Legal News

With Palin?s Returns, Tax Profs Move Back to the Spotlight

By Dan Slater

Tax lawyers are feasting on Sarah Palin’s tax returns. On Friday, the Alaska Governor and Republican vice presidential nominee released her returns and personal financial disclosure report. According to the WSJ, they showed her to be the lowest earner of the four national candidates. According to tax law profs Jack Bogdanski, of Lewis & Clark, and Bryan Camp, of Texas Tech, they also show that she owes tens of thousands of dollars in additional taxes, penalties and interest. (Here’s another report from the NYT.)

Click here for a round-up from the Tax Prof blog’s Paul Caron.

Bogdanski writes that there’s “no serious debate . . . about the fact that at least the amounts paid for the children’s travel — $24,728.83 in 2007, according to the Washington Post — are taxable. The campaign’s tax lawyer [Washington D.C. tax lawyer Roger M. Olsen] has got at least that much of the law, and perhaps more, wrong. . . . And the fact that the state payroll office got it wrong, too, doesn’t erase the Palins’ unpaid tax liability.”

Professor Camp gives us a line-item analysis:

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.

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.

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.”

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.

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.

“We have letters from tax experts on this,” said a spokesman for the McCain campaign, Brian Jones. “The State of Alaska conferred with the Internal Revenue Service, and this is the decision that they came to.”

Full post as published by Law Blog - WSJ.com on October 06, 2008 (boomark / email).