January 17, 2009

AP’s ‘Q&A’ on Geithner’s Taxes Has Excuses Galore, No Mention of ‘Reimbursements’ Pocketed

ObamaAndGeithner0109.jpgThe Associated Press’s record of running interference for Treasury Secretary nominee Timothy Geithner continues mostly unabated.

My chronicle of AP’s largely weak coverage, most of which has been previously detailed here at BizzyBlog, is at the end of this post.

No AP report I have seen has noted that Geithner applied for and merely pocketed partial “reimbursements” from the International Monetary Fund for payroll/”self-employment” taxes. He signed IMF forms saying that he had paid or would pay those taxes. He didn’t pay up for 2003 and 2004 until his returns were audited. He more than likely never would have paid up for 2001 and 2002 if he had not been nominated, even though a strong case could be made that he engaged in tax evasion.

These aspects of Geithner’s tax situation, if widely known, would, I believe, cause the average taxpayer to object strongly to the very idea of his nomination. AP’s alleged journalists appear to believe that this cannot be allowed to happen.

AP Personal Finance writer Dave Carpenter, in a mostly Q&A piece with a really weak title (“Meltdown 101: US tax laws can even foil the pros”), continued the silence on pocketed reimbursements yesterday afternoon (stored here for future reference). He also seems to have found every excuse for Geither except “the dog ate my W-2″:

If Timothy Geithner can get confused over the laws governing the withholding of tax, anyone can, experts say.

U.S. tax laws are particularly complicated and full of land mines for the unsuspecting, as everyone from the Treasury secretary nominee to self-employed business owners and average taxpayers can confirm.

The Association of Chartered Certified Accountants, the global body for professional accountants, views the U.S. tax regime as one of the world’s most complex, according to Chas Roy-Chowdhury, London-based head of taxation.

“Even tax professionals could get it wrong,” he said, referring to the requirements involving self-employment taxes that tripped up Geithner as well as U.S. tax law in general.

….. Geithner failed to pay self-employment taxes for money he earned from 2001 to 2004 while working for the IMF.

He paid some of the taxes in 2006 after an IRS audit discovered the discrepancy for the years 2003 and 2004. But it wasn’t until President-elect Barack Obama selected him late last year to head Treasury that he paid back most of the taxes, incurred in 2001 and 2002.

….. Numerous tax experts say they understand how he might have either gotten ensnared by or overlooked the arcane IMF-related filing requirements. Some note that the tax filing advice given to IMF employees is voluminous and complicated.

Don Williamson, an accountant and professor of taxation at American University’s Kogod School of Business, calls Geithner’s actions “negligent and perhaps reckless.” But he says he deserves at least a partial pass for the faulty 2003 and 2004 returns, since that involved a technical matter his tax preparer should have known about.

….. Rather than an error, this is more often a case of people learning when they start filling out their tax forms that they owe much more than they thought because of self-employment, according to Mel Schwarz, a partner with accounting firm Grant Thornton who specializes in tax policy.

“It is easy to miss and it can cause a real panic if you don’t realize your liability until the last minute,” Schwarz said.

Lord have mercy, the journalistic trickery and fact-avoidance at AP is piling up faster than yours truly can dispose of it.

First, note that the AP’s Carpenter went overseas to get comments about US tax law. Why didn’t he go to the AICPA (American Institute for Certified Public Accountants)? Because in earlier AP reports, the Institute’s Vice President of Tax, Tom Ochsenschlager, wasn’t giving AP the Geithner-excusing answers it seemed to be looking for.

Second, only the first AP report by Brett Blackledge on January 13 noted that Geithner has had problems relating to self-employment taxes going back 16 years to 1993. Though the earlier matters concerned wages paid for domestic help, the fact is that Geithner has known about the nuances of self-employment taxes for a really long time. As I said yesterday at BizzyBlog:

If anyone in America should have been familiar with the fact that Uncle Sam demands an extraction of 15.3% for Social Security and Medicare on the vast majority of wages paid (the only exception being earnings above a certain level that are exempt from Social Security but not Medicare taxation), it’s Timothy Geithner.

Third, Carpenter said nothing about why Geithner didn’t pay his 2001 and 2002 taxes until just before his nomination was announced. Here’s my take:

I speculated a couple of days ago that this was because the normal statute of limitations for the IRS to question a return, which is three years after the date a return is filed, had expired. Subsequent press reports have confirmed this to be the case.

The statute of limitations tactic, while perhaps defensible for ordinary, tax-ignorant filers of limited means, doesn’t fly with Geithner. For him, it amounts to a “Nyah, nyah, you didn’t catch me quickly enough” taunt.

Much more important, the normal statute of limitations cop-out should not have applied. That’s because, as I noted on Wednesday, “The statute of limitations does not apply in the case of a false or fraudulent return with intent to evade any tax.”

Intent is often difficult to determine. But if leaning on the statute of limitations is a valid defense, why did Team Obama force Geithner to pay up before his nomination?

Answer: They must have concluded that a guy with Geithner’s background, experience, and history of IRS “discrepancies,” should have known, and indeed probably did know, that he was required to pay self-employment tax on his International Monetary Fund salary at the time he filed his 2001 and 2002 returns.

Thus, Geithner paid his taxes in hopes that the subject of tax evasion and the related exception to the ordinary statute of limitations wouldn’t be brought up. It should be. Evasion is evasion, and paying the taxes doesn’t cure the fact that the evasion occurred. It surely wouldn’t for the ordinary citizen.

At National Review, Byron York, following up on his Wednesday post that was primarily about Geithner’s chronic four-year failure to forward IMF “reimbursements” to the IRS, made these refuting points on Friday about Team Obama’s “common error” contention (bolds are mine):

But that figure (that as many as half make return mistakes) appears to be a significant exaggeration of the specific situation at the International Monetary Fund, where Geithner worked. “There’s not a high incidence of non-payment of taxes,” Bill Murray, an IMF spokesman, told me Thursday. “We have a very low incidence of that here.”

….. staffers for the Senate Finance Committee interviewed an official at the IMF as part of their Geithner research and were told that problems such as Geithner’s occurred perhaps once a year. Given all that, it’s probably more accurate to say that Geithner-like mistakes by high-ranking IMF officials are not only not common, but seem to be quite rare.

….. According to knowledgeable sources, Geithner, when he prepared his original 2001 return, reported that he would make a pension contribution. He later decided not to make that contribution and therefore needed to file an amended return. He approached an accountant for the specific purpose of changing the pension contribution entry and filing the amended return. It appears that Geithner gave the accountant the tax return, but no underlying documentation.

Senate staffers have talked to the accountant and have concluded that the accountant approached the task narrowly—he fixed the pension line and filed the amended return. It could be that Geithner thought the accountant gave the return more careful scrutiny overall, but it seems doubtful that the accountant gave Geithner’s return a clean bill of health, as the transition office implied.

Even though a lot of damning information about Geithner’s situation is known already, important, pertinent, and easy-to-understand facts are still being kept from general view by AP writers, most of whom seem bound and determined to drag this guy over the finish line at any cost.

AP writers covering for Geither and his presumptive boss should be careful what they wish for. As I wrote yesterday:

I don’t know whether Barack Obama is aware of the full extent of his nominee’s self-evident tax evasion, up to and including the IMF notifications, the IMF reimbursements, and Geithner’s false attestations that he had paid these taxes. But if he is, his ringing defense of Geithner should cause the American people to question the president-elect’s fundamental judgment and capacity to lead.

For some reason, I don’t think most of the alleged journalists at AP would like to see that happen.

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Partial Chronicle of AP Geithner Reports (articles are stored at host for fair use and discussion purposes):

  • Brett J. Blackledge; time-stamped 10:41 p.m. on Tuesday, January 13 (saved here, as are other articles, for fair use and discussion purposes, as the original link has since changed) — This turns out to have been the most complete report the wire service has done thus far, including by far the best headline (“Geithner failed to pay self-employment taxes”).
  • Julie Hirschfeld Davis; January 14, 3:33 a.m. (“Tax problems may plague Obama’s treasury pick”; stored here) — Davis removed many important details in Blackledge’s piece or pushed them to later paragraphs, and dutifully reminded us that Geither is “regarded as a brilliant financial markets specialist well-positioned to deal with the nation’s considerable economic problems.”
  • Davis; Wednesday, January 14, 3:19 p.m. report (“Obama: Geithner situation an ‘embarrassment’”; carried at Breitbart, whose posts usually stay up indefinitely) — This report includes Obama’s ringing defense of Geither (“Look is this an embarrassment for him? Yes. He said so himself. But it was an innocent mistake. It is a mistake that is commonly made for people who are working internationally or for international institutions.”). Davis’s 27th and final paragraph finally noted that “the IMF issues several clear guidelines each year for its employees detailing their responsibility to pay all their self-employment taxes, and that Geithner had signed annual statements saying that he would do so.”
  • Davis; January 15, 3:13 a.m. (“Geithner slowed, not stopped by tax problems”; stored here) — Davis seemed more interested in chronicling Geithner endorsements from go-along Republicans, and did nothing to advance the substance of the story, even though quite a few new pertinent facts had surfaced.
  • Blackledge; January 15, 11:18 p.m. (“Delayed hearing means more criticism for Geithner”; stored here) — Blackledge once again acquitted himself relatively well, taking note that Geither’s “is becoming a national punchline for late-night comics,” that constituents objecting to the nomination have been contacting their senators, and that “Newspaper editorials are stacking up.” He even noted that Geithner’s last-minute payment of 2001 and 2002 taxes is “a fact that’s puzzling in light of arguments that Geithner’s actions were simply ‘honest mistakes.’”

Cross-posted at NewsBusters.org.

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Previous Posts:

  • Jan. 15 — Tax ‘Goof’ Update: Geithner Was ‘Reimbursed’ for Taxes He Didn’t Pay; AP Story Buries, Then Deletes
  • Jan. 14 — Geithner Update: AP’s Early-AM Revision Flushes Many Details, Calls His Tax Problems ‘Goofs’
  • Jan. 13 — Treasury Nominee Geither’s Persistent Tax Problems Getting the Glossover Treatment; AP Coverage ‘Forgets’ at Least Chavez, Baird
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