Gong Show Time for Timothy Geithner

It's roasting the nominees season.

Timothy Geithner, Barack Obama's nominee to head the Treasury, didn't pay Social Security and Medicare taxes for several years while he worked for the International Monetary Fund.

The IMF and World Bank reimburse employees, including U.S. citizens, for their U.S. income taxes. They don't, however, make contributions toward Social Security and Medicare taxes, which individuals are expected to pay on their own.

In 2006, the IRS conducted a letter audit of Geithner's 2003 and 2004 taxes and concluded he owed taxes and interest totaling $17,230, according to documents released by the Senate Finance Committee. He paid up and the IRS waived the related penalties.

But, according to WSJ:

During the vetting of Mr. Geithner late last year, the Obama transition team discovered the nominee had failed to pay the same taxes for 2001 and 2002. "Upon learning of this error on Nov. 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years, plus interest," a transition aide said. The sum totaled $25,970.

The Obama team said Mr. Geithner's taxes have been paid in full, and that he didn't intend to avoid payment, but made a mistake common for employees of international institutions. That characterization was contested by Senate Finance Republicans, who produced IMF documents showing that employees are repeatedly told they are responsible for paying their payroll taxes...

Other tax issues also surfaced during the vetting, including the fact Mr. Geithner used his child's time at overnight camps in 2001, 2004 and 2005 to calculate dependent-care tax deductions. Sleepaway camps don't qualify.

Amended tax returns that Mr. Geithner filed recently include $4,334 in additional taxes, and $1,232 in interest for infractions, such as an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use

Geithner prepared his own tax returns in four of the years in question. Economist Magazine tells us he is, "a quick learner: within a year of joining the New York Fed he could debate the intricacies of monetary policy with academic experts." The current revelations suggests he is either not a quick learner, or a tax cheat---or both.

And don't forget, Geithner once said, “Most consequential choices involve shades of gray, and some fog is often useful in getting things done."

Geithner's biggest problem: The IRS is a division of The Treasury. The folks back home aren't going to be happy with a tax cheat running the Treasury. The blogs are blowing up on this one.

A tentatively scheduled confirmation hearing Tuesday for Geithner was canceled.

But grab a cold one, popcorn and get comfortable in your easy chair. These roastings are about the only time you get your moneys worth from government. It won't matter policy wise whether Geithner is shot in public or given the medal of honor, he is just a tool in the machine. If the heat gets too intense, and he bails, or is forced to bail, the Council on Foreign Relations and the Group of Thirty (Geithner is a member of both) have plenty of other soldier recruits waiting in line. For the powers that be, this is what California's Jerry Brown once called the presidential nomination process, "a Gong Show for the rich".

A new confirmaton hearing is now scheduled for Friday.

Lone Accountant takes On IRS, And Wins!

Charles Ulrich has beat the IRS in a sgnificant tax dispute.

Ulrich challenged the method the IRS has used for more than 20 years to tax shares and cash distributed by mutual life insurance firms to their policyholders when they reorganize as public companies.

A federal court recently agreed with his interpretation.

The dispute arose when more than 30 mutual life insurance companies became publicly traded corporations in the late 1990s and earlier this decade, in a process known as "demutualization."
Mutual companies are owned by their policyholders, so the companies provided stock and cash to compensate them for the loss of their ownership interests when they went public.

All told, roughly 30 million policyholders received distributions, Ulrich estimates. MetLife Inc. provided over $7 billion of stock to about 11 million policyholders when it went public in 2000, while Prudential distributed $12.5 billion in stock to another 11 million.

The IRS held that the recipients hadn't paid anything for the shares and owed taxes on the full amount when the shares were sold. Cash distributions also were fully taxable, the IRS said.

Ulrich concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.

One of Ulrich's clients, Eugene Fisher, a trustee for a Baltimore, Md.-based trust, sued the IRS in February 2004 after being denied a refund.

Judge Francis Allegra of the Court of Federal Claims in Washington sided with Fisher and called the IRS' view "illogical" in an Aug. 6 decision. He ordered the agency to refund $5,725 in taxes plus interest to the trust overseen by Fisher.

The government could appeal the ruling. Charles Miller, a spokesman for the Justice Department, said the government hasn't yet decided whether to appeal.

Still, taxpayers should request refunds if they're eligible, tax experts said, because even if the IRS rejects the claim, doing so extends the deadline for a potential refund for two more years.

Running From The IRS?

UBS AG may report tomorrow that private-banking clients removed funds for the first time in almost eight years, according to Bloomberg.

Estimates are that clients probably withdrew a net 5 billion Swiss francs ($4.6 billion) in the period.

Former UBS private banker, Bradley Birkenfeld, gave enormous amounts of confidential information to US authorities about Americans hiding money in Switzerland. It may be a lttle late to avoid an investigation for those who had accounts with UBS, but you can be very sure the withdrawn money is now sitting with a bank that does not have branches in the U.S.

As Felix Salmon points out, "The problem with UBS, from a private-banking perspective, is now that it's too big, and too global. So long as Swiss banks stayed in Switzerland, the Swiss government certainly wasn't going to ask any questions about their clients. But UBS has a presence in dozens of important jurisdictions around the world, and its clients in those countries simply can't assume any more that their assets and personal information are safely being kept away from prying eyes in Zurich."

Senate Approves Sneaky Housing Bill

The Senate voted overwhelmingly this morning for final approval of the huge "housing" bill, that is some 600 pages long. It includes provisions to fingerprint mortgage brokers, requires all credit card transactions of consumers be reported to the IRS, raises the debt ceiling by $800 billion, and who knows what other evil has been snuck into the voluminous legislation?

The President is expected to sign the legislation this coming week.

Ron Paul: Housing Rescue Bill Has Provison That Will Require All Credit Card Transactions Be Reported To The IRS

Texas Congressman Ron Paul, in a 7 minute video message, has spilled the beans on the so called "Housing Rescue" bill just passed by the House, and soon to be passed by the Senate.

The bill is some 600 pages long. Sneaked into the bill is a provison that will require that all credit card transactions be reported to the IRS.

Further, the bill gives approval to increase the national debt ceiling by $800 billion. It also requires that those in the mortgage industry be fingerprinted.

With 600 pages, who knows what else was sneaked into this bill? With 600 pages of legalese, you can sneak in a lot. Once the report is in its final form, we are going to attempt to read it, and file a complete report. Check back.

Here's Ron Paul:

Checkout Of The U.S. Anytime, But Your Money Can't Leave

President Bush recently signed the Heroes Earnings Assistance and Relief Act of 2008, aka, the HEART bill.

Hidden in the bill is new taxation on those who renounce their citizenship. The bill specifically calls for taxation on the net unrealized gain in their property, as if the property had been sold. Call it the "Hotel California" Tax, checkout any time you want, but a good chunk of your money can't leave. The first $600,000 in estimated net worth is exempt, then the tax kicks-in at regular rates. Thus, this tax creates the potential for huge taxable phantom gains, with huge cash flow ramifications.

The bill also applies to foreigners who are living and working in the United States legally with green cards. When they decide to go home, the tax kicks-in for them, also. The green card aspects of the tax, have double ramifications. First, at a time when immigrants are a political hot potato, this tax creates incentives for them to remain in the United States. Secondly, the tax will discourage high income, highly skilled foreigners from entering the country in the first place.

From the bill, JCX-44-8,:

In general, the provision imposes tax on certain US citizens who relinquish their US citizenship and certain long-term US residents who terminate their US residency. Such individuals are subject to income tax on the net unrealized gain in their property as if the property had been sold for its fair market value.

IRS Schedules Conference Call With Top Accounting Firms To Solicit Help In Detecting Hidden Foreign Bank Accounts

In the latest twist in attempting to uncover hidden bank accounts that Americans may have at foreign banks, the IRS is planning to speak on Tuesday to six accounting firms about how they could help find foreign banks that fail to appropriately identify US customers holding investments or income in offshore accounts.

According to FT, a conference call has been scheduled between the IRS and Deloitte, Ernst & Young, KPMG, PwC, Grant Thornton, and BDO Seidman.

It is not clear what the upside to the accounting firms would be to aggressively help the IRS with this type information, especially if some of the firms may have offered suggestions to their clients on how to structure foreign accounts in a manner that circumvented IRS reporting requirements.

According to FT:

...the discussion is expected to centre on the so-called US Qualified Intermediary programme, which created an arrangement starting in 2000 between banks and the US authorities allowing a degree of client confidentiality in return for the provision of certain client information. The US rules cover individuals but not companies, meaning that individuals could exploit the rules to channel assets to non-declarable companies created in tax havens.

The IRS has greater assurance that taxes are properly withheld “because QIs agree to have external auditors perform oversight of their compliance with required procedures”, according to a 2007 report by the Government Accountability Office, the investigative arm of the US Congress. But it also said: “Within their limited scope, auditors of QIs are not responsible for following up on possible indications of fraud or illegal acts.”

In a parallel development, on Tuesday, a federal judge gave the IRS permission to serve a “John Doe” summons on UBS that would direct the bank to produce records identifying US taxpayers who held undeclared accounts between 2002 and 2007 with the bank and chose to have them hidden from the IRS.