Tax Profs: Palin Owes Thousands in Back Taxes

by Jonathan Singer [courtesy of MyDD]

Over the weekend I noted the academic discussion over whether Sarah Palin had underpaid her federal taxes. In the time since, it appears that tax law professors are coming to harder opinions on the issue, and some bastions of the establishment media are beginning to take note.

Lewis and Clark law professor Jack Bogdanski, writing under the headline "There's no debate: Palins owe thousands in back taxes," concludes as follows:

There is no serious debate (at least, none that has been brought to our attention) about the fact that at least the amounts paid for the children's travel -- $24,728.83 in 2007, according to the Washington Post -- are taxable. The campaign's tax lawyer has got at least that much of the law, and perhaps more, wrong. ...  The Palins, who had their tax returns done by HR Block, simply got it wrong. And the fact that the state payroll office got it wrong, too, doesn't erase the Palins' unpaid tax liability.

Per Paul Caron of TaxProf Blog, professor Bryan Camp of Texas Tech University agrees with Bogdanski:

The Palins did not report as income some $43,000 that the State of Alaska paid the Governor as an "allowance" for her husband and children's travel. Can they do that? No, most likely not.

The relevant regulation states that when a taxpayer ascertains that an item (like, for instance, travel allotments for children) should have been included in gross income for the previous taxable year, he or she "should" file an amended return and pay any additional tax. Treas. Reg. § 1.451-1(a). Now "should" means "should," not "must" or "shall," so Palin would be under no legal obligation to make this disclosure to the IRS. But what flies in the world of law doesn't always fly in the world of electoral politics, and trying to continue to exempt these travel benefits from taxable income even in the face of the agreement of scholars that such benefits should be included in taxable income doesn't have tremendously great optics.

And this story is beginning to be picked up by the establishment media. On Saturday, National Public Radio touched on the story, but not in a great deal of depth. Today, The New York Times' Caucus blog covered the controversy, linking to the posts by Bogdanski and Camp, though it remains to see if the story ends up in the dead tree version of the publication. The same goes for The Wall Street Journal, which covered the story online but not yet (to my knowledge) on paper. It's not clear to me that this story will have legs, particularly given how much is going on in the world, and in politics specifically, at present. Yet at the same time, if the story does even have a day in it, which it might, that's one more distraction and wasted opportunity for the McCain campaign, which is flailing to change the course of this election.