Geithner Tax Defense Doesn’t Work for the Small People

Geithner Tax Defense Doesn’t Work for the Small People

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Everyone knows about the sweetheart deal the IRS gave it’s current boss, Secretary of Treasury Timothy Geithner.

Before he became Secretary of Treasury, Geithner, a financial wunderkind, failed to comply with federal tax laws and was assessed additional taxes, interest and penalties. Geithner was later relieved of the penalties based, at least in part, on his contention that his tax software, TurboTax, screwed up.

In Parker v. Commissioner, T.C. Summ. Op. 2010-78 (June 21, 2010), the Tax Court once again ruled that reliance on tax software is insufficient to establish reasonable cause for purposes of the abatement of penalties.

In a footnote the Court specifically addressed the Geithner isue:

We shall address briefly petitioner’s contention that the IRS granted “favorable treatment” in a case involving U.S. Secretary of the Treasury Timothy Geithner, which petitioner described as “incredibly similar” to the instant case. According to petitioner, “there should not be different, or favorable rules for the well-connected”. The record in this case does not establish any facts relating to the case to which petitioner refers involving U.S. Secretary of the Treasury Timothy Geithner. In any event, those facts would be irrelevant to our resolution of the issue presented here. Regardless of the facts and circumstances relating to the case to which petitioner refers involving U.S. Secretary of the Treasury Timothy Geithner, petitioner is required to establish on the basis of the facts and circumstances that are established by the record in his own case that there was reasonable cause for, and that he acted in good faith with respect to, the underpayment for each of his taxable years 2005 and 2006 that is attributable to his failure to report self-employment tax.

Listen to Joe Kristan:

Treasury Secretary Timothy Geithner famously underpaid his taxes on his income from his days working at the International Monetary Fund. IMF employees don’t have FICA and Medicare tax withheld from the paychecks, so they are supposed to treat the income as “self-employment” earnings, paying both employer and employee payroll taxes on the income.

Mr. Geithner’s copy of TurboTax failed to flag this, and when it came up during his nomination hearings, he blamed the software. He paid his old taxes without penalty, which leads one to wonder: did he get a special deal because he’s a big shot?

Joe’s conclusion:

Shorter Tax Court: The accuracy-related penalties of Sec. 6664 are for little people.

Similarly situated taxpayers should be treated similarly. The problem, of course, is determining similarity. I don’t necessarily disagree with the Parker Court, I just think that Geithner, especially because of his sophistication in financial matters, should have had to pay the penalty as well.

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About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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  1. Quite so. The holding in Parker appears reasonable given the evidence the taxpayer was able to offer.

    That Geithner “got away with it” is not a good look.

  2. Now, moving on the the crook, CHarlie Rangel…. another one who didn’t pay penalties for tax evasion…