Tax Time for Non-cabinet Appointees
Dear Mr. Shulman:
It is the time of year when I send my annual letter regarding our unsightly mess commonly called the tax code. As you know, the total number of pages of statute and tax regulations continues to expand on an annual basis in excess of the rate of inflation.
Presidents of our country have referred to the tax code as an embarrassment. Of course, some newspaper or clever tax preparation service will present seemingly simple tax returns to your “help desks,” only to receive radically different responses. Scenarios such as this occur on an annual basis and I’m sure it will happen again during this tax season. The tax code is, in a phrase, a trap for the unwary.
And apparently, it can be a trap for the wary as well. It would be difficult to find a more intelligent and tax-wary individual than your boss, Treasury Secretary Tim Geithner. As we all know, your boss committed a $34,000 tax “mistake” by overlooking his self-employment tax liability during a four-year period of time. The ever-wary Secretary Geithner was audited by the Internal Revenue Service (IRS) in 2006 and only then paid his back taxes for 2003 and 2004, according to his Senate testimony. The IRS waived the related penalties. Only after he was being vetted for his current position did Secretary Geithner amend his 2001 and 2002 returns, which had the same problems as his 2003 and 2004 taxes. Will the Treasury Department waive all penalties and past interest for non–cabinet secretaries who run afoul of the self-employment tax?
Treasury Secretary Geithner is in good company. The former nominee for Secretary of Health and Human Services, former Senator Tom Daschle, failed to pay $128,000 in back taxes. Daschle apparently didn’t know that his use of his friend’s car and chauffeur (worth an estimated $125,000) was a taxable event. Waitresses receiving tips, teenage babysitters receiving payment, and others who receive “phantom income” are equally surprised.
And speaking of phantom income, we want to know what you will do to help out the ordinary taxpayer—as opposed to congressmen who chair committees—who has part of a mortgage loan forgiven. Current regulations would appear to include this in taxable income (unless one has gone bankrupt), subject to a number of other provisions. I strongly suspect that unless you are a major congressional committee chair, a cabinet appointee, or at least a sub-cabinet appointee, you are likely to be held accountable for this type of phantom income.