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In the sophisticated top tier, tax goofs should be obvious

ST. PETERSBURG — Unpaid taxes.

They undid Tom Daschle and Nancy Killefer, causing them to withdraw from consideration for top administrative posts. Timothy Geithner was confirmed as treasury secretary and now heads the IRS, but his reputation has taken a beating.

As President Obama scrambles to find taxpaying replacements, we talked to local accountants and tax attorneys about what we can learn from their mistakes.

What did they do to get into trouble?

Geithner failed to pay Social Security and Medicare taxes while he worked at the International Monetary Fund from 2001 to 2004. He repaid some money but didn't pay $26,000 until Obama asked him to head the Treasury.

Former Sen. Daschle neglected to pay taxes on a car and driver he received as a gift. He paid about $140,000 in back taxes and interest after Obama nominated him to lead the Health and Human Services Department.

Killefer, a former treasury official nominated to be chief performance officer, failed to pay unemployment tax on household help for 18 months.

The tax code is complicated. Should they have known that they owed this money?

Probably, said many local tax advisers. They're educated, experienced and wealthy enough to hire the best advisers. Tampa tax attorney Darren Mish, 41, said they are "sophisticated, high-earning individuals who I believe were trying to avoid paying taxes and only paid because they wanted to become members of the Cabinet."

What are some common tax mistakes?

Selling a stock and forgetting to report it. Taking money out of a 401K or an IRA and forgetting to pay taxes and penalties on it. Not reporting alimony. Claiming a dependent your ex is claiming as well. Reporting business expenses without having receipts.

What happens when you don't pay enough taxes?

Maybe nothing. The IRS audits a minuscule percentage of returns. But its computers are getting better at cross-checking data, and it's generating more letters telling taxpayers they've made a mistake. If that happens, you must prove the IRS wrong or pay up.

If too many things don't add up, your return can trigger an audit. A fraud investigation can lead to a criminal proceeding and potential jail time.

Did these guys get special treatment by the IRS?

Not really. The IRS did audit Geithner. They never came after Daschle, who volunteered to pay when he was vetted for the job. But the average Joe typically can't pay up as easily as Daschle and Geithner.

Eddie Brown, a Lakeland handyman, ran into trouble four years ago when he couldn't pay $37,000 in self-employment taxes because he hadn't set aside the money. "I was pretty ignorant to it," he said. "I knew how to go work on homes, but I didn't know how to do business."

He got dozens of letters and calls from the IRS. His bank account was frozen and his tax debt ballooned to $90,000 with interest and penalties.

He eventually paid it back. But he wonders if he was treated the same as Daschle and Geithner. "I'd feel a lot better to know they had been hassled the exact same way I was," he said.

Times researcher Shirl Kennedy contributed to this report.

In the sophisticated top tier, tax goofs should be obvious 02/03/09 [Last modified: Wednesday, February 4, 2009 7:46am]
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