Paul L. Caron

Tuesday, February 3, 2009

NY Times Daschle Debate: Tax Dodge or Honest Mistake?

The New York Times Room for Debate asked various tax experts to weigh in on Tom Daschle's tax problem in A Tax Dodge or an Honest Mistake?:

Should personal tax problems be grounds for disqualification from cabinet and other high-level government positions? Is there a line between dodging taxes and making a forgivable mistake? We asked some tax experts what they think.

Daniel Shaviro (NYU):

If the services of Mr. Geithner and Mr. Daschle are highly important to the country ... it would seem like a mistake to drive them out based on tax filing decisions they made, arguably in their personal not professional lives. Their filing failures are dismaying, but appear to fall short of outright fraud. But just letting them apologize, pay the back taxes and go on with no other sanction seems inadequate as well. Both men made highly self-serving “mistakes,” not just random ones, in circumstances where there’s simply no doubt that they should have known better. ...

In a nutshell, the dilemma is that not letting Mr. Geithner and Mr. Daschle serve in the cabinet — even if it is not too harsh a consequence — affects public policy-making rather than just sanctioning them. But simply letting them go on without penalty seems too mild. Might the solution be for them to agree voluntarily to pay the Treasury amounts equivalent to the tax penalties that they could very easily have faced?

Jacoba Urist, a former tax lawyer at O'Melveny & Myers (and daughter of Cardozo Tax Prof Edward Zelinsky) offers this response:

Professor Shaviro proposes the perfect solution: as a sign of good faith and personal remorse, Daschle and Geithner should voluntarily pay the 20% penalty.

But why did the IRS waive Geithner's penalty in the first place? In the most dire economic climate in recent history, why is the government giving these men what amounts to a pretty hefty interest free loan?

In fact, an interest free loan on eighty thousand dollars (the amount Geithner failed to declare in consulting income) could just as easily be called something else-- a bonus. The very payments that the Obama administration finds so distasteful in lower Manhattan. Just three days ago, President Obama delivered a blistering reprimand to Wall Street CEO's. At a time when taxpayers are propping up their financial institutions, fat cat, annual January rewards, in addition to regular base salaries, are "shameful." Even better, Mr. Geithner himself wants to impose stricter compensation limits. He'd like executives at companies receiving bail out money to be paid in restricted stock, unredeemable until the government is made whole.

It would seem Timothy Geithner conveniently forgot about the nice signing bonus he just received in the form of penalty forgiveness from the new Obama administration -- none of which held any restrictions. And the one Tom Daschle has coming down the pike.

The other tax experts included in the article are:

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The Service will beat down elderly widow ladies for a couple of hundred in penalties, what is up with this sudden generosity?

As to Daschle, it looks like he used his law license to be an unregistered lobbyist/influence peddler, not to mention taking large speaking fees from health care organizations.

Posted by: save_the_rustbelt | Feb 3, 2009 8:27:16 AM

I don't think it was an interest-free loan. The IRS waived the accuracy related penalty under section 6662. It did not appear to me that interest was abated. Interest abatement is done under section 6404, and is only done in the case of the IRS' managerial or ministerial error.

Posted by: Kris | Feb 3, 2009 6:26:11 AM