Taxation & Estate Planning

Timothy Geithner, Treasury Secretary nominee, failed to pay federal taxes

By Darrin Mish

The Wall Street Journal reported yesterday that Timothy Geithner, President-elect Barak Obama?s nominee for treasury secretary and president of the Federal Reserve, failed to pay $34,000 worth of federal taxes ($43,200, including interest) from 2001 to 2004.

While working for the International Monetary Fund, Geithner failed to pay self-employment taxes from 2001 to 2003. After an audit by the IRS in 2006, Geithner paid the self-employment taxes and interest from 2003 and 2004. The IRS waived penalties for those tax years. At this time he did not pay the taxes from 2001 and 2002.

According to materials released by the Senate Finance Committee, Geithner had paid back the past-due taxes from 2001 and 2002 before his nomination was announced.

However, Geithner failed to pay off the nearly $26,000 he still owed until November, just before his nomination went to the Senate Finance Committee for official review.

Though the incoming administration claims that Geithner?s failure to pay taxes was an ?honest mistake?, this seems unlikely.

As an international organization, the IMF does not withhold payroll taxes for Social Security and Medicare from its American employees? paychecks. If self-employed, American employees are required to pay the tax themselves. According to Obama?s transition officials, Geithner failed to pay the Social Security and Medicare taxes after his accountant told him he was exempt.

Though the faulty accounting advice may not be Geithner?s fault, his failure the correct his mistake is still questionable. Geithner became aware of his tax issues in 2006, at the latest, two years before his nomination. Even after an audit forced him to pay the taxes for 2003 and 2004, he still did not pay for 2001 and 2002. This raises the question of why Geithner would not correct his mistake and just pay for all the years he owed after this problem was brought to his attention.

At the very least, Geithner has caused himself and the incoming administration a great deal of embarrassment. The Treasury Department, which he has been chosen to head, oversees the IRS and is responsible for the collection of taxes. Geithner should not be considered above the law. If an IRS employee were in his position, they would unquestionably lose their job. It seems unfitting and hypocritical for him to serve as the head of the Treasury Department if he can?t perform its most basic function of tax collection.

Should someone like Geithner, who didn?t pay his taxes on time, be able to serve as the head of the Treasury Department? Does his past diminish his authority to enforce tax code? What kind of effect does this news have on taxpayers? What do you think as a taxpayer? I welcome your comments.

Full post as published by IRS Problem Solver Blog on January 14, 2009 (boomark / email).