Were Geithner's unpaid taxes errors or cheating?

McClatchy NewspapersJanuary 14, 2009 

WASHINGTON — Tax errors that embattled Treasury Secretary-designee Timothy Geithner has admitted range from the complicated to the comical. Here are some answers to questions about his missteps:

Q: So Geithner underpaid taxes and was forced to pay back taxes with interest. He paid them, so what's the problem?

A: The circumstances raise eyebrows. From 2001 to 2004, when he was mainly employed by the International Monetary Fund, taxes for Social Security and Medicare weren't deducted from his pay. Geithner signed a document saying that he was aware this was the case, but he never paid them until it was called to his attention later. Americans who work at the IMF are treated as self-employed for tax purposes, and Geithner was given a guidebook on how to address this tax matter.

Q: How does he explain this?

A: He hasn't explained publicly, but in private, apparently his pitch is simply that the tax code is complex, especially for the self-employed. His backers say that these were simply honest mistakes.

"This is an example of the average taxpayer doing his own return. Using software does not guarantee an accurate return," said Milton Baker, a retired certified public accountant and blogger in Westland, Mich.

Geithner filed amended tax returns for 2001 and 2002 after Barack Obama nominated him. Earlier he did so for 2003, 2004, 2005 and 2006 after an IRS audit in 2006. He did his own taxes in 2000, 2001, 2002 and 2005.

Q: Aren't there some other mistakes, too?

A: One of the more egregious errors was that Geithner, over three different tax years, claimed that expenses for the summer camps he'd sent his children to qualified for the child and dependent-care tax credit. This credit is for working parents with children younger than 13 who send them to preschool or after-school care. IRS documents and commercially available tax software clearly define what qualifies.

"That's one anyone who has kids and has filled out that form knows that it's wrong. That's really odd," said Paul Caron, a prominent tax-law expert and associate dean at the University of Cincinnati College of Law.

Q: Aren't Geithner's problems evidence of complexity in the tax code?

A: The self-employment tax perhaps, but millions of Americans claim the child care credit without problems.

Documents that the Senate Finance Committee released suggest that Geithner also failed to pay a penalty tax for withdrawing money early from a federal retirement account.

There's a 10 percent penalty for doing that, and it's advertised up front for tax-deferred retirement accounts. This is as basic as it gets in the world of personal finance.

"I don't understand how the 10 percent withdrawal penalty could have fallen through the cracks. That's just a red flag," said Peter Sepp, spokesman for the National Taxpayers Union, a group that lobbies for simplifying the U.S. tax code.

Q: What about the immigrant housekeeper? A similar foul-up forced Zoe Baird to withdraw her nomination to be attorney general in 1993, so isn't this a double standard?

A: Baird withdrew after revelations that she hadn't paid federal taxes on an illegal alien in her employ. Geithner admits to a three-month period in which a foreign-born domestic employee's immigration documents had expired without his knowledge. He did pay her wage taxes, however.

Q: That's it?

A: No. Geithner acknowledged that he didn't acquire the required I-9 forms for verification of employment eligibility status from three domestic employees. He said that he did write down the document information and identification numbers. He said he verified the employees' immigration status but retained no hard proof. Over a decade, he also failed on numerous occasions to pay their Social Security or Medicare taxes until letters from the federal government reminded him.

Q: Is there any upside to this?

A: If Geithner is confirmed, yes, according to Sepp of the National Taxpayers Union.

"Maybe this ordeal will convince him to move tax simplification to the top of the priority list," he said.

ON THE WEB

IRS child care tax-credit tip

Geithner tax documents

MORE FROM MCCLATCHY

To ask a question about this story or any economic question, go to McClatchy's economy Q&A

Vetting stumble? Treasury nominee underpaid taxes

Energy nominee: Coal, nuclear an 'important part' of power mix

Bernanke drops pretense of secrecy and airs Fed's plans

McClatchy Newspapers 2008

McClatchy Washington Bureau is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service