Timothy Geithner’s Nomination for Secretary of the Treasury in Trouble? Senate Democrats Scramble

The basic issue seems to be that when Geithner worked at the International Monetary Fund from 2001 to 2003, he filed his taxes improperly, and he also for a time employed someone who didn’t have legal immigration status.

The tax issue, as I understand it, is that IMF employees receive W-2s as employees and are treated as if they were self-employed, so they do not have federal and state taxes withheld from their paychecks. As part of Geithner’s vetting, the Obama Transition Team discovered that he had not paid self-employment taxes in 2001 and 2002.

On Nov. 21, 2008, Geithner paid $25,970 in these overdue taxes plus interest — $2,364 and interest of $956 for 2001 and $16,812 and interest of $5838 for 2002 (Geithner had been notified in 2006 by the IRS that he owed self-employment taxes and interest for 2003 and 2004, after which he paid tax and interest totaling $17,230).

Which begs the question: If the IRS notified Geithner in 2006 that he owed self-employment taxes for his time at the IMF in 2003 and 2004, why did he not realize that those taxes should have applied to him in 2001 and 2002 as well?

There is another — what seems to me to be a lesser — issue with a housekeeper that the Geithners employed to clean their home from 2004-2005. She had a current Employee Authorization Document at the time she was hired, but three months before she stopped working for the family that authorization expired.

In the meantime, Senate Democrats scramble while Barack Obama supports his nominee with these talking points.

* Before becoming President of the Federal Reserve Bank of New York, Tim Geithner worked for the International Monetary Fund from 2001-2003. He paid all of his income taxes on his IMF income, but made a common mistake on his tax returns with regard to self-employment taxes. He voluntarily corrected the mistake as soon as it was discovered.

* For tax purposes, while IMF employees receive W-2’s as employees, they are treated as if they were self-employed. This unusual payroll system commonly creates confusion among U.S. employees of the international organizations like the IMF , who typically are accustomed to having employers withhold federal and state taxes. This problem has been so common that in November 2006 (as supplemented in 2007) the IRS made a taxpayer favorable settlement offer to all U.S. employees of Embassies and International Organizations in order to bring the employees into compliance with their U.S. tax obligations. http://www.irs.gov/newsroom/article/0,,id=167770,00.html

* As part of the vetting process conducted by the Presidential Transition Team, it was discovered that Mr. Geithner mistakenly had not paid self-employment taxes in 2001 and 2002 as an IMF employee. Mr. Geithner had initially prepared the returns himself. However, an accountant reviewed his 2001 returns as part of an amended return filed 2002, and also failed to catch the mistake on the self employment taxes.

* Upon learning of this error on November 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years plus interest. For 2001 Mr. Geithner paid additional tax of $2,364 and interest of $956, for a total of $3320. For 2002 he paid additional tax of $16,812 and interest of $5838, for a total of $22,650. The total additional amount paid for the two years was $25,970. All of his taxes have now been paid in full, and at no time was there any intention on Mr. Geithner’s part to avoid taxes.

* Mr. Geithner worked for the IMF until the fall of 2003, and he also received a small amount of income from the IMF in early 2004. An accountant prepared Mr. Geithner’s 2003 and 2004 returns and advised him in writing that he was exempt self-employment taxes on his IMF income.

* In 2006, the IRS initiated a letter audit of Mr. Geithner’s taxes for 2003 and 2004 and concluded that he owed self-employment tax and interest for 2003 and 2004 with respect to his IMF employment. He paid tax and interest totaling $17,230 (of which $14,847 was tax and $2,383 was interest) for the two-year period, and the IRS waived all penalties. Also, Mr. Geithner was advised that he had no further liability for Social Security taxes on his IMF income.

* The Committee also raised an issue regarding a housekeeper that the Geithner’s employed to clean their home from 2004-2005. The Geithners verified that she had a current Employee Authorization Document at the time she was hired. Mr. Geithner was unaware that three months before she stopped working for them to have a baby, her authorization expired. Nevertheless, she continued to reside legally in the United States, she was married to a U.S. citizen, and she was granted a green card a few months later.

Harry Reid says he sees no problem with the nomination and apparently does Republican Orrin Hatch.

So, does this mean the Zoe Baird standard of rejection for political office (hiring an illegal alien to clean your house or take care of your kids) or failing to pay one’s taxes is NOW viewed as a simple mistake.

If so, will there be the same standard applied to Republican nominations by subsequent GOP Administrations?

Somehow, Flap doubts it.

Stay tuned. There may be more coming……