Questions Linger About Palin Taxes

New York Times
October 6, 2008, 3:19 PM
Questions Linger About Palin Taxes
By LESLIE WAYNE

Now that tax attorneys have had a chance to review Gov. Sarah Palin’s tax returns, which were released late last week, a new round of questions are being raised on tax-related websites.

One big issue that tax attorneys are pointing to is the fact that the Palins did not report as income the $43,490 that the state gave the family to cover travel expenses for Mr. Palin and the Palin children. Had the Palins reported these payments as income, the couple would have had to pay taxes on it.

These tax attorneys note that neither Mr. Palin nor the children were employees of the state. Nor were they traveling on behalf of the state. There was some discussion that perhaps some portion of Mr. Palin’s travel expenses might be excludable as income if there was a bona-fide business reason for his presence and if he assisted Mrs. Palin in her official duties.

But there was also uniform agreement that it would be hard to make a case for the not reporting the payments to the children as income.

“The children’s travel payments are clearly taxable income,’’ said Jack Bogdanski, a tax professor at the Lewis and Clark Law School in Portland and a former advisor to the Internal Revenue Service. “The money paid for Todd Palin’s travel might possibly turn out to be tax-free, but it would be quite a stretch.”

Bryan T. Camp, a tax law professor at Texas Tech University School of Law, said “There is no suggestion that either Todd or the kids are employed by the State of Alaska. Maybe they should be.” Mr. Camp added “The issue is whether Palin gets the $43,000 tax free – no income tax, no Social Security tax, no Medicare tax, not a dime.” His conclusion: The payments are taxable.

So if that is the case, how much might the Palins owe? Mr. Bogdanski said that, at the least, the family should have reported the $24,728 in children’s travel reimbursements. He calculates a tax bill of $6,000, based on a tax rate of between 25 and 28 percent. There would also be additional interest payments since last April 15.

The other area attracting attention is Mr. Palin’s snowmobiling racing and whether it is a legitimate business (which allows the Palins to deduct snowmobiling expenses) or whether it is a hobby, for which no deductions will be allowed.

The Palin’s deducted $9,000 in business losses from snowmobiling. This tax-loss would not be allowed if the activity is a hobby. The I.R.S. rule is that if an activity produces a profit in three of the past five years, is a businesses and not a hobby. But the Palins released tax returns for only two years, so it is impossible to tell. One year showed a $9,000 loss, the other year a slight profit.

Another I.R.S. test is whether making a profit — and not just having fun in the snow — was the “predominate, primary or principal objective” of Mr. Palin’s snowmobiling.

As Mr. Camp writes, the tax question is: “Why does he do it? Love of sport or love of lucre?”