Paul L. Caron

Tuesday, March 31, 2009

HHS Nominee Kathleen Sebelius Pays $7k in Back Taxes

KathleenSebelius In advance of her Senate confirmation hearing, Health and Human Services nominee Kathleen Sebelius has corrected three years of tax returns and paid more than $7,000 in back taxes after finding several "unintentional errors" involving deductions for charitable contributions, mortgage interest, and  business expenses:

Charitable contributions: For charitable contributions in excess of $250, taxpayers must have an acknowledgment letter from the charitable organization in order to take a tax deduction. Out of 49 charitable contributions we made in these three years, there were three for which we could not locate our acknowledgment letter. The amended returns eliminated these deductions.

Interest: In July of 2006, my husband and I sold our home for an amount less than the outstanding balance on our mortgage. We continued paying off the loan, including interest we mistakenly believed continued to be deductible mortgage interest. Another loan for home improvements was treated similarly. These errors were corrected in our amended returns.

Business expenses: In reviewing our taxes, we discovered we had insufficient documentation required to claim some of our tax deductions for business expenses. While the amended returns reflect these changes, they did not affect the amount of taxes owed because we were subject to the Alternative Minimum Tax.

    Congressional News, News, Political News, Tax | Permalink

    TrackBack URL for this entry:

    Listed below are links to weblogs that reference HHS Nominee Kathleen Sebelius Pays $7k in Back Taxes:


    "How many of us really have and keep all of our documentation?"
    - - - - - -

    Uh, me. And, my parents. My co-workers. Most people I know with whom I ever discuss taxes in some manner other than as a generalized concept.

    But I doubt you've typed this to mean the literal "we don't always place the correct piece of paper in the correct file." I have a strong hunch that you mean "well, we know everybody makes up deductible amounts when filing returns, so everybody will be missing some "documentation."

    And there's the rather huge cultural difference. I imagine the prospect of higher taxes isn't going to worry people who, at heart, don't feel like they've done wrong by cheating on their taxes. All of these recent Dem nominees - supposedly bright, informed, honest, money-savvy people to whom "we" entrust the safekeeping of parts of our civil government, environment, business experience, and the like - central stuff - who "discover" a past "honest mistake" and quickly pay the tax - well, if humans really had those cartoon dialogue bubbles floating over their heads, their bubbles would no doubt say "sheesh! Gimme a break! EVERYBODY cheats on their taxes!"

    And there is absolutely no way Ms. Sebalius didn't know both what the law and what G.A. accounting practices mandated regarding those very common issues that she "misunderstood." Find me some instances where a Dem nominee made a huge "mistake' in her back taxes such that she paid too much towards her taxes - even though these are "mistakes", is it just happy coincidence that they end up saving them money?

    I think not.

    Posted by: bobby b | Apr 1, 2009 11:03:04 PM

    I am now quite sure that democrats rarely ever pay their taxes properly!

    Posted by: Sarah Summer | Apr 1, 2009 1:12:45 PM

    Perhaps if the left wing politicos hadn't poisoned the well, Gov. Sebalius's tax problems would be forgivable, if not overlooked. But in the toxic environment of "Gov. Palin, Your Tax Return Please" and punitive redistributional tax proposals, the feeding frenzy on the Obama administration's nominees and their tax issues (there are so many of them, no?) is a rich hoisting upon their own petard. I'm sure the parade of tax horribles will continue to be on display until the administration fills all its appointments.

    Posted by: Nemo Dat | Apr 1, 2009 11:28:19 AM

    Off hand, I’d say $7k in back taxes incurred over the course of a few years is not a big deal provided it doesn’t stem from unreported income or blatant misrepresentation (like Daschle, like Geitner).

    But this house transaction Sebelius performed appears very strange. Apparently, the goals would be to both maintain the interest deduction and to keep the proceeds of the sale (rather than pay off the note, as is customary). How is it that accomplished? Can a clean title be provided on a house in which the previous owner still has a mortgage? How can this sale actually be closed? How is Sebelius mortgage debt on her old house collateralized? Who does this, is it common?

    It seems a very poor and risky personal financial strategy (…especially for a cabinet nominee). It’s weird. There’s got to be a deeper explanation.

    Posted by: 108 | Apr 1, 2009 10:53:39 AM

    The stench of potentially unethical insider dealings is reeking from the mortgage favoritism shown the Kansas Governor and her federal judge husband.

    With all the KNOWN corruption in the mortgage and insurance industries; with all the insider dealings between mortgage, insurance and Democrat Party officials, the stench of this is unmistakable.

    Forget the masters degree and the federal judge husband, this woman was the Kansas Insurance Commissioner for what... 10 years? You don't think she knows where the bodies are buried? You don't think she's got her own little black book?

    Her father was the Governor of Ohio --- for four terms, and a Democrat dandy of the labor unions. His daughter, now Governor of Kansas, is a wired Democrat insider who looks to have gotten special favors in the fashion of negative equity mortgages and other home improvement loans on property with negative equity... three years before the housing bust happened.

    They have normalized their corruption and insider dealings. And were they wrong to do so? No. It was normal. Look at the rest of the "chosen" Democrats from her generation: spoiled; elitist; corrupted by insider dealings to their very core.

    Posted by: Plutarch | Apr 1, 2009 10:51:28 AM

    MOS: True, except for the mortgage interest deduction. How could she sell the house without paying back the loan? That's fraud, isn't it? Unless, of course, the home wasn't listed as collateral on the loan - in which case she can't deduct the interest period.

    Posted by: Mr L | Apr 1, 2009 10:40:07 AM

    The tax laws are terribly complex. I can see how they made an innocent mistake. For example, this utterly confusing rule from IRS Pub. 936 on home mortgage interest:

    "Sale of home. If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of the sale."

    Posted by: Rabel | Apr 1, 2009 10:14:49 AM

    I doubt that most taxpayers would come out of a comprehensive multi-year audit this clean.

    Posted by: AMTbuff | Apr 1, 2009 10:11:38 AM

    There is something seriously wrong when tax laws can only be successfully understood by tax professors.

    The woman is a state governor with a masters degree and her husband is a federal judge. Are the tax laws really so outrageously complicated that we can't expect people with this level of education and intellegence to follow them?

    If so then the law is a disgrace - if not then she is.

    Posted by: DamnCat | Apr 1, 2009 10:00:54 AM

    Are you blind?

    Without insider dealings, how does a person sell their home yet keep that home's mortgage open to continue until paid off?

    This woman is the Governor of Kansas and her husband a sitting federal judge. Who got the benefit of home's discounted value and what was their relationship to the Governor and her husband? How was the Governor able to originally get a loan for an amount greater than the value of her home 3 years ago when the housing market was fine? Who gave it to her? And who gave her a "home improvement loan" on top of a negative equity first mortgage? And what is the relationship of these mortgage givers/officers to Kansas government, the Democratic Party and the mortgage industry there?

    The other possibility is the Governor in now lying; that her negative equity mortgage was not allowed to continue and she financed the negative balance of that and the home improvement loan with as signature loans, but was too cheap to resist the cheat.

    Whatever happened here, the principles violated are as significant as anything done by Christopher Dodd, Charles Rangel or Tim Geitner.

    If the others are crooks, then Sebelius is no different. She sold herself out for a meager 7 grand. And let her run federal health policy? How quickly will she pull the plug on your loved ones to save a few bucks? This woman has no remorse; no shame.

    You don't want somebody this pathologically cheap, duplicitous and calculated running our heathcare reform.

    She just PROVED who she really is.

    Posted by: Plutarch | Apr 1, 2009 9:46:00 AM

    I agree. This is de minimis. How many of us really have and keep all of our documentation? I suspect that she would be able to find the checks, etc. for the contributions and business expenses, just not the supporting documentation. So, the money was likely spent, just not properly documented.

    The mortgage deduction is likely more getting into the habit of deducting the interest, and then forgetting or not realizing that a lien on an underlying property was necessary for the deduction. They were probably paying on the same loans as before, but the loans were no longer secured by the real property, and thus the interest was no longer deductable.

    Posted by: Bruce Hayden | Apr 1, 2009 9:42:34 AM

    As a Kansan who's voted against madame Sebelius at every opportunity, I'd like to believe that she's not the shameless carpetbagging photo-op idiot that she appears to be. Let's be generous and just say that the current tax code could cause a saint to fumble, and let it go at that. We WANT Obama to take her off our hands, so let bygones be bygones and get her out of here. We collectively feel that when she moves to Washington it will raise the IQ of Kansas AND the District of Columbia.

    In the words of Chuckwagon cooks everywhere, "Come and get her, before we throw her out."

    Posted by: Carl H. | Apr 1, 2009 9:40:22 AM

    I think the interest deductions display a certain intentional "ignorance" of the rules in question. Even I as a "little person" am well aware that you can't deduct mortgage interest for a home that is not your principle residence. If she had meant to pay her taxes in good faith, she could not have missed this rule.
    Also, how could she take a deduction she didn't have documentation for. How would she know what amount to put down?
    She (and her husband) were trying to stretch the rules and figured they could get away with it, which they could unless they were audited. (That is the attitude of many "little people" too.) But there are plenty of loopholes written into tax law that allow those in the know to take advantage of them. For someone with access to those loopholes to try to cut their taxes even further by "misunderstanding" the obvious rules is contemptible.

    Posted by: Mom | Apr 1, 2009 9:27:10 AM

    Gov. Sebelius please answer these questions:

    1) What did you do with the 1099-C that you should have received from the Mortgage holder when the property was sold for less than the amount owed? This is a 'cancellation of debt' and is taxable income in the year it occurred -2006!
    2) If the 1099-C wasn't issued and received - why not?
    3) Which Bank/Mortgage company held the mortgage.
    4) Which title company would issue a policy to a new owner if there was an outstanding valid lien on this property? None - therefore, any monthly payments being made by you would have had to be on a new "personal" loan to the former/same mortgage holder and do you really think we believe a real accountant would not know "personal loan" interest is not deductible?

    Nice sounding explanation but not "audit" proof!

    Posted by: Nancy Moore | Apr 1, 2009 9:23:29 AM

    I agree; these seem pretty mild. Indeed, innocuous.

    Posted by: Kepler | Apr 1, 2009 9:19:13 AM

    Hold on! Let's not be so trusting. There are some things about that deduction of mortgage interest that don't compute. Is there ever a real estate sale closing where the lending institution is not a party? (Yes, a sale that's "off the books.") So how could the lender not know the house (collateral) had been sold? How could the lender not know it was no longer a loan secured by a mortgage on the property? (Would YOUR lender allow you to dispose of the security for a home loan and say "no problem!"?) How could the lender get the form 1098 wrong? (Schedule A says, "interest and points REPORTED TO YOU on Form 1098 [emphasis supplied]). What were the sources of data for the deduction claimed? How could these two taxpayers be unaware that the deduction is for interest on one's home, not former home? The deduction for interest on other loans ended years ago. With the Senate's cooperation this will probably be deep-sixed. But I'm sure there's a lot to investigate.

    Posted by: Jay | Apr 1, 2009 9:08:49 AM

    There is not enough information here to make an assessment. Certainly $7,000 over three years sounds like minor items, but...

    Did the bank make a mistake and continue to send her the 1098 mortgage interest statement, or did she go out of her way to create a mortgage interest deduction without the form 1098?

    "Could not locate the acknowledgement letter" and "had insufficient documentation" sound like spin. These could both mean that she made up numbers out of thin air for deductions.

    Posted by: Mike S | Apr 1, 2009 8:55:09 AM

    But why in the world wouldn't she just ask the charities in question for another copy of the letter?

    Posted by: PapayaSF | Apr 1, 2009 8:51:33 AM

    I question her patriotism.

    Posted by: Scott W. Somerville | Apr 1, 2009 7:39:20 AM

    I don't understand. If I gave a charity a donation and lost the receipt letter, I would call them up and ask for a copy of the letter. Why can't she do that? Was the donation claim bogus?

    Posted by: Steve | Apr 1, 2009 7:23:40 AM

    By itself, this is pretty de minimus and only points out that the tax code has gotten too complicated. The problem is that there are now what, six Obama appointees who have had tax issues of varying degrees. Either the tax code is far and away too complicated for anyone to follow, or Obama has a knack for picking people with tax problems. Perhaps because those who are in position to be nominees don't think they have to be careful with their taxes.

    Posted by: rbj | Apr 1, 2009 7:11:56 AM

    Mayor, why in the world don't these two 'business' owners have an accountant?
    I'm tired of all the 'we didn't know' excuses.
    I have a business, and I DON'T know all the tax laws, so I hire someone who does.
    Not difficult, or expensive.
    This is ridiculous. Don't ANY of these people pay their full taxes?

    Posted by: Pete the Streak | Apr 1, 2009 6:57:23 AM

    As much as I'd like to slam anything to do with Obama, Ms. Sebelius's tax transgressions seem to be pretty mild and not in the "only little people pay tax" realem of other Obama nominees. Not all of us are tax professors.

    Posted by: MayorOmalleySuxs | Apr 1, 2009 6:06:28 AM