Friday, December 19th, 2014

Your guide to the Geithner tax controversy

President-elect Obama says Timothy Geithner, left, made a common mistake on his taxes.
President-elect Obama says Timothy Geithner, left, made a common mistake on his taxes.

Revelations that treasury secretary nominee Timothy Geithner made some errors in his tax returns have provided ample fodder for his opponents.

He makes for an easy target. This is the guy who will be overseeing the government's massive economic recovery/bailout plans. Shouldn't he, of all people, be able to pay his taxes properly?

Here's the backstory.

The IRS audited Geithner in 2006 and found that he failed to pay self-employment taxes on compensation he received as an employee of the International Monetary Fund for tax years the IRS was looking at, 2003 and 2004 (by law, the IRS could not audit him for years before 2003). So Geithner paid $16,732 in back self-employment tax, plus interest, for those years.

Then in late 2008, when President-elect Obama decided to nominate Geithner to his Cabinet, the presidential transition team vetted Geithner and discovered a few problems in Geithner's previous tax returns, including the fact that in addition to not paying self-employment taxes in 2003 and 2004, he also didn't pay them for 2001 and 2002.

So last month, Geithner voluntarily amended his tax returns for those years and wrote a check to the IRS for another $25,970. In his amended return, he squared up on the 2001 and 2002 self-employment taxes, but also on a few other items, including improper deductions he took for his kids' overnight camps.

The vetting committee also unearthed another embarrassing nugget: that the legal immigration status of a housekeeper briefly lapsed while in his employ. But that's another matter altogether.

Shortly after Geithner filed his amended returns, he was officially nominated by Obama.

Democrats and many Republicans have so far been forgiving of Geithner's tax mistakes. By some accounts, it can be awfully confusing for IMF employees to figure out their tax obligation. As an international organization, the IMF is exempt from the FICA and Social Security taxes that most Americans get deducted from their paychecks automatically. U.S. nationals who work for the IMF in the United States are required pay them on their own.

We looked into statements from both sides of the Geithner tax debate.

One came from Obama, who defended Geithner this week, saying his failure to pay self-employment taxes while working for the IMF "is a mistake that is commonly made for people who are working internationally or for international institutions." We ruled that statement Mostly True.

We also looked at a claim from the Competitive Enterprise Institute, a conservative group, that made the point that while Geithner paid up for his self-employment tax errors for 2003 and 2004 after the IRS flagged him on it, he didn’t square up on similar oversights from 2001 and 2002 until the presidential transition committee called him on it late last year. We ruled that statement True.