Geithner's Taxes

So what do people make of Treasury Secretary-nominee Geithner's difficulty calculating and paying his taxes?  The NY Times correctly flags the thorniest issue - Geithner tripped up on a tricky Social Security issue from 2001 to 2004.  In 2006 an IRS audit noted the problem but, due to a three year statute of limitations, only insisted on a correction to Geithner's 2003 and 2004 returns.  Geithner complied but did not volunteer to correct his 2001 and 2002 returns until last November, during the vetting process for his Treasury appointment.  Thus, Obama's assertion that Geithner made "an innocent mistake" is not wholly accurate - the mistake may have been innocent (or a non-innocent aggressive tax interpretation) when made but stopped being innocent when Geithner amended his 2003 and 2004 returns in 2006:

The more serious questions surround the previously unpaid taxes. The bulk of them were detected in 2006 after an audit by the Internal Revenue Service for 2003 and 2004, and Mr. Geithner paid back taxes and interest then for those years.

In November the Obama vetting team found other unpaid taxes for 2001 and 2002, and Mr. Geithner immediately paid those plus interest when the matter was brought to his attention, transition officials said.

The underpayments all involve Mr. Geithner’s income as a senior official at the International Monetary Fund from 2001 to 2003, including a small payment in 2004 after he had left. Mr. Geithner worked there after leaving the Treasury, where he had risen to under secretary for international affairs in the Clinton administration, and before becoming president of the New York Fed, a post that has put him at the center of the economic crisis.

The I.M.F., as an international organization, does not withhold payroll taxes for Social Security and Medicare from its American employees’ paychecks. Those workers are required to pay the roughly 15 percent tax themselves, as if they were self-employed.

However, the I.M.F. does pay its American workers an amount equal to an employer’s half of the payroll taxes, with the expectation that they will use that to pay the I.R.S. The organization also gives them quarterly wage statements that include United States tax liabilities.

Mr. Geithner fully paid his state and federal income taxes. In failing to pay his payroll taxes, he in effect kept the money the I.M.F. had contributed toward his liability. However, Mr. Geithner’s accountant told him he was exempt from self-employment taxes, according to Obama transition officials.

As Obama officials pointed out, and I.R.S. documents attest, the failure to pay Social Security and Medicare taxes is common among Americans who work for international organizations, including foreign embassies. A 2007 I.R.S. notice reported that up to half of such employees incorrectly file their tax returns.

The I.R.S. waived penalties for Mr. Geithner in 2006, according to an account provided by the transition office and the Senate committee. A three-year statute of limitations had precluded the agency from auditing the 2001 and 2002 tax returns, a committee aide said.

Mr. Geithner volunteered to amend the earlier returns and pay the taxes and interest, a total of $25,970, after Mr. Obama indicated that he wanted to nominate him for the Treasury job, according to the account. Mr. Obama announced the nomination in Chicago on Nov. 24, three days after the issue had come to Mr. Geithner’s attention.

That chronology raises the question, however, of why Mr. Geithner did not voluntarily correct the earlier nonpayment of self-employment taxes after the 2006 I.R.S. audit identified the problem for 2003 and 2004.

Fine, it was tricky and he got bad tax advice - not a real resume boost for a former Under-Secretary of Treasury aspiring to the top job, but there it is.  However, as of 2006 he knew he had a liability for 2001 and 2002 - where was his check?  Was his conscience unruffled by his non-compliance?  Or does Geithner have a "Don't ask, don't tell" policy on back taxes?

The housekeeper is much less vexing:

he issue involving a former housekeeper of the Geithner family is separate. The woman was in the country legally and was authorized to work when Mr. Geithner and his wife hired her in 2004, but her employment authorization expired three months before she quit working for them. The issue was discovered by the Senate Finance Committee, not by the Obama team, and it came as news to Mr. Geithner, according to a Democrat who was briefed on the situation.

She was legal when he hired her!  Workplace enforcement is an ongoing compliance challenge.

Comments

[Depressed Atlas]

Give me a freakin break. I worked for a Bermuda based finance outfit that paid us in the same manner. We all knew about and griped big time about having to pay both halves of FICA - shocked as we were at the size of the tax. Everybody knows about it; "overlooking" it is almost always willful.

[Thomas Collins]

Geithner probably relied on an expiring statute of limitations to avoid paying the early aught-aught taxes.

This is a close call. Taxes are complex, but today we need a Treasury Secretary who is squeaky clean. My feeling is that Geithner should receive a public humiliation, which will do the cleaning, and then be confirmed.

I know it won't happen, but putting him in "the stocks" during an inaugural ball would be a good idea. :-))

[Depressed Atlas]

"overlooking' it is almost always willful."

I mean among the folks I worked with at least (maybe those rocket scientists at the IMF are different)...we loved the higher takehome pay until the tax bills had to be paid.

[clarice]

I agree onthe housekeeper--for heaven's sake, it is impossible to know when there's been a status change and she was here legally and could work.Enough.
But the taxes is a different issue, As for this:
"As Obama officials pointed out, and I.R.S. documents attest, the failure to pay Social Security and Medicare taxes is common among Americans who work for international organizations, including foreign embassies. A 2007 I.R.S. notice reported that up to half of such employees incorrectly file their tax returns.
"

The suggestion that this is because it's too complicated, is hogwash. They evade these taxes because they can and as a general rule employees of international organizations feel no obligation to pay for much out of their own pockets even their fair taxes.

[bad]

...the failure to pay Social Security and Medicare taxes is common among Americans who work for international organizations, including foreign embassies. A 2007 I.R.S. notice reported that up to half of such employees incorrectly file their tax returns.

Mr Geithner would have made money on the deal had he not been a cabinet choice. I'll bet others choose similarly, hence th 50% figure.

[bgates]

A three-year statute of limitations had precluded the agency from auditing the 2001 and 2002 tax returns
If I were inclined to avoid paying taxes, that would be good to know. As it is, I'm just as inclined to believe anything I read in the NY Times.

Like I asked Glenn, could this lead to the ugly spectacle of the Vice President questioning the Treasury Secretary's patriotism?

[bgates]

In failing to pay his payroll taxes, he in effect kept the money the I.M.F. had contributed toward his liability.
sbw, you're the newspaper guy. Can you tell me what "in effect" contributes to that sentence?

[jean]

I hate to be ugly,but I,m getting really tired of Ivy League types.They are the ones who by being too smart by half got us in this financial mess.Now they can't even remember to pay their taxes.I think we should turn all this over to graduates from Big 12 schools.I would rather a Sam Walton than a Paulson or Geathner

[MayBee]

the failure to pay Social Security and Medicare taxes is common among Americans who work for international organizations

The failure to register guns is common among Americans who work for criminal organizations.
Is that because filing registration papers is just so darn tricky?

[bad]

Ha Ha Maybee

[jimmyk]

It's conceivable that in normal times this could be a deal-breaker, especially if it were a Republican administration. It does seem pretty dubious, especially for a Treasury Secretary. But it's extremely unlikely that the Republicans, cowardly as they generally are with these things in general, would upend the nomination given the state of the economy and the fact that the financial markets seemed to approve of the Geithner selection. I can just imagine the scenario of the Republicans derailing the appointment and being blamed for any decline in the stock market that results. Ain't going to happen unless something more serious comes out.

[Depressed Atlas]

"would upend the nomination given the state of the economy and the fact that the financial markets seemed to approve of the Geithner selection."

because the war on rich people and nationalizing the private sector is so much more important than Scooter's war on jihadists trying to kill us was.

[Stephanie]

Jean, it's just a continuation of the "too smart by half" syndrome. He figured he was too smart to get caught. It is a calculated risk and he risked, and it bit him in the ass.

The too smart by half reminds me of my brother when he was a a teenager. Teenagers take the short term pleasure of a risk and think they won't get caught. Always comes back to bite em in the ass.

Case in point... parents go out of town. Brother has a party (older sis warns he's gonna get caught) and cleans up all traces of it before parents return - then gloats that he didn't get caught. A month later, parents go behind bar to use blender for drinks for friends and discover it is affixed to the bar from a strawberry daiquiri overflow. They don't drink strawberry daiquiris. Brother is busted.

He thought he was too smart by half and thought he got away with it. Not. Same here.

It's just that we who are grown ups and act as such, don't take the too smart by half risk. Experience has shown us that it never pays.

Geithner thought that with the 2006 audit he had gotten away with the prior stuff and was scot-free. And probably was gloating to himself that he had risked and partly won...

Do we want a high school level risk taker in charge of treasury or a grown up...

[MayBee]

jimmyk- I don't know if his nomination should be derailed because of this.
I would like to see it discussed honestly by the people still supporting him, though.

The Obama people have told the absolute falsehood that he fixed this as soon as it came to his attention. I want them called on that.
He did it because he has the very human instinct to pay not one more dime of tax than he can get away with. Admit that, then make the case for why he should be Treasury Secretary anyway.

[MayBee]

In failing to pay his payroll taxes, he in effect kept the money the I.M.F. had contributed toward his liability.
sbw, you're the newspaper guy. Can you tell me what "in effect" contributes to that sentence?

Ha!

[Anarchus]

Maybe I'm out in left field, but I'd like to see his nomination derailed by his failure to voluntarily correct his 2001 and 2002 tax returns. Underpayment of taxes owed is a form of white collar theft and stealing is stealing from a moral perspective regardless of the statue of limitations.

Just because it isn't something he can be audited or prosecuted for doesn't mean he should get a free pass.

Besides, there's way to much free money being tossed the way of Ivy League financiers these days. Stiff him.

[clarice]

Well, it's a pity Stephanie and MayBee aren't on the committee because they nailed it. In effect.

[Danube of Thought]

The one about the guns was great, MayBee.

I come out agnostic on this one. If he withdraws, fine. If he gets confirmed, we'll know from the get-go that Obama was willing to have a tax cheat as his Treasury Secretary.

I'm far more concerned about the serial, wilful and varied transgressions of Charlie Rangel. But again--come 2010, it's just another arrow in the culture-of-corruption quiver.

[E. Nigma]

Well, consider the consequences.

If Tim Geithner is de-railed, who's next on the list of Huckelberries that Obama would nominate to be head of Treasury?
Remember that Kimba Wood and Zoe Baird got de-railed for AG because of Nanny SS non-payment, so we ended up with.....EL RENO! (crack of whip)

It could get worse (and probably will). To quote Samuel Jackson from "Jurassic Park"; "Hold onto your butts."

[Baba Ganoush]

IANAL, so I have a question for other readers who might be tax attorneys. Isn't the limit 3 years for a "mistake" but 7 years if there is a suspicion of possible fraud? And doesn't the time limit toll backwards from the date of discovery, which means that once the "oversight" was discovered by the IRS, if there is a pattern of possible "tax avoidance" brought to the IRS's attention, wouldn't they be entitled to extend their audits of his returns back to his filings for 2000 or 2001?

[bad]

As president of the New York Federal Reserve Bank, Timothy Geithner often preached that gargantuan financial firms like Citigroup should be held to the highest regulatory standards to make sure they couldn’t take on too much risk.

Once again I ask the question: Geithner, too stupid or too dishonest?

LUN

[Stephanie]

Geithner hearing is postponed...

Unintentional irony of the day quote:

Sen. Orrin Hatch (R-Utah), the second-ranking GOP member of the panel, said Geithner had made "mistakes" but said, "If we want perfection around here, we'll never have anyone for any one of these positions."

LUN

[Thomas Collins]

While we are on the subject of taxes, I thought JOMers might be interested in the thoughts of the National Taxpayer Advocate. See LUN.

[bgates]

If he gets confirmed, we'll know from the get-go that Obama was willing to have a tax cheat as his Treasury Secretary.
We knew that already.

[Chester White]

"it was tricky and he got bad tax advice "

It was NOT tricky, for God's sake. You have self-employment income, you pay FICA (both ends, unless you are over the limit) and Medicare. Period. Clear as glass.

Anybody who has ever fired up Turbotax knows that.

Sheeeesh.

[David Cohen]

I love this sentence: Mr. Geithner immediately paid those plus interest when the matter was brought to his attention, transition officials said.

Because a less punctilious nominee for Treasury Secretary would have ignored being told that he failed to pay taxes due by the Presidential transition team.

[Jane]

"If we want perfection around here, we'll never have anyone for any one of these positions."

The same can be said for ethics - on both sides of the aisle. Let's just declare right now, out loud - that a different set of laws, rules, ethics and everything else applies to the ruling class.

[glasater]

And what's up with the IRS "waiving the penalties" that should have been incurred"

[clarice]

I know he's well regarded and it is a very important position right now, nevertheless I haven't changed my position--it appears he willfully tried to evade paying his taxes and under the circumstances he should not be confirmed.

[Depressed Atlas]

what jane said...

[Appalled]

It would be the Treasury nomineee with this kind of problem. *sigh*

Given the terrible state of things at the moment, I would not derail this guy. He knows the situation and its history, and trying to find someone else could leave a vacuum at the top just when its not needed.

But I think the guy was trying to avoid paying his taxes, and when he was caught, he tried to use the statute of limitations to avoid paying all of his delinquent amounts. If he was in another department -- this should derail his nomination. If we had known about this in early December -- this should have derailed his nomination.

Basically, Obama has drawn heavily on his "benefit of the doubt" account. I hope the Republican really sweat this guy, and large number of them vote no.

[Rick Ballard]

Madoff stays out of jail

I found this interesting: "He left the courthouse and returned to his $7 million Upper East Side penthouse, where he has been under house arrest and under the watch of armed guards around the clock."

Is he afraid of the Russian mafia or Democrat pols? Did he hear about Chuckie putting out a contract?

I'm a little ambivalent about Geithner - currency with a confessed Dem tax cheats signature on it may become a collectors item. He might also be the most honest appointee to the cabinet in 2009.

[clarice]

If I were Sarah, I'd make a point of this..Joe the Plumber asks an inconvenient question of Obama and gets slammed for a tax lien he didn't even know existed; a rich elite economist knowing full well he had an unpaid tax obligation fails to pay it and get nominated for Secy of the treasury.

While a lot of populism is nonsensical demogagoguery this kind is not--He has not the character for the post which requires an exemplar of far more probity than he's demonstrated.

[bad]

I would not derail this guy. He knows the situation and its history...

Yeah he does because he helped create it.

[bad]

sorry

[MayBee]

He knows the situation and its history, and trying to find someone else could leave a vacuum at the top just when its not needed.

I find myself realizing I don't necessarily trust those telling us he is the only man for the job. This may sound crazy, but I'm beginning to think they'll say anything for the "right" person.

[bad]

Under the new Hope and Change regime of Openness and Transparency, I am disappointed that this info was known weeks ago but was given to the people only yesterday.

Looks like they were Hoping we wouldn't notice he Changed his tax filings.

[grimmy]

"and it came as news to Mr. Geithner, according to a Democrat who was briefed on the situation."

Riiiiight. That clears it up!

Question authority much?

[Chris]

I mentioned this on a thread last night but it should be asked of Geithner. Who paid his housekeeper's taxes? Did he 1099 her or get her through an agency? Or did he do what 90% do and pay her a flat rate in cash/check? My guess is her taxes weren't paid, but it's just a guess. If he was paying her FICA how could this not trigger knowledge that he wasn't paying his own?

Rick is right. It's small fry. The more important question is how did he allow Citi to get into such a mess while overseeing the NY Fed?

[bad]

Politico:

Geithner’s tenure at the New York Fed – which bore the major responsibility for supervising Citigroup – covers a tumultuous span in which the sprawling conglomerate spiraled from the country’s biggest banking company to one of its largest welfare cases.

Someone made an awful lot of money off Geitner's error while at the helm of the New York Fed. Was it an honest mistake like his tax issue?

[MayBee]

Citi to get into such a mess while overseeing the NY Fed

Because Rubin was his old boss?

[clarice]

As Drudge and Sweetness & Light remind us of the coverage of the claims that the Bush inauguration was too expensive and the security too tight--in contrast with the coverage of this far more expensive, far more security minded one--i can happily report that Gannett and UNA Today are broke and furloughing workers for a wek.

Gives hoit by their oen petard a specially delicious meaning.

[Stephanie]

Wildlife officials said a rhesus monkey known to throw feces when mad is on the loose...

OK... who left the door to Reid's office open again?

Just a little levity since the markets have closed down again...

LUN

[Rick Ballard]

Clarice,

We just need to reword the Hatch formulation: The odds of finding an honest Democrat willing to work for this thief are so small that acceptance of a tax cheat as the man designated to sign our currency is necessary.

Sure, Geithner is a cheat with low to no ethical standards but this is the Obama Administration - what did you expect?

[clarice]

**USA Today**

I expect that the Republicans on the committee will recognize a moral position and a politically sound one and refuse to vote for him--Let those Dems willing to risk their necks---and they will be because people will be furious---on the Dem side do so. Use up whatever favors Obama can ask of his party fast.

[Danube of Thought]

I'm not sure I follow either the reasoning or the standard set forth by Appalled.

Off-topic: Some enterprising soul ought to start collecting the cries of outrage from various media sources over the cost of W's 2005 inaugural, then examining the costs of this one. And follow that up, of course, with a vain search for today's cries of outrage.

[MayBee]

Hmmm. Check out Politico right now.

Is Geithner going to step aside and Summers step in?

[bad]

Maybee, IIRC, Summers was O's first choice but pissed off the fembots while at Harvard so he was a nogo.

[creepy dude]

hardcore Obama voter here.

It's just me, but I think the guy should NOT be confirmed and will lose massive respect for Obama if he is.

I can't be the only one.

[Rick Ballard]

"I expect that the Republicans on the committee will recognize a moral position and a politically sound one and refuse to vote for him-"

That's a great lede - and one that Hatch may be really wanting and waiting to see in print. I think his initial remarks were a set up asking for just such a public outcry.

I still maintain that Camerot is chock full of much worse thieves and liars though. RW has peddled herself like a dockside dolly working a troopship for contributions to Bubba's playpen and she's not getting much flack.