In their defense of Treasury Secretary–designate Timothy Geithner, members of the Obama transition team have said that his failure to pay Social Security and Medicare taxes during a 2001–03 stint at the International Monetary Fund was a “common mistake,” and, in addition, that Geithner received the approval of two accountants for his erroneous tax returns. Now, new details are emerging that cast doubt on both of those arguments.
“He made a common mistake,” incoming White House press secretary Robert Gibbs said of Geithner this week. Obama officials also cited an Internal Revenue Service publication that said “as many as half” of the employees of international organizations make mistakes on their tax returns.
But that figure appears to be a significant exaggeration of the specific situation at the International Monetary Fund, where Geithner worked. “There’s not a high incidence of non-payment of taxes,” Bill Murray, an IMF spokesman, told me Thursday. “We have a very low incidence of that here.”
Murray took care to say that he was not commenting in any way on Geithner or the current controversy. But he pointed out that the IMF has an ethics office, which issues a yearly report on various transgressions among the organization’s 2,600 employees (about 25 percent of whom are Americans). The ethics office’s 2007 report contained a chart of those transgressions; tax problems were listed under the heading “Unpaid Debts.” In that column, there was exactly one example in 2007. “It’s not unprecedented that people have had problems paying their taxes, or not paying their taxes, but it’s not a widespread issue,” Murray told me.
Other sources who have looked into the matter suggest that the IRS’s “as many as half” estimate includes many employees of embassies, particularly lower-level employees–like those working in food service and security–who might not have great experience in financial matters. That group doesn’t include Geithner, who was a high-ranking official in the Treasury Department before joining IMF. In addition, the IRS estimate included many different categories of mistakes in its estimate, including employees who “either fail to report their wages, claim deductions they are not entitled to, incorrectly establish SEP/IRA retirement plans, fail to pay self-employment tax or fail to file tax returns at all.”
Finally, staffers for the Senate Finance Committee interviewed an official at the IMF as part of their Geithner research and were told that problems such as Geithner’s occurred perhaps once a year. Given all that, it’s probably more accurate to say that Geithner-like mistakes by high-ranking IMF officials are not only not common, but seem to be quite rare.
As for the matter of Geithner’s accountants, a memo issued by the Obama transition earlier this week said that Geithner prepared his 2001 returns–the first in which he failed to pay self-employment tax–himself. “However, an accountant reviewed his 2001 returns as part of an amended return filed [in] 2002,” the transition memo said, “and also failed to catch the mistake on the self-employment taxes.”
It turns out that is not the complete story. According to knowledgeable sources, Geithner, when he prepared his original 2001 return, reported that he would make a pension contribution. He later decided not to make that contribution and therefore needed to file an amended return. He approached an accountant for the specific purpose of changing the pension contribution entry and filing the amended return. It appears that Geithner gave the accountant the tax return, but no underlying documentation.
Senate staffers have talked to the accountant and have concluded that the accountant approached the task narrowly–he fixed the pension line and filed the amended return. It could be that Geithner thought the accountant gave the return more careful scrutiny overall, but it seems doubtful that the accountant gave Geithner’s return a clean bill of health, as the transition office implied.
The transition office also says another accountant prepared Geithner’s 2003 and 2004 returns–2003 was the last one in which Geithner actually worked for the IMF. The transition memo says that the second accountant “prepared Mr. Geithner’s 2003 and 2004 returns and advised him in writing that he was exempt [from] self-employment taxes on his IMF income.”
If that is the case, it is still true that Geithner filed his 2001 and 2002 returns–and collected reimbursement from the IMF for doing so–without paying self-employment taxes. And whatever the second accountant said, it appears that Geithner himself has not claimed to investigators that he believed he was exempt from paying the self-employment tax. If he had been assured by experts that he was exempt, then he might have been expected to make that argument, but he didn’t. Instead, it appears Geithner has told investigators that he wasn’t aware that he hadn’t made the payments, that it somehow slipped by him.
Geithner’s confirmation hearing is now set for Wednesday. Look for these issues to be the subject of extensive questioning.