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Kyl Sends Geithner Off With Tough Beating On Botched Taxes


2:00 P.M.: Treasury Secretary-designee Tim Geithner's confirmation hearing before the Senate Banking committee just wrapped up (nearly four hours long) with a long exchange Sen. Jon Kyl (R-Ariz.) and Geithner over his botched taxes while working at the IMF, resulting in a tax mistake of more than $40,000.

It was about a 20-question exchange that could best be described as restrained but intense. Unlike Sen. Jim Bunning's (R-Ky.) attack on Geithner's handling of his taxes, which was mostly bombast, Kyl's was more surgical, as he tried to get Geithner to admit to one thing: You made the same mistakes on your 2001 and 2002 taxes as you did on your 2003 and 2004 taxes, which you corrected -- at any time before being asked to be Treasury secretary did you think to go back and pay your back taxes from '01 and '02?

In other words, would you have come clean on your whole tax bill had you not been selected to be Treasury secretary?

It was a tight and tough dance, sort of like two very polite knife-fighters in a phone booth.

Geithner's position was that, once audited by the IRS over his '03 and '04 taxes, he paid what the IRS told him he owed and was told by the IRS he had settled his obligation.

Kyl kept trying to figure out if Geithner knew he had botched his 2001 and '02 taxes as well but may be able to avoid paying what he owed on them: "Isn't it a fact that you immediately or very quickly realized that the same mistake you made in 2003 and '04 was probably made in '01 and 02 but the statute of limitations had run out and you didn't have to pay taxes for the other years?"

Geithner responded the same way as he had all day: It was a mistake, the IRS told me I had fulfilled my obligation, I should have caught it.

Kyl then gave into his frustration and got a little bit of what he wanted from Geithner.

"Would you answer my question rather than dancing around it, please?" Kyl pleaded. "The question is whether it occurred to you before you were nominated or approached to be nominated that, in point of fact, you didn't have to go beyond [your '03 and '04 taxes] because of the statute of limitations?"

Geithner said: "I did not believe I had the obligation to go back. I did not think about that until I was going through the vetting process....I had no occasion to think about it and I might not have thought about it had I not gone through the vetting process."

Geithner then, for the first time all day, dropped his mea culpa line and went on the offensive: "I did not believe I was avoiding my liability. I have worked in public service all my life. I grew up in government. I would never put my self in the position where I was intentionally not meeting my obligations as an American taxpayer."

Kyl concluded the hearing by reminded Geithner that he had been under oath the entire time and darkly suggested that if there was anything he'd said that he'd like to correct or amend, he was welcome to.




12:49 P.M.: Sen. Jim Bunning (R-Ky.) just took another swipe at Treasury Secretary-designee Tim Geithner's botched taxes -- a more than $40,000 mistake on taxes he prepared himself using TurboTax -- at Geithner's confirmation hearing currently underway.

Bunning asked when Geithner first became aware of his mistakes and which years he did his own taxes and which years he hired an accountant. Bunning noted that the IMF goes to "great lengths" to inform its U.S. employees of their tax obligations.

Each time, Geithner delivered another mea culpa, saying the mistakes were his and his alone, that he depended on an accountant's judgment and shouldn't have, and that because he didn't catch his initial mistake, "I kept making it."

Pointedly, though, Bunning asked: "Would you have paid your '01 and '02 taxes had you not been nominated to be secretary of Treasury?"

It's worth noting that Geithner replied by repeating that the mistakes were his and his alone. What he did not say was, "Yes."



12:30 P.M.: In his confirmation before the Senate Finance committee underway now, Treasury Secretary-designee Tim Geithner said that the federal government did not have the tools it needed to save investment house Lehman Brothers, which failed last fall.

"The failure was enormously consequential," Geithner said. "It didn't cause this financial crisis but it absolutely made things worse."

Geithner said that Lehman had "a need for capital on a scale that the market was unwilling to provide."

Congress had not given Treasury or the Fed the authority to pour enough money into Lehman to make private capital confident enough to invest its own money, Geithner said.

Hence, Lehman failed.

"It was a critical and tragic set of constraints," Geithner said, adding that the government should never have to enter a crisis like Lehman "without an adequate set of tools," hinting at his desire for broad authority as Treasury secretary.



11:51 A.M.: Sen. Jim Bunning (R-Ky.) just lit into Treasury Secretary-designee Tim Geithner over his tax mistakes, saying Geithner "does not provide a satisfactory explanation for the problem and certainly not one [worthy] of a high-ranking public official."

Bunning said that as far as he knew, the relevant IRS personnel investigators who looked at Geithner's botched taxes have not been interviewed the Senate Finance committee.

Geithner as admitted to more than $40,000 worth of mistakes on his tax returns -- returns he prepared himself using TurboTax -- from his years of employment by the International Monetary Fund (IMF).

"The IMF clearly explained the payroll tax obligations," Bunning said. "Geithner's failuire to pay all of his taxes until he was to be nominated is hard to explain to my constituents who pay taxes on a regular basis."

The Ticker has put in a request to the TurboTax spokesperson to see what they have to say about Geithner's explanation. To wit: Would TurboTax have flagged his mistakes? We'll get back to you with TurboTax's response when it comes.



11:03 A.M.: Under questioning before the Senate Finance committee, Treasury Secretary Tim Geithner was asked how he prepared his own taxes.

Sen. Chuck Grassley (R-Iowa) asked: "Did you use tax software to prepare your taxes?"

Geithner: "Yes, I did."

Grassley: "Which brand of tax software?"

Geithner: "I will answer that, but I want to say I take full responsibility....It was TurboTax."



10:46 A.M.: At the end of his prepared remarks, Treasury Secretary-designee Tim Geithner went off-script to address his $40,000 worth of tax return mistakes -- mistakes he made on returns he prepared.

This is Geithner's first public apology on the taxes.

Geithner called them "careless mistakes, avoidable mistakes, but they were unintentional. I should have been more careful. I take full responsibility for them. I have gone back and corrected the errors; I have paid what I owed. I want to apologize to the committee for putting them in the position of having to spend so much time on these issues when there is so much more pressing business before the country."



Sen. Chuck Grassley (R-Iowa), ranking member of the Senate Finance committee, which is holding the confirmation hearing of Treasury Secretary-designee Tim Geithner underway now, just explained why he voted against the second half of the $700 billion bailout/rescue after voting for the first half.

"Instead of using first half to buy troubled assets, the money has been erratically and arbitrarily distributed in a monstrous act of government intervention and ownership over our financial markets," unloaded Grassley, showing his bona fides as one of ARFM. (America's Remaining Free-Marketers)

Grassley is now turning his attention to Geithner's more than $40,000 in tax return mistakes -- returns he prepared himself.

"How much would the nominee's tax history reflect on the secretary?" Grassley asked. "How much does this troubled tax history reflect on his judgment?

Sen. Chuck Schumer (D-N.Y.) is now serving as a warm-up act for Geithner, giving a glowing recommendation with a little mea culpa peppered in.

"Tim has made some mistakes," Schumer said. But these mistakes "pale in comparison" to the misdeeds of Wall Street, Schumer said, invoking the popular lesser-sin defense.

-- Frank Ahrens
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By Frank Ahrens  |  January 21, 2009; 12:49 PM ET
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Mr. Geithner's problem is that although he corrected some years when he was advised by his own accountants, he conveniently "forgot" to correct other years until advised by the Obama team.
Once is carelessness, twice is fraud.

Posted by: Ethicist | January 21, 2009 11:45 AM | Report abuse

I was very pleased to hear that he used turbotax, because that means that there was one additional alert that he ignored each and every year for four years. This was truly a case of fraud.

Posted by: citizen49 | January 21, 2009 12:07 PM | Report abuse

Based on the information presented in the media, it appears that Mr Geithner is a tax chiseler, and not a small one at that. He only paid up after he got caught by the IRS. For a financial professional to claim an innocent mistake is disingenuous, especially given the size of the reported discrepancies. If all taxpayers followed Mr Geithner's example, and unfortunately many of them do, then our federal deficit would be much larger than it already is. Do we really want a tax chiseler to be Secretary of the Treasury, with oversight over the IRS? I think not!

Posted by: Charley5 | January 21, 2009 12:09 PM | Report abuse

Tim Geithner is manifestly unqualified to serve in the cabinet, let alone as Sec of Treasury ! His testimony is an embarassment - more of the typical inside the beltway leitmotif of "I accept full responsibility...( but please don't hold me accountable for my actions !)"
1. he was informed on multiple occasions that he had to take care of both his payroll AND social security taxes -IMF is careful about this
2. Once he made this "oversight" he continued to carry it through for a number of years without thinking
2. why should he be in strict compliance of tax regulations ? what did he have to lose ? if he got caught, he could pay up, and hopefully some of the years would, conveniently, be beyond statute of limitations-his tax avoidance strategy turned out to be clever
How can this tax scofflaw have the moral authority and credibility to supervise the IRS, ask citizens to pay more taxes over the next 8 years to bail out the Paulsen-Geithner debacle of the past few months re TARP ?

Posted by: jdwhite | January 21, 2009 12:11 PM | Report abuse

Re Geithner: I remember when Donald Reagan was CEO of Merrill Lynch, before he became Secretary of the Treasury, he did not have a will. He had no idea where all his important papers were. If it hadn't been for his amazing executive Secretary, Betty Lehrman, he would never have had his personal finances in order. Geithner, like Reagan, is focused on his professional life. He is consumed with his career.
Give the man a break.

Posted by: anbenson | January 21, 2009 12:13 PM | Report abuse

Geithner made a series of stupid mistakes with his taxes and he deserves criticism, especially as he's the nominee for Treasury. However, unless there is something more here, like some pattern of unlawful behavior or irresponsibility with personal or organizational finances, he should be confirmed. The Republican Senators who are dressing him down aren't doing the country any favors. They're just blowhards out to score political points.I'm self-employed, too, and it is difficult to understand tax obligations. In fact, almost anyone with substantial investments or property or consulting fees is likely to make a mistake here or there. Every time I hear one of these Republican clowns criticizing Geithner or Clinton, I donate more money to the DNC. Who are these Senators kidding? Anyone with stock market investments or who pays substantial taxes knows that after eight years under their party, we've lost big time. Geithner and Clinton didn't cost me any money. Bunning's party cost me plenty. As far as I'm concerned, he and his colleagues should shut up and start proposing solutions. We don't need more problems.

Posted by: Bob22003 | January 21, 2009 12:37 PM | Report abuse

If Geithner's actions are to be interpreted as how he "focuses on his professional career," I don't think I want him focused on anything to do with my country. I think he clearly "focused" on saving himself a few bucks. Some how or other I've always been able to remember that come every April 15th, I have to pay taxes. This guy didn't pay any for 4 years! Someone with a convenient memory (or moral compass, which he now seems to have conveniently found) is not what we need at the Treasury.

Posted by: flintston | January 21, 2009 12:45 PM | Report abuse

It is much more important at this stage for Obama to be seen to be clean than it is for him to stick to Geithner, who is manifestly a crook.

Posted by: rebeccatoledano | January 21, 2009 12:47 PM | Report abuse

Why are they continuing to question this guy, after he has admitted the illegal act of tax evasion? The Senate Chairman should just stand up and say, "End of interview, buddy. You don't meet the grade. We only want honest people for this position. Pick up your lame excuses, and find some other suckers to lie to. The American people don't believe you and don't want people like you running a marathon, much less our National Treasury. Then, the police should be called to arrest him for tax evasion, and he should be led out in hand cuffs. Obama, whom I voted for, alas, should have his mental health checked for choosing such a flawed individual.

Posted by: vcompton1 | January 21, 2009 1:07 PM | Report abuse

If previous nominees with similar issues were not confirmed in previous administrations (and they were not confirmed in the Clinton and Bush administrations), Geithner should be shown the door.

Posted by: jsc173 | January 21, 2009 1:43 PM | Report abuse

Forget his tax problems, he's been at the center of some of the worst economic decision-making in history. This is change? From what? It is time to take our Treasury Dept back from the Wall Street hacks.

Posted by: iculus | January 21, 2009 1:51 PM | Report abuse

He really should have used a pro. At least he should have used TaxCut. TaxCut is backed by H&R Block; he could have asked them if he had a doubt.

Posted by: gbooksdc | January 21, 2009 2:00 PM | Report abuse

I happen to use PC Tax Cut and not Turbo Tax, but they probably both work about the same. You enter the data from the forms and the program guides you through preparing the return.

Geithner was given a W-2. He didn't file a Schedule SE, that is automatically generated when you file a Schedule C that in turn is called up when you enter data from a 1099-MISC. Independent contractors are supposed to receive 1099-MISC's, not W-2's.

I don't think there is any way you can get a tax program to produce a Schedule SE if you start with a W-2. I also don't understand why he was given a W-2 instead of a 1099-MISC.

It could be that the IMF needed to provide some information that the 1099-MISC doesn't cover. In that case the problem is with the IRS, who didn't create a form that covers Geithner's situation.

Sending letters about the need to file Social Security taxes doesn't do anything when you are using tax software that is programmed to do things the way it expects. What it expects is what the IRS sets up in its forms.

If this is such a common error, why didn't the IRS investigate why it is so common and do something to fix it, especially for people who use tax software?

Posted by: StanKlein | January 21, 2009 2:09 PM | Report abuse

So we are to believe that he used the same commercial software that thousands of other taxpayers use - without problem. And I suppose when he had a question, he asked "the box."

Posted by: mckenzi01 | January 21, 2009 2:37 PM | Report abuse

You mean to tell me he doesn't have people?

Posted by: GordonShumway | January 21, 2009 2:45 PM | Report abuse

Listening to Geithner’s entire hearing, I was struck by how he constantly said uncritically that last year’s first $350 billion of TARP was right for the situation at the time and was absolutely silent and was uncritical of its lack of transperancy or review or accountability to any branch of government to the tax paying public other than the secrecy of the Paulson Treasury Dept. acting in a Cheneyesque manner. Geithner only said that the new administration would be more transperant with the TARP’s second $350 billion. What is essential to ask is whether Geithner as the “architect” of Paulson’s TARP built in the no strings attached dispensation. Did Geithner have anything with Paulson initial TARP proposal, particularly Section 8 which was:

“Sec. 8….”Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

Did Geithner have anything to do with creating the Paulson loophole in executive compensation in the first TARP?

The American people need to know if Geithner was responsible for the opaque dispensing and accountion of the first $350 billion dollars. Now he says there will be more transperancy and accounting but what was his position as New York’s Federal Reserve last September. He must answer that before confirmed. That is more important than the focus on his taxes. Hopefully his rational is not like his answer of an error of ignorance and carelessness with his taxes.
Our financial crisis has no room for error.

Posted by: d-seid | January 21, 2009 2:47 PM | Report abuse

Isn't there also an issue with Geithner's taking deductions for his childrens's summer camp? I wonder how many people filing tax returns this year are going to try getting away with the tax evasion Mr. Geithner has apparently been doing for years...After all, it doesn't seem so bad if he can be chosen for such a high position - and confirmed.

Posted by: tank1987 | January 21, 2009 2:51 PM | Report abuse

I am utterly outraged that this man would be confirmed for the Treasury position. He is either a crook or stupid - either of which disqualifies him to be Secretary of a Department that includes the IRS.

Let's look at the facts (as we think we know them). He said today, at the confirmation hearings, that he was confused because he got W2's from multiple employers and 1099's, too. I've read that the IMF (or wherever he worked) gave him W2's, showing no tax withholdings. Now I hear they are 1099's. Which is it? He said he used Turbo Tax when he prepared his own returns. Now, if he entered W2 information, the software would surely have flagged the return because of zeroes in the FICA fields. If he entered it as a 1099, the software would have prompted a decision as to where the income should be directed, such as to Schedule C or Other Line on the front of the 1040. Schedule C would have forced a form SE and figured his FICA for him. Or he could have mistakenly hit the checkbox for Clergy. If Other Line had been selected, I'm sure the software would have prompted a decision to identify it as SE income or not. Bottom line - the software would have indicated that FICA was a possibility.

My son just got a W2 from his university, where he worked as a Resident Advisor. The W2 shows no tax withheld, income nor FICA. Sounds familiar, don't it! The wages are not even shown in the Medicare nor SS Wage Boxes. This is a new one on me, so I am going to check it out. Should he be considering himself self-employed? Or is this some special tax situation for school kids? Is it considered a scholarship or grant? What kind of impact will it have on deductible Education Expenses, etc.? My point is that Mr. G should have investigated this thoroughly and, according to him today, he would have found the answer in the myriad of paper the IMF sent him about how to treat his income for tax purposes. I think he's a crook or very, very stupid.

Now, what about the accountants that prepared his more recent returns and advised him, in writing, that he was not liable for FICA. I'd love to see that letter for myself. We in the tax biz know that the issue of FICA taxes is basic to tax preparation. These accountants should be investigated by the IRS and be barred from ever preparing taxes again.

Thank you for allowing me to vent, as this issue makes my blood boil! Ask anyone who knows me, I'm the most laid-back, calm guy you could ever know. But, this takes the cake.


Bill the Bookkeeper

P. S.

What's this about the IMF paying their contract "employees" an additional amount of money to cover these SE taxes? Did Mr. G pay both halves of the FICA? Did he pay income tax and FICA on this additional amount? Also, does anybody think they could have gotten the Penalties abated as he did? Outrageous!

Posted by: TaxShack | January 21, 2009 3:09 PM | Report abuse

Especially for the previous comment by anbenson critising the Republicans, the Democrates wanted to clean up Washington and this man is being placed in the wrong job. I would have loved to see Nancy Polosi comments if Bush would have tried to appoint him.

Posted by: bassskiing | January 21, 2009 3:14 PM | Report abuse

I am not defending him, but you have to be very careful when using TurboTax - I stopped after I was audited for a mistake I made. Mine was not correctly limiting exemptions on a home loan - it took the IRS 3 years to catch up on this and at that point it cost me $$$. The error is in that TurboTax only knows about what you tell it. It can't catch mistakes when you don't tell it information. I'm using a human from now on - no more self-generated taxes returns. :-)

Posted by: lmlight77 | January 21, 2009 3:52 PM | Report abuse

Anyone who doesn't want to see the Obama administration tainted with liars and crooks should send a letter to their two senators, now, in opposition to Tim Geithner.

Any person who chooses to do their own tax returns (with or without TurboTax) considers himself knowledgeable enough on tax rules to do so. The mistake that Mr. Geithner made in not reporting his IMF income from which no taxes were withheld is so basic it defies credibility. And then he repeated the mistake when he failed to revise 2 years of returns after getting caught on another 2 years.

How can this man be anythinig other than a tax cheat, a fraud, and a liar?

Obama supporters who remain silent on this issue and silently allow this crook to be approved should be ashamed of themselves.

Posted by: NutriaKing | January 21, 2009 3:56 PM | Report abuse

As a long time TurboTax user, its obvious to me that Geitner "gamed" the program and took dubious claims under the umbrella of plausible deniability.

He is unfit for this office.

Posted by: ImpeachObama | January 21, 2009 4:16 PM | Report abuse

I think all these Republicans should have their own tax paperwork audited back since they started pulling in a paycheck. I doubt if a single one of them could make it through the audits unscathed. I want to check their paperwork on nannies, housekeepers and yard maintenance workers too. (I paid my nanny taxes but I bet they didn`t.) I doubt they even kept their paperwork back that far.

The IRS only audits back a certain number of years. That is all you are required to hold onto your paperwork for in order to support the audits and then file a 1040X if required. Why should he have paid back taxes on an error that was caught outside the inclusion period? No one else would. Be honest. You wouldn`t do it either. He`s been told to do it just because he is up for this position.

Having used Turbotax (just bought my copy for 2008) I can see where errors occur. I`ve had errors occur. What I find surprising is that the IRS computers did not catch the errors from the start. They caught an error we made on our taxes within six months of submitting our taxes all based on the paperwork that was submitted by employers and investment companies. No doubt paperwork was submitted by the IMF showing his salary. It would seem the IRS computers had the same error in them at least for a couple of years.

I`m all for making issues where there are ones but this is a non-issue. It just goes to show the Republicans are still concerned only with themselves and the next election versus helping the country to recover from the mess we`re in today.

Posted by: KarenLS | January 21, 2009 4:17 PM | Report abuse

Obama should have tossed him overboard. Why is Obama sticking with him? Some of the Senators who protected him will hear from me, and one of them has lost my vote next election. Only the elite think the situation is unimportant, and it is only unimportant if the cheat is part of their good old boys club.

Me? I would be in trouble. These guys don't understand we are talking about equality before the law.

Posted by: rusty3 | January 21, 2009 4:18 PM | Report abuse

TurboTax did not cause this error. It's obvious the user had to omit data to change the tax documents.

Posted by: rrgg1 | January 21, 2009 5:18 PM | Report abuse

Grassley is a genuine American hero.

Posted by: Rational4 | January 21, 2009 5:39 PM | Report abuse

rrgg1 said:
"TurboTax did not cause this error. It's obvious the user had to omit data to change the tax documents."

Mr. Geithner did not omitted any data. IMF's W2 shown no entries on Social Security and Medicare wages.

Turbotax will not alert you if these fields are blank. Try it for yourself.

Posted by: cs2007 | January 21, 2009 6:08 PM | Report abuse

The fact is that many organizations, including the Department of Defense do not send 1099's to IRS at year's end showing earnings by consultants, contractors and, in the case of the IMF and the World Bank, many employees. No 1099, why bother to volunteer your income to IRS?

So the choice of Mr Geithner is another example of President Obama's brilliance. Since Geithner knows first hand, how easy it is to hoodwink IRS he will be able to work towards ending the 1099 loophole. If he doesn't, the Congress and the press will ride him out of town.

Posted by: loyalsyst | January 22, 2009 5:17 PM | Report abuse

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