Did Governor Chris Christie of New Jersey avoid hundreds of thousands of dollars in income taxes by failing to report income he needed to on his tax returns, as a report from Watchdog NJ on Tuesday suggests? Probably not, and certainly not if the governor’s office keeps the records they say they do.
Watchdog noticed that, on his last four annual tax returns, Christie hasn’t reported to the IRS a $95,000 allowance he receives from the state for official gubernatorial expenses (such as events at the governor’s mansion, where he doesn’t live). Expense allowances are deemed by the IRS to be “accountable” and don’t have to be reported as income as long as they’re spent on business-related purchases, expenses are accounted for, and any unspent money is returned.
The outlet found an instance in which a New Jersey governor, James Florio, reported his allowance, in 1992, as personal income, presumably because he thought it was “nonaccountable.” Did Christie do something wrong by failing to do the same?
The governor’s office says absolutely not. The Watchdog story ran without a comment from Christie’s office, which told National Review that going back a number of years, governors haven’t treated the allowance as personal income. The report that Florio did so, they say, is exceptional and unexplainable. “Every prior governor that we can find” has operated like Christie, a spokesman says, not treating the expense allowance as income because “the governor doesn’t pocket whatever excess exists at the end of the year as income.”
Christie spent $48,000 of the $95,000 allowance in Fiscal Year 2014, according to public budget documents (page D-10 here). The state’s audited budget attests to the fact that Christie was meeting that requirement — he wasn’t keeping the unspent share of the $95,000.
The key question is whether the governor’s office is reporting to his employer, the state, what the money is being spent on. “He has to account for the money that has been spent, period,” Bernadette Schopfer, director of taxation at a New York accounting firm, says. It’s only “accountable” allowances that don’t have to go on one’s tax returns, and the definition of “accountable,” she notes, “isn’t just returning the [unspent] money, ‘accountable’ is accounting for what you spent.”
But Christie’s office says that the expenses are recorded, just not publicly. “We are in full compliance with the IRS regulations,” a spokesman says, which include a requirement that records be kept about various expenditures (you can see some types of documentation required here). They are not, apparently, planning to make such records public, though.
The governor’s office released a longer, earlier statement taking issue with the Watchdog report, saying the following:
The report on NJ Watchdog is categorically false and irresponsible. The expense account, which has been provided to every governor in recent memory, is not salary and isn’t kept by the Governor as income. It is a discretionary fund that is used for business purposes, including costs associated with official events at Drumthwacket, the official residence. Unused fund balances have traditionally been returned to the State treasury and not kept as income, and that has been the case for every year under Governor Christie. As such, it is not required to appear on his income tax filings, consistent with IRS rules.
In other words, the governor’s office is confident it’s keeping records in line with IRS requirements. Watchdog’s report seems to imply, inaccurately, that expense records would have to be made public in order for Christie to avoid reporting it as income.
#related#A statement in a 2004 manual of New Jersey government says the governor’s expenses from the allowance are expenditures “for which accounting is not required,” but if the governor’s office is correct, that would refer to public reporting of the expenses — not accounting to the state or the IRS.
Watchdog’s report also suggests Christie’s supposed offense would translate into avoiding tens of thousands of dollars in taxes — as much as $152,000 in total, on $380,000 in unreported income. That’s not quite correct. If the allowance were “nonaccountable” — that is, Christie should have reported it on his tax returns — he would get to take a deduction for whatever business expenses he used the money on. That should wipe out almost all the taxes he would owe on it. (What the IRS might bill Christie or other New Jersey governors if it did find something amiss may be a more complicated question.)
For now, we have the Christie staff’s word that they’re following the rules. Assuming they’re right, the governor, who’s expected to launch a presidential campaign this spring, isn’t doing anything out of step with precedent or liable to raise the IRS’s interest.
— Patrick Brennan is opinion editor of National Review Online.