Sarah Palin's tax returns were part of a document dump late Friday, barely noticed among the frenzy of reactions to the Flash Card Debate Night and the shock that hit all of us when even Fox Noise declared Joe Biden the winner, and McCain took another plunge in the polls. But the tax returns did not go unexamined - by the professionals at TaxProf Blog, who have updated twice today with their conclusion from the experts: Sarah Palin should be paying taxes on all those nights she spent collecting per diems in Wasilla, as regular income.
Follow me over the fold to the next new train wreck about to hit the Straight Talk Express:
From '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.
From Brian Camp, another tax expert, comes a summary of his analysis of the problem and of the McCain camp attorney's 'opinion letter' regarding the Palins' tax liability:
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 o.k. 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.
Tonight, Politico is first to report that the Tax Profs have dug deeper and discovered that the State of Alaska violated its own policy on per diem allowances in the case of Governor Palin:
Alaska Violated State Policy in Gov. Palin's Per Diems
Jack Bogdanski (Lewis & Clark) notes that the State of Alaska did not follow its own per diem policies in Governor Palin's case, as set forth in this two-page memo, Income Tax Implications of Long-Term Per Diem. Jack notes:
This document is a potential blockbuster. It establishes two important facts:
1. The state has long acknowledged that it had a duty to determine whether Palin's "tax home" was really Anchorage and Wasilla, a conclusion which would have required that her per diems be reported as taxable income.
2. The state knew that when an employee is planning to spend a majority of her time on state business in the Anchorage area for a four-year period, Anchorage is the employee's "tax home," and per diems for time spent in the "tax home" are taxable income.
Blockbuster indeed. Could this tax problem overshadow even Troopergate as it breaks this week? Let's hear from you!