Geithner's IRS troubles rankle average taxpayers

WASHINGTON-The Treasury Secretary, who oversees the IRS, didn't pay all his taxes. Neither did five other top nominees for the Obama administration. Now, as Wednesday's tax deadline looms, some Americans are asking: Why should we comply with the arcane requirements of the IRS when top administration officials failed to do the same?

The harsh reaction to such disclosures resonates not just among the anti-tax people organizing protests around the country this week, but in low-income neighborhoods of cities like Los Angeles-and is even discussed in the hushed hallways of the Internal Revenue Service.

The most criticized example of nominees with tax problems has been Treasury Secretary Timothy Geithner, who admitted not paying $34,000 in payroll and Social Security taxes. But five other nominees had similar tax issues, including as recently as two weeks ago when Kathleen Sebelius, Obama's pick to run head Health and Human Services, admitted she didn't pay $7,070.

"Our members are upset and angry," said Colleen Kelley, president of the National Treasury Employees Union, referring to concern bubbling up inside the IRS over unusually strict rules that can cost IRS agents their jobs if they make a mistake, while Geithner and others are treated with relative leniency. In addition, the Geithner case is making the work of IRS compliance agents a bit harder, she said.

The biggest factor affecting tax compliance this year may be taxpayers' inability to pay due to the poor economy, but the repeated problems of the Obama team adds another layer of complaint to the grumbling of taxpayers who are already feeling stretched, said tax professionals.

Robert Schriebman, a Palos Verde, Calif., tax attorney who has testified before Congress, said his clients are seething over the tough treatment they get from the IRS, while a chunk of the president's Cabinet were able to duck paying their taxes.

A small concrete contractor who is being hounded by the IRS after he failed to make timely payments of payroll taxes asked how Geithner can get away without paying his taxes when the IRS is on his case every week, Schriebman recalled.

"Politically powerful people are less likely to get bothered by the IRS," Schriebman said. "It is more than a question of fairness. Not only is the IRS looking away from confronting influential people, the IRS is getting a lot tougher and nastier toward the little guy."

Larry Gibbs, IRS commissioner during the Reagan administration and now a tax attorney at Miller & Chevalier, said a small minority of taxpayers might see the tax issues of current nominees as a rationale to cheat.

"Some people are looking for an excuse," Gibbs said, "Some people might make the jump to rationalize that because these others are doing it they can do it too. That's where the risk is."

Geithner told a Senate hearing in February that his failure to pay $34,000 in Medicare and Social Security taxes between 2001 and 2004 was an oversight, an embarrassing mistake.

Kelley pointed out in an interview Tuesday that a similar "mistake" by one of Geithner's subordinates at the IRS would likely result in swift termination, with no right of appeal.

In some cases, IRS employees have lost their jobs for simply filing a late return or failing to report a few hundred dollars of interest income. In an interview Tuesday, Kelley said the Geithner's case underlines the need for a change of the rules governing IRS employees.

"My issue is not that I want Geithner or anyone else punished," Kelley said. "I want there to be a re-examination of the law that holds IRS employees to a separate standard-one in which a simple mistake can cost them their jobs with no right of appeal," she said.

IRS compliance employees have reported recently that taxpayers are occasionally citing the Geithner case when they are asked to pay their tax bills. "It's making the compliance conversation harder," she said.

Royce Esters, a tax preparer in Compton, Calif., said this week that people in his low-income community have serious doubts about Geithner.

"They are saying that if he can't figure out his taxes ... how can he be in charge of the Internal Revenue Service?" Esters said. "He owed $34,000 and he is running the Treasury? That's ridiculous."

Geithner's $34,000 in unpaid taxes pales in comparison to the $130,000 owed by Tom Daschle, Obama's first choice to run HHS. But his position overseeing the IRS along with the circumstances of his tax problems make his case particularly galling.

When Geithner worked as a policy adviser in Washington for the International Monetary Fund, he didn't pay any Social Security or Medicare taxes on his income despite repeated reminders from the IMF to do so. After the IRS audited him in 2006 and discovered the errors, Geithner corrected his returns for 2003 and 2004. But he did not pay the taxes he owed for 2001 and 2002 until after Obama nominated him to be Treasury Secretary.

Geithner told the committee he prepared his own federal tax returns during the first two years he worked at the IMF, 2001 and 2002, using the computer software Turbo Tax. He told the committee that his failure to pay the taxes was not flagged by the software.

The current IRS Commissioner, Douglas Shulman, told reporters Monday there is no discrimination when it comes to tax enforcement.

"The American people are pretty smart," he said. "They understand that people who are nominated for high office are going to be put under a level of scrutiny. They also understand the tax code is incredibly complex."

The explanations don't wear well with tax preparers interviewed this week.

"As a tax consultant, I can't get away with (anything) like that," said Esters, a member of the Compton Crime Commission. "I mean, the IRS would be on us like that."