Taxes and Dachle and Geitner
February 3, 2009 10:43 AM Subscribe
A couple of quick questions regarding government officials failing to pay taxes and culpability.
1) When people use accountants to file their taxes, isn't it the responsibility of the accountant and not the client to appropriately and thoroughly identify and fulfill all tax obligations? I understand that there would quite the hubbub if the individual was found to be actively obfuscating his/her finances, or deliberately emitting income from tax filings. But are Daschle/Geitner/etc. really responsible for the failures of their accountants to alert them to unpaid taxes?
2) Are Geitner/Daschle just odd cases because of their murky private/public lives, or do rich people in general just not pay the appropriate taxes? I'm not speaking merely of finding tax loopholes, but rather, are there enough hazy areas in tax laws where rich people can just choose not to pay taxes on something contentious and hope that they don't have to pay it (unless they decide to become a Cabinet member). Geitner/Daschle were instances where hundreds of thousands of dollars in taxes were not paid. That seems so odd to me.
I'm not intending these to be vague questions or to inspire a LOLIRS thread. I really truly don't understand what's going on here, and in the news coverage of both of these men, there seems to be nobody who can confidently answer whether or not Geitner or Daschle did anything wrong, whether they were the ones who were negligent or whether it was their accountant, etc. What the hell? Either they cheated on their taxes or they didn't, yeah?
Any answers with some insight would be greatly appreciated, thanks.
1) When people use accountants to file their taxes, isn't it the responsibility of the accountant and not the client to appropriately and thoroughly identify and fulfill all tax obligations? I understand that there would quite the hubbub if the individual was found to be actively obfuscating his/her finances, or deliberately emitting income from tax filings. But are Daschle/Geitner/etc. really responsible for the failures of their accountants to alert them to unpaid taxes?
2) Are Geitner/Daschle just odd cases because of their murky private/public lives, or do rich people in general just not pay the appropriate taxes? I'm not speaking merely of finding tax loopholes, but rather, are there enough hazy areas in tax laws where rich people can just choose not to pay taxes on something contentious and hope that they don't have to pay it (unless they decide to become a Cabinet member). Geitner/Daschle were instances where hundreds of thousands of dollars in taxes were not paid. That seems so odd to me.
I'm not intending these to be vague questions or to inspire a LOLIRS thread. I really truly don't understand what's going on here, and in the news coverage of both of these men, there seems to be nobody who can confidently answer whether or not Geitner or Daschle did anything wrong, whether they were the ones who were negligent or whether it was their accountant, etc. What the hell? Either they cheated on their taxes or they didn't, yeah?
Any answers with some insight would be greatly appreciated, thanks.
The NYTimes hosted a forum where several tax experts weighed in: A Tax Dodge or an Honest Mistake?
posted by vacapinta at 11:00 AM on February 3, 2009 [2 favorites]
posted by vacapinta at 11:00 AM on February 3, 2009 [2 favorites]
Some people do the same thing and simply figure the risk/reward is worth it to play loose with the tax rules.
I agree, though this is not strictly the behavior of the rich. Any tax accountant you go to is going to know "the line" for your income, which is basically the amount of deductions you can take while staying within X% of audits at that level. Anyone who wants to treat taxes like a game is welcome to play.
posted by mkultra at 11:14 AM on February 3, 2009
I agree, though this is not strictly the behavior of the rich. Any tax accountant you go to is going to know "the line" for your income, which is basically the amount of deductions you can take while staying within X% of audits at that level. Anyone who wants to treat taxes like a game is welcome to play.
posted by mkultra at 11:14 AM on February 3, 2009
Tax accountants give out a worksheet of sorts for a client to fill out, but in both of these high profile cases, the accountant could not have known of the client's special circumstance if the client did not tell them. In Dashle's case it would be difficult to assume that he had been given the use of a car and driver, probably not an everyday occurence.
You can always play forgetfulness if you forget something that would constitute compensation, but the what the IRS looks on as fraud is making up false records or false expenses. Typically the IRS will drop the penalty and charge 5% interest on the tax due, if the payment is made immediately. Not a bad deal for those that can easily cut a check for over $10k. This is the negotiation that tax attorneys get paid to make every day.
Due to budget cuts the amount of IRS agents and officers dropped almost 10% under the Bush adminstration. The odds are pretty good that these cases are just cut and dried, pay tax + interest and move along, if caught at all.
posted by readery at 11:26 AM on February 3, 2009 [1 favorite]
You can always play forgetfulness if you forget something that would constitute compensation, but the what the IRS looks on as fraud is making up false records or false expenses. Typically the IRS will drop the penalty and charge 5% interest on the tax due, if the payment is made immediately. Not a bad deal for those that can easily cut a check for over $10k. This is the negotiation that tax attorneys get paid to make every day.
Due to budget cuts the amount of IRS agents and officers dropped almost 10% under the Bush adminstration. The odds are pretty good that these cases are just cut and dried, pay tax + interest and move along, if caught at all.
posted by readery at 11:26 AM on February 3, 2009 [1 favorite]
Accountants only know what their clients tell them. You can ask if there is any other income but if your client tells you no, you must take them at their word. We don't have access to any information outside what our clients provide. I ask every client if the have any income other than what we have already talked about and am invariably told "no", yet a few months down the road a handful of clients always return with IRS letters in hand. I believe people really do forget about jobs they had or contracts they received, but personally I've never been able to understand it.
posted by itsamonkeytree at 11:28 AM on February 3, 2009
posted by itsamonkeytree at 11:28 AM on February 3, 2009
The Senate reports on Daschle and Geithner are interesting reading and have a lot of low-level details. (Both are PDFs.) For instance, Daschle actually had an incorrect 1099 in one case, which many people, rich or poor, would be caught by.
are there enough hazy areas in tax laws where rich people can just choose not to pay taxes on something contentious and hope that they don't have to pay it
I think that may be mis-characterizing it. Yes, there are hazy areas. Yes, people do read the vague IRS rules in a way that favors them. But it's not like the IRS is going to tell you whether your interpretation is right in advance. You just have to wing it and hope you can convince them if you get audited. You can either use your best informed judgment of what they mean, or you can pick the most conservative option in every case and pay a lot of extra taxes.
posted by smackfu at 11:49 AM on February 3, 2009
are there enough hazy areas in tax laws where rich people can just choose not to pay taxes on something contentious and hope that they don't have to pay it
I think that may be mis-characterizing it. Yes, there are hazy areas. Yes, people do read the vague IRS rules in a way that favors them. But it's not like the IRS is going to tell you whether your interpretation is right in advance. You just have to wing it and hope you can convince them if you get audited. You can either use your best informed judgment of what they mean, or you can pick the most conservative option in every case and pay a lot of extra taxes.
posted by smackfu at 11:49 AM on February 3, 2009
There are several things that can go wrong here without anyone being criminal.
1. The person responsible for payroll and tax forms knows that this is taxable but is not made aware that the employee/contractor has a car and driver. It never gets on the 1099s or W-2, the employee/contractor doesn't think to check on it, and no one pays taxes. This is simply poor communication and not necessarily anyone's fault. If you're already getting paid several million, you don't really notice whether the $100k for the car is in there or not since these things are not itemized on the tax forms you get from the company.
2. The person at payroll/tax knows of the car and driver but doesn't realize that it is taxable. There are rules for this that are very fact-intensive and if a person doesn't have all the fact or doesn't have the correct facts they might get it wrong. Also, if there isn't a tax lawyer or good accountant directly overseeing the preparation of the forms there is a good chance that they won't know that the car and driver get included in income. Would you know that using a company car and driver goes into your income if you hadn't been told?
3. The person using the car and driver is responsible for their own forms and they don't know that it is taxable. Most people don't. If they don't think to tell their accountant and the accountant doesn't think to ask then it never gets taxed.
Whether these scenarios are what happened, I don't know. An accountant with all the facts would know 100% that this was taxable, it isn't a gray area. Daschle could have known this and chosen not to tell the accountant. The accountant could have known this and taken a gamble on not including it, with or without telling Daschle (accountants don't necessarily communicate everything they are doing to their clients, especially if they promised their clients that they would find more deductions, lower their taxes, etc.). Daschle is not the only person to get caught by this, and there are definitely people/companies in the past who were not trying to get away with anything- it was a pure mistake. This might not have been, we don't know for sure.
Individual taxes tend to be more clear cut than corporate, but they can be just as complicated. Many individuals getting these things wrong are doing so because they misread the rules, aren't aware of rules, or are being misled by slimy accountants who promise returns they can't legally get. As GuyZero pointed out, corporations are a different matter. They tend to work more in gray areas and make aggressive tax decisions hoping that they won't get audited or that an audit will go well for them. Sometimes the area really is gray, sometimes it's closer to black and they hope they can paint some whitewash over it when the time comes.
posted by ohio at 12:24 PM on February 3, 2009 [1 favorite]
1. The person responsible for payroll and tax forms knows that this is taxable but is not made aware that the employee/contractor has a car and driver. It never gets on the 1099s or W-2, the employee/contractor doesn't think to check on it, and no one pays taxes. This is simply poor communication and not necessarily anyone's fault. If you're already getting paid several million, you don't really notice whether the $100k for the car is in there or not since these things are not itemized on the tax forms you get from the company.
2. The person at payroll/tax knows of the car and driver but doesn't realize that it is taxable. There are rules for this that are very fact-intensive and if a person doesn't have all the fact or doesn't have the correct facts they might get it wrong. Also, if there isn't a tax lawyer or good accountant directly overseeing the preparation of the forms there is a good chance that they won't know that the car and driver get included in income. Would you know that using a company car and driver goes into your income if you hadn't been told?
3. The person using the car and driver is responsible for their own forms and they don't know that it is taxable. Most people don't. If they don't think to tell their accountant and the accountant doesn't think to ask then it never gets taxed.
Whether these scenarios are what happened, I don't know. An accountant with all the facts would know 100% that this was taxable, it isn't a gray area. Daschle could have known this and chosen not to tell the accountant. The accountant could have known this and taken a gamble on not including it, with or without telling Daschle (accountants don't necessarily communicate everything they are doing to their clients, especially if they promised their clients that they would find more deductions, lower their taxes, etc.). Daschle is not the only person to get caught by this, and there are definitely people/companies in the past who were not trying to get away with anything- it was a pure mistake. This might not have been, we don't know for sure.
Individual taxes tend to be more clear cut than corporate, but they can be just as complicated. Many individuals getting these things wrong are doing so because they misread the rules, aren't aware of rules, or are being misled by slimy accountants who promise returns they can't legally get. As GuyZero pointed out, corporations are a different matter. They tend to work more in gray areas and make aggressive tax decisions hoping that they won't get audited or that an audit will go well for them. Sometimes the area really is gray, sometimes it's closer to black and they hope they can paint some whitewash over it when the time comes.
posted by ohio at 12:24 PM on February 3, 2009 [1 favorite]
1) When people use accountants to file their taxes, isn't it the responsibility of the accountant and not the client to appropriately and thoroughly identify and fulfill all tax obligations? I understand that there would quite the hubbub if the individual was found to be actively obfuscating his/her finances, or deliberately emitting income from tax filings. But are Daschle/Geitner/etc. really responsible for the failures of their accountants to alert them to unpaid taxes?
Under New Zealand law, it is still ultimately the responsibility of the taxpayer if he taxes are incorrect; an accountant will have the client sign off and review the tax returns as part of this process. So, yes, you can be held responsible for your accountant's failings.
or do rich people in general just not pay the appropriate taxes?
There are always ways of avoiding taxes; here in NZ the tax department like to talk about "tax avoidance" - using legal schemes to reduce tax liability - and "tax evasion" - illegally avoiding paying taxes. The problem can be in the grey areas - some accountants (and clients) will be a lot more aggressive about ways to reduce tax liability, or come up with schemes that sound good but haven't been properly legally vetted. Other accountants will give the same person much more conservative advice; in some cases the line between "in trouble" and "not in trouble" could be as simple as the proportions claimed on otherwise legitimate deductions.
For example: as a self-employed person I can claim certain household expenses as a 'home office' deduction; the amount is based on the area of the house used for home office tasks. Most NZ accountants I've spoken to recommend no more than 10% of the house expenses be claimed this way, or the tax man will become a great deal more interested in scrutinising what it is you're doing and how legitimate your claims are.
Another example: I had (and got rid of) an accountant who was keen for me to set up a small company and migrate various assets (like my car) into it to reduce tax liability. While this can be considered OK, it involves a lot of extra paperwork to keep it above board - the IRD are not stupid, and moving my privately owned car into my one man business and mostly using it privately rather than professionally is the sort of thing they would look hard at, so I'd need to keep log books proving I really did use it for business purposes.
As to the psychology of why people with enough money that they can enjoy a comfortable upper-class lifestyle without ever working again feel the need to screw every penny out of the bad ol' government, well, that's beyond me.
posted by rodgerd at 1:09 PM on February 3, 2009
Under New Zealand law, it is still ultimately the responsibility of the taxpayer if he taxes are incorrect; an accountant will have the client sign off and review the tax returns as part of this process. So, yes, you can be held responsible for your accountant's failings.
or do rich people in general just not pay the appropriate taxes?
There are always ways of avoiding taxes; here in NZ the tax department like to talk about "tax avoidance" - using legal schemes to reduce tax liability - and "tax evasion" - illegally avoiding paying taxes. The problem can be in the grey areas - some accountants (and clients) will be a lot more aggressive about ways to reduce tax liability, or come up with schemes that sound good but haven't been properly legally vetted. Other accountants will give the same person much more conservative advice; in some cases the line between "in trouble" and "not in trouble" could be as simple as the proportions claimed on otherwise legitimate deductions.
For example: as a self-employed person I can claim certain household expenses as a 'home office' deduction; the amount is based on the area of the house used for home office tasks. Most NZ accountants I've spoken to recommend no more than 10% of the house expenses be claimed this way, or the tax man will become a great deal more interested in scrutinising what it is you're doing and how legitimate your claims are.
Another example: I had (and got rid of) an accountant who was keen for me to set up a small company and migrate various assets (like my car) into it to reduce tax liability. While this can be considered OK, it involves a lot of extra paperwork to keep it above board - the IRD are not stupid, and moving my privately owned car into my one man business and mostly using it privately rather than professionally is the sort of thing they would look hard at, so I'd need to keep log books proving I really did use it for business purposes.
As to the psychology of why people with enough money that they can enjoy a comfortable upper-class lifestyle without ever working again feel the need to screw every penny out of the bad ol' government, well, that's beyond me.
posted by rodgerd at 1:09 PM on February 3, 2009
This thread is closed to new comments.
posted by GuyZero at 10:49 AM on February 3, 2009