Don't Mess With Taxes

Washington, D.C., is still abuzz about the decision by two Obama Cabinet nominees to opt out of the process.

Erstwhile Health and Human Services Secretary Tom Daschle decided that his effectiveness would have been compromised, and other Obama agenda items overshadowed, by his incomplete reporting of income on prior-year tax returns.

I'm not so sure that's true. Despite public posturing, Capitol Hill can be a pretty friendly fraternity. Daschle spent a lot of time there, so most folks are familiar with what he could bring to the table as far as HHS issues, particularly health care.

Personally, I think it's too bad. Yes, he screwed up royally on his tax returns. But he's fixed that. I was in D.C. when Daschle was a Representative and then a Senator from South Dakota. From what I saw and heard back then, he did a good job and his narrow loss of his Senate seat said more bout today's partisan politicking than about actual job effectiveness. And I wouldn't be surprised to see Daschle return to public office one day.

You can read some others' thoughts about Daschle's withdrawal here.

Then there's Nancy Killefer, who bowed out of consideration as the country's first Performance Officer. Her tax offense: failing to properly account for and pay taxes for household help.

In both cases, the tax situations were a bit more complicated than usual, but both Daschle and Killefer, or their tax and/or financial advisers, should have been on top of the matter.

In today's New York Times, Ron Lieber makes that same point in How to Avoid a Tom Daschle Problem.

As a journalistic aside, I like the headline in the old-fashioned paper copy that was tossed onto my driveway early this morning. That's it, reproduced there to the left, in all its catchier glory.

Regardless of the headline, the message is the same in both the print and online story. "If you're trying to produce a bulletproof set of tax returns … assume you'll be appointed to a cabinet position someday. Then, inform your accountant, if you have one, of this fact and proceed accordingly," writes Lieber.

That's the same suggestion I made in discussing Treasury Secretary Tim Geithner, who was able to survive his tax troubles and begin managing the country's money, in Tim Geithner's tax lessons, an item I posted on my Bankrate.com tax blog Eye on the IRS.

I also addressed that issue, as well as offered tips on dealing with self-employment income, here on Don't Mess With Taxes in this post. And my warnings about household help tax issues are in this post.

Be very careful: Even if you have no political aspirations, it's always a good idea to take tax care.

While it was Obama staff, not the IRS, that uncovered the tax filing failings of Geithner and Daschle, you can be sure that with all this recent publicity, the tax agency's examiners are going to be paying extra attention to everyone's returns, at least for a while.

And I suspect the IRS Commissioner himself might try to turn the issue to his advantage.

Don't be surprised to see Douglas Shulman, during future appropriations hearings, tell Congress that the fact appointees' tax errors slipped through IRS examination nets is precisely why his agency needs extra enforcement money.