Tuesday, February 3, 2009

Daschle nomination withdrawn

Tom Daschle is withdrawing from his nomination as Health and Human Services secretary in the Obama adminisration. This is good. There's too many issues with taxes among nominees lately. Potential nominees need to be more careful about their taxes, and clear up things before their nomination is announced. The Obama administration needs to be more careful about vetting potential nominees, and prod them to clean up their records ASAP. And both need to be clearer about whether the problem is a real, clear error or just a disagreement about an item that could arguably go either way.

Now, personally I don't consider tax "errors" to be a killer simply by existing. The plain fact is, most of those "errors" haven't been found to be errors. They're cases where either the IRS or an auditor disagrees with the original preparer as to how to classify a particular item. This isn't anything odd on a moderately complex tax form. Besides the IRS regulations there's a huge body of administrative and case law government what can be considered how, and even IRS agents aren't familiar with it all (one reason good tax accountants are in such demand is that they know that body of law better than the IRS agents and, when the IRS wants to disallow a deduction, they can point to a ruling that says it is too allowable). For instance, take a home office. Expenses related to it are deductible, however if it's also used for personal use some things are deductible and some aren't. For instance, if it's mixed-use you can't deduct a portion of the utility bills. You can, though, deduct business calls on a mixed-use phone. And not all mixed-use disqualifies it. The IRS will try to argue it, but occasional and incidental personal use has been ruled to not disqualify the office. The personal use has to be regular and consitute a not-insignificant portion of the use to disqualify the office. You can have endless arguments with the IRS over this if you aren't careful. Get into investments or foreign earnings and it gets really fun. Eg. you were paid $50,000 for work done in a foreign country, the money was deposited into a bank in that country and used only in that country, and taxes were paid on it in that country per their rules. How much of that money must be reported as US income, how much of it is taxable as US income and how much of a credit against US taxes paid are you entitled to? What if the foreign country says you owed $20,000 in taxes to them on that money but the IRS says only $10,000? Note that in that last case, if you paid $20,000 to the foreign country for taxes and claim $20,000 in foreign taxes paid, you have an error on your return even though you're in compliance with what the rules say simply because the IRS disputes your (and the foreign country's tax people's) interpretation of the foreign tax laws.

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