The Washington Post has a story today about how the State of Alaska paid Sarah Palin a per diem for days when she was at her home in Wasilla. As a tax teacher, the first question that popped into my head was: Did Governor Palin pay federal income tax on these reimbursements? I can’t wait to ask my students whether they think that she should have had to pay tax on her per diem when we reach the deductibility of travel expenses in class in a few weeks.
If, as the story in the Post seems to imply, she was not engaging in business while in Wasilla, then there seems to be a nice question about whether her expenses while in Wasilla qualify either as traveling expenses deductible under section 162 or for the exclusion applicable to employer reimbursements of employee expenses (through, for example, a per diem) under Treas. Reg. section 1.62-2. If these are really just personal expenses paid by her employer, that sounds like taxable income to me.
In this respect, Governor Palin’s situation calls to mind the famous (infamous? well, at least for tax folks!) Flowers case in which a lawyer lived in Jackson, Mississippi, but worked in Mobile, Alabama. The lawyer refused to move to Mobile for personal reasons. In that case, the Supreme Court held that the lawyer could not deduct the costs of going from Jackson to Mobile and could not deduct his expenses while in Mobile because, in essence, this was just one long commute and commuting expenses are nondeductible. It would seem that the converse would also be true in Governor Palin’s situation.
Another intriguing question arises with respect to all of the airfare reimbursements for Governor Palin’s family members. This calls to mind a topic that I will actually cover in class sooner than the one described above; namely, the taxability of fringe benefits. This situation calls to mind the Joint Committee on Taxation’s examination of President Nixon’s tax returns and its conclusion that he should have included in his gross income the value of air travel on government jets by his family members.
If there are any tax folks out there reading this (Bridget?), I would be interested in hearing their thoughts on this and whether I missed anything.
-Tony Infanti
I agree with Tony’s analysis.
Did Governor Palin not seek professional advice? The tax bar in Alaska is quite good, and the state has a strong financial services industry (repeal of the rule against perpetuities, anyone?).
Francine, what do you think?
How about issues presented regarding the reimbursements for Gov Palin’s husband and children. There is a VERY HIGH BAR for excluding these expenses as fringe benefits or for deducting them because it smells like a family vacation versus business travel. The exclusion provisions only apply to spouses and dependents regarding no additional cost services (e.g., air travel for family/significant others) or certain employee discounts (e.g., on purchases above cost from the employer). Under 274(n) there is a VERY HIGH BAR for deductibility of these expenses (e.g., the spouse and children must be employees of the taxpayer) because of perceived/actual abuse.
THE OBVIOUS QUESTION IS HOW DID GOVERNOR PALIN TREAT THESE REIMBURSED EXPENSES ON HER TAX RETURNS? I WOULD ASSUME HER TAX RETURNS HAVE BEEN CLOSELY REVIEWED BY THE INFAMOUS VETTING TEAM?? SO WHEN WILL THEY BE RELEASED?? Alaska does not have a state income tax, but rather a per capita tax refund (from oil revenues). The Obama and McCain tax returns have already been released and are available online at Tax Analysts. As Paul Harvey would say it will be interesting to see the rest of the Palin tax story . . .
More thoughts from more TaxProfs
http://bojack.org/2008/09/governor_palin_your_tax_return.html
Since she has an office in Anchorage as well as Juneau, I don’t think this fits the Flowers case. Transportation costs between two work sites are deductible under 162. I also think the reimbursement for meals are okay under 132(a)(3)/162 since she was away from her tax home (I am assuming her tax home was Juneau). It appears from the article that she never sought per diem amounts while she was in Juneau.
I agree with Francine that is is very likely that the family expenses should have been included in income.
While the transportation costs between two work sites are deductible, I wonder whether this really fits that scenario or whether it really is more like the Flowers case (in reverse, as I mention in the post above, at least in terms of the expenses at issue). If Gov. Palin were working in Anchorage so that she could be closer to home (i.e., because it is more personally convenient than moving her whole family to Juneau), that sounds a lot like the Flowers case. In Flowers, the taxpayer’s employer agreed to let him continue living and working in Jackson so long as he showed up in Mobile when he needed to.
To use another example, I have a colleague who teaches here in Pittsburgh, but who lives in Cleveland (about 2-1/2 hours away). Our flexible schedules as academics permit him to work in Pittsburgh only a couple of days a week and to work in Cleveland the other days to be close to his family. If he has an office in Cleveland and works there while staying closer to home, I don’t think that would make his expenses while in Cleveland deductible even though Pittsburgh is his tax home (at least in the IRS’s view) and the two cities are in separate metropolitan areas. I think that the same might be said about Gov. Palin if she is doing the same type of thing (i.e., using the flexibility of her job to allow her to work close to home when she can, rather than working at her regular duty post). To me, that sounds more like a (non-deductible) personal (as opposed to a deductible business) decision about where to work. The courts have been resistant to allowing deductions for expenses incurred as a result of such personal choices. (Naturally, things would be different if her job duties actually required her to be in Anchorage at any given time.)
I think it makes a difference that, in Flowers, the railroad company did not provide an office for Flowers in Jackson (he apparently used his old law firm office). Here, Palin’s employer (the state of Alaska) provided the office in Anchorage. That plus the fact that the employer signs off on the per diem amounts for time spent in Anchorage/Wasilla suggests that the employer views it as a major/minor post (with Juneau being the major post) and a legitimate business purpose for being in Anchorage (and it seems reasonable to say that an office in Anchorage makes business sense since it is the largest city in the state).
But who really is the employer here? Isn’t, for this purpose, Palin really her own boss? The people signing off on her per diems are, presumably, individuals working in the executive branch who report to her.
Also, I don’t think that the fact that it is a state office should make a difference. For expenses to be deductible for going between two business sites, the two sites do not need to be in the same business or be two offices of the same employer. Moreover, the fact that the state tolerates her doing this does not mean that it is for a business purpose. Obviously, the employer in Flowers tolerated what the taxpayer was doing, but only because it was indifferent so long as the work got done. It could very well be the same type of accommodation for the personal preferences of an employee, which, to return to my point above, is made all the simpler in this case because the employee expressing the personal preferences is also, in effect, the employer who must decide whether those preferences will be honored.
jeffkahn,
Not sure I understand the “Anchorage/Wasilla” combination. They are two distinct municipalities (cities), about 45 miles from one another. If Juneau is the “major” then Anchorage is a “minor”, then what does it make a third municipality (Wasilla)? I suppose the real question becomes how she has handled this on her taxes regardless of what may be allowable under state rules.
Pingback: Are Palin’s Per Diem Payments Taxable? - The Caucus Blog - NYTimes.com
I think you may be wrong. The set up in Alaska, as I understand it, is that Juneau is the State capitol, has the legislature, and has the governor’s official residence–his/her duty station, in effect. But most of the State’s executive branch offices are in Anchorage (of which Wasilla is an exurb) and much of the Governor’s official time is spent there. The Post story, as I read it, was consistent with the view that Palin claimed meals and incidental expenses when in Anchorage/Wasilla on work days, but did not (at least from the Post’s copy of her travel voucher) claim lodging expenses (so strictly it was not per diem.) That practice is consistent with Federal travel regs (don’t know about Alaska) which allow meals, laundry, incidentals, subject to a daily cap, when on TDY, but don’t allow lodging expenses if you have a personal residence available.
As for the kids’ and husband’s travel expenses, I don’t know what Alaska practice is (or indeed Federal–but I doubt Hillary or Chelsea were charged travel.)
In fact, if, as you posit, the governor has two duty stations (and is not just working in Anchorage out of personal preference to be close to her home),with one duty station in Anchorage and the other in Juneau, then the question from a federal tax perspective becomes, which is the major post? The major post will be her home for purposes of determining when she is “away from home” under the relevant Code section. If she spends most of her time and does most of her work in Anchorage, then that would likely become her “home” and she would actually not be “away from home” at all and entitled to no deduction for any expenses while there (or in Wasilla, for that matter, because it is her choice to commute from an exurb rather than living closer in to the city). Put differently, her per diem would be even more clearly taxable in that case.
Pingback: Tony Infanti on Sarah Palin’s Taxes
Pingback: Feminist Law Professors » Blog Archive » More on Taxing Sarah Palin’s Per Diem
Pingback: Taxability of reimbursement paid Palin for children’s travel is governed by federal income tax law « Legal and Illegal Ramblings