code we have established for know, ok? By those standards, the Palins again show us why they are corrupt and unable to run their own household, much less the rest of us.

Posted by: dave | Oct 7, 2008 8:05:22 AM

What about the gifts of about $25,000 she received? Gifts are not generally income, but when you receive them from people that want something from you, they are no longer gifts and should be income. Government officials that receive gifts in their official capacity should be forced to include them in income. That would help stop that practice as well.

Why do people who know better go to HR Block? Because if you have something to hide and you want someone to prepare your return without too many questions that is a good place to go. A CPA may actually ask about whether the per diem allowance should be includible in income.

Posted by: Mhyke | Oct 7, 2008 8:03:25 AM

The point is that Senator McCain's advisors should have got out in front of this issue long ago! Instead, they quietly release the Palins' tax returns on a Friday afternoon in an attempt to get the least amount of media attention possible. I think it's clear that she was an unwise, indefensible, and irresponsible choice, and I think Steve Schmidt is to blame.

Posted by: observer | Oct 7, 2008 8:00:11 AM

maybe you would prefer to be taxed like we are in the uk. you pay it every week, and its taken from your wage, even before you recieve it?

Posted by: wig | Oct 7, 2008 4:29:50 AM

Someone noted,

"Personally, I have no idea why allowances and such aren't required to be reported as taxable income on the W-2."

I'd have to ask, do you report as income the value of your office space? How about the value of any computers, telephones, copiers, faxes, stationary, and other tools and supplies required to do your job? Does your place of business have pay toilets or are these valuable facilities also provided for your convenience? How about water, coffee, tea, lights, heating, and cooling?

Hey, this class warfare thing is really fun - off with their heads!

We've even seen how progressive states and municipalites are taxing the value of parking spaces. Clearly, there are a lot of untaxed expenses out there just begging for a government brave enough to battle the evil doers who are brazenly attempting to do business without paying their fair share.

I think that everyone should experience a high stakes, extremely instrusive audit of their personal finances. It builds character and is extremely patriotic. There's nothing like the threat of jail time for violating arcane rules as the excerpt "(t) Application of section 274(m)(3)—" above exemplifies. It will help you to truly appreciate Kafka.

The progressive paraphrase of Jefferson: The arteries of Leviathan must occasionally be refilled with the blood squeezed from ignorant taxpayers.

Posted by: car | Oct 7, 2008 1:06:57 AM

Wow, the trolls are out tonight in partisan fashion.

We are all able to comb through any of the four major party candidate's tax forms. This is the sort of thing that we should all do, both out of curiosity and to understand the income sources of our elected officials. Where are they receiving benefits, etc. This isn't gang-up on the Palins night. What the Palins' did and how they reacted to the response is the problem. They should have admitted there was a problem and amended their tax returns appropriately before releasing them to the public. Instead, they blame others and ignorance and make other excuses; however, they did not say they would correct the issue. The Palin's reaction makes it seem like tax evasion rather than a mistake.

Income is income. Your income does not generally include the cost of your travel for business purposes. The benefit is not yours, rather it belongs to your employer. Add in a spouse or child whose travel is not for the benefit of the business, that additional benefit is considered income. That is because the benefit belongs to you, not your employer. This is not new and is common sense.

I think a lot of the complaints on this board about the tax system go hand in hand with the draw of the Laffer curve, flat tax, "fair" [national sales] tax, and all sorts of schemes to view and/or correct the tax system. These become popularized as a result of an unwavering need/drive for fairness. We all want the system to be fair. That same need for fairness is what drives the law professors to point out when a public figure has made a mistake on her taxes and for the IRS to pursue her once it has knowledge of an infraction.

Admittedly, the tax system is complex but this sort of thing is not the fault of a complex tax system. Miscalculating tax owed due to stock options or calculation of AMT is understandable. But not including extra benefit provided by an employer for your child is not a mistake due to the complexity of the code. It could be a mistake of the employer for not reporting it on the W2 and H&R Block for not asking more information, but that isn't something due to the complexity of the code.

If you'd like a more simple income tax system, then our system should be changed so it has a single purpose, to raise revenue. It is currently used to raise revenue and for everything under the sun, such as to work magic in society, markets, and financial systems. That's where loopholes also come in. To some, loopholes are the result of politicians rewarding their patrons, enacted under the guise of working some sort of magic to solve the ills and failures of society, markets, or financial system. To others, such intervention is good because it is more efficient than direct government payments to people and companies.

The complexity of the code as a result of attempts to correct ills, whether well intended or not, makes it difficult for most people to understand or follow what is going on and it is easy for them to confuse the causal relationship of the tax code's complexity with unfairness (to many, the more complex it is, the more unfair it is). But it is possible to imagine a progressive tax structure (what we currently have) with no tax preferences and a proportionate tax structure (such as with a flat tax) with many tax preferences. So the tax system needs to be given a unitary purpose no matter which type we enact.

The catch though is that it will be politically untenable to make the tax system unitary in purpose so it is used only to raise revenue. To do so, the tax code would need to be revised to remove portions that don't have revenue raising purposes such as many of the exceptions, deductions, exemptions, preferences, and credits. In effect, the tax base would broaden and rates lowered. But we can debate its merits at least.

Posted by: dfb | Oct 6, 2008 10:39:14 PM

What's really stupid is having H&R Block do your tax returns when your taxes are not cut and dried W-4 income. With all the itemizing they should do, and the fact she's now a public figure, only a professional accountant would be a good move

More Palin foolery.

Posted by: BillyH | Oct 6, 2008 6:17:43 PM

Best professional experience of H&R Block?

Are you kidding me?

Look at Schedule A. The Palins paid $178 for their tax return. That doesn't buy very much professional experience, last time I checked.

Posted by: Bob L | Oct 6, 2008 5:49:46 PM

The tax code is not complicated; it only becomes so when secessionists try to cheat Uncle Sam. What the Palins did was go find someone to vouche for their underreporting of income.

Regarding Obama, of course he has never said America is not great. But he will make it even greater if only by disposing of the angry old man.

Posted by: Pablo Zed | Oct 6, 2008 4:57:57 PM

The tax code is not as difficult as people make it out to be. Of course, with the mindset that believes paying taxes is a burden, fabricating deductions for "job related activities" is easy. Income that is used for "lifestyle choices", i.e. bringing my children and husband on business trips, hobbies, etc, should not be allowable.

Posted by: Palli Davis Holubar | Oct 6, 2008 4:40:55 PM

My daughter was a college student last year. She had an intern fellowship for part of the year. This was reported as an independent contractor. She also worked in a regular job with deductions, such as FICA, for a while. She ended up with a federal tax return almost as thick as ours (two incomes, kids, house, subject to AMT, etc.) because of all of the extra forms that she had to fill out, all for less than $8,000 of income.

Our income tax system has gotten to be far too complex, especially for people making less than $250k of predominantly salaried or hourly pay. i am astonished that half the country isn't in jail for violations of a Byzantine system that should be able to be done on a postcard by people like my daughter.

Posted by: rd | Oct 6, 2008 2:53:47 PM

Obama doesn't think this is a great Country? Great reason to vote for him.

Um, what we need most in a President is to be a cheerleader when we are down.

I guess if Obama had got up there on Sept 12th and said well I guess we deserved this...

That wouldn't have been a good thing people.

Posted by: AndThereUGo | Oct 6, 2008 2:26:13 PM

>>the best professional experience of H&R Block


You do NOT go to H&R Block if your tax return is more than 4 pages. Unless of course you are a hill jack and don't know any better.

Posted by: rob | Oct 6, 2008 1:59:39 PM

The sobering thing is that every single one of these complications in the tax code was added for some reason or another, ranging from fairness to simplification to because Congress could. The people at the IRS are like any other worker: they don't want to make their jobs harder.

The problem is that, for any given tax law, repealing that law would hurt someone, and we'll see campaigns about how this is so bad and will hurt some poor family (the "who makes over $250k/yr" part will be conveniently dropped). This isn't getting better until Americans learn to withhold their judgement until a preponderance of facts are presented.

Personally, I have no idea why allowances and such aren't required to be reported as taxable income on the W-2.

Posted by: Mike D. | Oct 6, 2008 1:57:34 PM

The answer is simple. Repeal the income tax amendment in the constitution.

Posted by: Ed | Oct 6, 2008 1:56:32 PM

I am, literally, a rocket scientist. I persist in trying to do my own taxes because I think of myself as a test case. If a rocket scientist, armed with TurboTax and a computer fast enough to run a space launch, can't do his own taxes, then there's no hope for the average American.

They say "ignorance of the law is no excuse," but if understanding of the law is impossible, what other choice is there?

Posted by: SteveA | Oct 6, 2008 1:46:58 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 1:38:34 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 1:30:45 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 1:18:51 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 1:15:54 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 1:12:58 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 12:55:56 PM

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

See Washington Post article:

Posted by: Lisa G | Oct 6, 2008 12:53:10 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 12:33:58 PM


"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 12:21:53 PM

Gov. Palin's travel etc. reimbursement schedule for 2007 is also online at

Posted by: gwailo | Oct 6, 2008 12:21:45 PM


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 12:14:37 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 12:06:16 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 11:52:14 AM

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 11:45:25 AM

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 11:44:34 AM

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 11:44:27 AM

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 11:36:35 AM

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 11:20:12 AM

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

Posted by: whit | Oct 6, 2008 11:08:43 AM

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 11:06:59 AM

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 11:05:25 AM

"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 11:05:21 AM

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 11:01:52 AM

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 10:49:41 AM

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 10:47:43 AM

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 10:43:14 AM

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 10:41:14 AM

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 10:30:36 AM

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 10:29:43 AM

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 10:29:05 AM

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 10:28:54 AM

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 10:28:14 AM

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 10:27:19 AM

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 10:23:19 AM