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The tax perils of Palin

October 08, 2008

The tax blogs have been beating Sarah Palins tax returns to death, particularly her per-diem reimburserments for family members for travel away from the state capital. They have also raised the issue that Anchorage, rather than Juneau, might be her tax home because of the amount of time she spends there. That would make her own per-diems taxable, too.

I have briefly covered some of the technical issues, and two law professors have smothered them here, so I won't go into them. My own impressions:

- Governor Palin will owe substantial back taxes. I don't see any way to exclude the per-diems paid for her family members. The amount will be pretty painful, given the size of the reimbursements involved.

- The tax home issue is the kind of issue only the most annoying IRS agent, or a politically-motivated professor, would raise. Common sense says that a governor's tax home is the state capital. You can make a reasonable technical argument otherwise based on the amount of time she spends in Anchorage, but it's a pointless and hair-splitting kind of argument. The issue would never have come up if she weren't on the national ticket.

- If they decide her tax home is really Anchorage, they should offset those per-diems that she would be taxable on by those she would have gotten for her time in Juneau.

- The Alaska state payroll processing badly needs to get some continuing education, and they need to either bring their per-diem policies in line with IRS rules or start putting them on the W-2.

- It's absurd to think she should face negligence penalties for reporting the amount on her W-2, which didn't have the per-diems on it, as income, absent some evidence that she had a hand in how the W-2s were prepared. I agree with Peter Pappas on this issue.

- She should consider stepping up from H&R Block. Storefront tax preparers are just fine for most returns, but the Palin return, with the schedule Cs and the extra scrutiny a governor will get, isn't most returns. Kerry Kerstetter notwithstanding, the extra bucks spent on a good CPA would be money well-spent. When there's real money on the table, nothing costs more than cheap tax help. That said, I can't imagine any preparer, CPA or not, would have investigated to see whether Alaska had done the W-2 right.

For more coverage of the Palin returns, you have plenty of choices:

The TaxProf
Kay Bell
Linda Beale
Roni Deutch
Lee Sheppard ($link)

The returns are here.

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