Today journalists Mary Jacoby and Jesse Drucker of the Wall Street Journal examine the tax issues involving $25,000 in remibursements for the travel expensives of Alaska Gov. Sarah Palin’s children.
Several tax experts said they believe Republican vice-presidential nominee Sarah Palin is required to pay federal taxes on $25,000 in reimbursements from the state of Alaska for her children’s travel expenses.
The Alaska governor released her 2006 and 2007 tax returns on Friday, sparking a lively debate on tax blogs and among tax professionals over whether reimbursements and per-diem meal payments from the state should be subject to federal taxes. Since taking office in December 2006, Gov. Palin, whose state salary is $125,000 a year, received reimbursements totaling $43,500 for travel and lodging for her family in connection with state business. Of that total, $25,000 was for her children’s travel and the rest was for her husband, Todd, the Washington Post reported.
While several tax experts have raised serious questions about whether the payments to Gov. Palin are taxable income, they said the case was clearer cut for treating the reimbursements for the children’s expenses as taxable income. “The kids are a slam dunk problem,” said Robert Spierer, a partner with the accounting firm Perelson Weiner LLP in New York City. “The husband you could make an argument that he had to be there because it was required for spouses to be there.”
But not the children, he said. “I don’t think I would ever claim that on my clients’ returns. I can’t think of a real strong argument for it.”
Gov. Palin also accepted $17,000 in per-diem meal payments for nights spent at her home in Wasilla, 40 miles from the governor’s office she used in Anchorage, Alaska’s largest city. Gov. Palin often used that office rather than traveling to the state capital of Juneau, more than 800 miles away. Several tax experts have argued this should be counted as taxable income.
The McCain-Palin campaign released an opinion letter from Washington, D.C., criminal tax lawyer Roger M. Olsen, concluding that Gov. Palin complied with Alaska law in not reporting the reimbursements and meal payments as income.
A spokesman for the McCain campaign said Gov. Palin relied on the W2 wages form from the state of Alaska in filing her tax return, which was prepared by H&R Block. The W2 did not include the travel reimbursements as income.
“The state believes it is interpreting IRS policy correctly. It has no indication to believe that it is misinterpreting that policy,” said Brian Jones, a McCain campaign spokesman.
Gov. Palin “has every right to assume the state of Alaska knows how to handle her W2,” said Alan D. Westheimer, a certified public accountant in Houston. “These people [the Palins] are not tax lawyers. They went to H&R Block” to prepare their taxes.
Mr. Westheimer said this shows a good-faith attempt on the part of the Palins to comply with the law. Of the travel reimbursements for her children, “it may not be the letter of the law,” he said, “but it’s arguably within the spirit of the law because it’s related to her job.”
Tax experts said a good case could be made that Mr. Palin, as the spouse of the governor, was required to attend official functions and was thus eligible for the travel and lodging reimbursements, even though he is not an Alaska state employee. Many of them said it is less clear why Gov. Palin’s children would be required at official state functions.
Bryan Camp, a tax professor at Texas Tech University School of Law and a former Internal Revenue Service lawyer in Washington, said the IRS would ask several questions to determine whether the travel reimbursements were reported properly.
Those questions include whether Mr. Palin and the children were employees of the state of Alaska, whether they traveling for bona fide business purposes, and whether they would have been able to deduct those travel expenses on their own tax returns for business purposes.
Because the answer to at least one and possibly more of those questions is no, “The Palins should have reported the $43,000 in family travel allowances received in 2007 as income,” Mr. Camp wrote in an analysis.