Palin’s Taxes

By Lee Speigel

Oct 3, 2008 7:40pm

ABC News’ David Wright, Alyssa Litoff and Imtiyaz Delawala report: After significant pressure from the Obama-Biden campaign, the McCain-Palin campaign today finally released the 2006 and 2007 tax returns for Sarah and Todd Palin, along with a public financial disclosure document the candidate recently filed in connection with her bid for the vice presidency. 

The documents paint the picture of a well-to-do middle class family with two income earners.  Palin is clearly the primary breadwinner, earning more than twice as much as her husband, even though the so-called "First Dude" operates two businesses –- commercial fishing and income from snowmobile racing.

According to the most recent return, Todd Palin’s fishing business grossed less than $50,000 in 2007 for a profit of $15,513.  His snow machine racing business grossed $17,000 but home office expenses meant that he claimed a net loss of nearly $10,000.

It is, however, Sarah Palin’s income that is liable to draw the scrutiny of tax authorities.  And it is not immediately clear whether the figures detailed in these newly-released forms will resolve questions that have already been raised.

Of particular interest: roughly $17,000 in state-issued per diems for evenings spent in her own home in Wasilla.  The Washington Post recently reported that the per diems and associated travel costs from the state capital in Juneau for Palin’s family could mean a tax liability of more than $60,000 for Palin’s first year and a half as governor.

The address listed on the 1040’s is Palin’s family home in Wasilla, which would seem to suggest Palin considers that, not the governor’s mansion in Juneau, her "tax home."  However the McCain-Palin campaign maintains that her “tax home” is technically the governor’s mansion in Juneau.

The point is potentially significant because any per diems and travel reimbursements received in connection with someone’s “tax home” would likely be taxable as income.  According to IRS regulations: "If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home."

The IRS also strictly forbids deductions for expenses incurred bringing a spouse and kids along on a business trip.  Tax authorities say any reimbursement for travel costs for family members would likely incur income taxes.

But Palin’s tax returns indicate she paid no taxes on the disputed per diems and travel expenses.

The McCain-Palin campaign insists Palin did not owe taxes on the per diems because of an understanding reached between the IRS and the Alaska Division of Finance, giving the state broad discretion in determining whether such reimbursements are taxable. (“Income Tax Implications Of Long-Term Per Diem”)

The campaign also issued an advisory letter dated September 30, 2008 by Washington tax attorney Roger M. Olsen stating that: “she is entitled to meal and incidental allowance payments when away from her duty station and tax home performing services for her employer; it is not relevant that she spends the night at her family home rather than in government paid lodging.”

Finally, the campaign insists she saved the state money hundreds of thousands of dollars on her travel costs, compared to previous Alaska governors.

However, a Washington tax attorney who supports Obama disputes that argument.

"She’s using her state office as a means to generate a favorable tax status for herself," he said. "You and I couldn’t do that."

There also appears to be a discrepancy between the income Palin reports to the IRS and the income listed on the public financial disclosure reform she recently filed in conjunction with the campaign.

That form lists her income as governor of Alaska as $196,531.50.  However that’s greater than the combined income with Todd Palin she reported on her 2007 1040: $151,556.  The W-2 form submitted for 2007 lists her wages and other compensation at $107,987. 

Which begs the question: what happened to that extra $88,544?   According to the McCain-Palin campaign, the additional amount represents the salary Palin earned in 2008, during the period not covered by the 2006 and 2007 tax returns.

Palin makes no separate accounting of travel expenses and reimbursements on the public financial disclosure form.  Although the form does include a space for listing reimbursements from any one source over $260, the form simply says, “Not Applicable to candidate.”

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