In the Loop

'Why all the tax trouble?' Tax preparers weigh in.

Posted at 12:30 PM on February 10, 2009 by Sanden Totten

Tim Geithner, Tom Daschle, Nancy Killefer . . . and now Hilda Solis too. One by one Obama's picks for Cabinet positions are getting hammered for the same dirty secret: tax troubles.
The taxman is on to you Geithner, Daschle and Killefer(photos by Getty Images)
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It's coming up so often I have to wonder, are politicians inherently bad at taxes? Is this a seedy scam or are these honest mistakes?

"I don't think seedy is the appropriate term," Peter Demerjian told me. He's an assistant professor of accounting at Emory University in Atlanta. "Some of these things are very common errors."

Like Geithner forgetting to claim his money from working with the IMF or Daschle neglecting to count a private driver as income. Demerjian doesn't think this batch of nominees are unusually unscrupulous. Rather, he says the Obama administration is being unusually rigorous in scoping out their records and calling out mistakes. After all, the IRS only audits about one percent of all returns. Obama's team is essentially auditing every nominee. But Demerjian admits, while the type of mess-ups we're seeing may be typical enough for your average American, the details aren't:

"Most of us don't have someone offer us a limousine and a driver" Demerjian correctly notes. "But as far as deducting things that shouldn't be deducted or forgetting to do some self employment tax . . . that kind of thing is not that uncommon."

Michael Schaffer has seen tax problems from both ends. He's scrutinized records as a Minnesota state auditor and now prepares returns for individuals and small businesses around the Twin Cities. He says the wealth of the nominees is a big factor in this mess for two reasons:

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But before you shed a tear for the rich and self-employed, keep in mind that with great wealth comes great responsibility - especially when it comes to keeping good financial records. That's why most big earners keep a personal accountant, or a whole team of them (Geithner, who said he uses TurboTax, is a notable exception).

Jacqueline Walker is one such accountant. She works for a "high net worth individual" in Omaha, Nebraska. To her, Tom Daschle's failure to report tens of thousands of dollars of income was a sign that he wasn't used to being really rich:

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Of course, the other culprit here has nothing to do with how much money you make. It's the 67,500 page elephant in the room. I'm talking of course about the US tax code.
(photo by Last NYC Hero via Creative Commons)
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"The tax code is an extremely complex animal," said Stephan McConnel, a semi-retired CPA from Wilsonville, Oregon. "All of us have made mistakes in our tax returns...accidental, and unknown to us; sometimes caught in a subsequent year and corrected by filing an amended return."

Like most of the accountants I spoke to, McConnel would love to see taxes get easier. But he isn't optimistic. For now, he says the best you can do is hire a good tax preparer and tell them everything. McConnel insists you need to think of your accountant like you would your doctor:

"You know, you don't go to the doctor and not tell them about a prescription you are talking,"McConnel remarked. Same goes for that private chauffeur, Mr. Daschle.

But the real question is, where's the line between an unwitting error and purposeful neglect? None of the accountants I spoke with could say for sure. And the circumstances are pretty different for Daschle, Geithner, Killeher and Solis. So we are left wondering when a tax problem is just an innocent mistake and when it's a good reason to sink a nominee.
February 2009
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