At the least, the flap is a major embarrassment for the man chosen to head the Treasury Department, which oversees the Internal Revenue Service, especially as Mr. Geithner worked at the Treasury under three presidents. And it is the latest of several stumbles by the previously smooth-running Obama transition office — the most serious being the withdrawal of Gov. Bill Richardson of New Mexico as the choice for commerce secretary because of questions over state contracts and political contributions.
In Mr. Geithner’s case, he has paid a total of $43,200 in back taxes and interest for underpayments from 2001 to 2004, according to the Obama transition office. The Finance Committee disclosed that he paid a slightly higher total of $48,268, which includes payments on unrelated tax liabilities the committee uncovered.
The issue involving a former housekeeper of the Geithner family is separate. The woman was in the country legally and was authorized to work when Mr. Geithner and his wife hired her in 2004, but her employment authorization expired three months before she quit working for them. The issue was discovered by the Senate Finance Committee, not by the Obama team, and it came as news to Mr. Geithner, according to a Democrat who was briefed on the situation.
The more serious questions surround the previously unpaid taxes. The bulk of them were detected in 2006 after an audit by the Internal Revenue Service for 2003 and 2004, and Mr. Geithner paid back taxes and interest then for those years.
In November the Obama vetting team found other unpaid taxes for 2001 and 2002, and Mr. Geithner immediately paid those plus interest when the matter was brought to his attention, transition officials said.
The underpayments all involve Mr. Geithner’s income as a senior official at the International Monetary Fund from 2001 to 2003, including a small payment in 2004 after he had left. Mr. Geithner worked there after leaving the Treasury, where he had risen to under secretary for international affairs in the Clinton administration, and before becoming president of the New York Fed, a post that has put him at the center of the economic crisis.
The I.M.F., as an international organization, does not withhold payroll taxes for Social Security and Medicare from its American employees’ paychecks. Those workers are required to pay the roughly 15 percent tax themselves, as if they were self-employed.
However, the I.M.F. does pay its American workers an amount equal to an employer’s half of the payroll taxes, with the expectation that they will use that to pay the I.R.S. The organization also gives them quarterly wage statements that include United States tax liabilities.
Mr. Geithner fully paid his state and federal income taxes. In failing to pay his payroll taxes, he in effect kept the money the I.M.F. had contributed toward his liability. However, Mr. Geithner’s accountant told him he was exempt from self-employment taxes, according to Obama transition officials.
As Obama officials pointed out, and I.R.S. documents attest, the failure to pay Social Security and Medicare taxes is common among Americans who work for international organizations, including foreign embassies. A 2007 I.R.S. notice reported that up to half of such employees incorrectly file their tax returns.
The I.R.S. waived penalties for Mr. Geithner in 2006, according to an account provided by the transition office and the Senate committee. A three-year statute of limitations had precluded the agency from auditing the 2001 and 2002 tax returns, a committee aide said.
Mr. Geithner volunteered to amend the earlier returns and pay the taxes and interest, a total of $25,970, after Mr. Obama indicated that he wanted to nominate him for the Treasury job, according to the account. Mr. Obama announced the nomination in Chicago on Nov. 24, three days after the issue had come to Mr. Geithner’s attention.
That chronology raises the question, however, of why Mr. Geithner did not voluntarily correct the earlier nonpayment of self-employment taxes after the 2006 I.R.S. audit identified the problem for 2003 and 2004.
Late Tuesday, Republican and Democratic sources were still predicting that Mr. Geithner would be confirmed. Before the tax disclosures, the toughest questions he was expected to face were over his role in the government’s bailout program for financial institutions.
The Senate Finance Committee has known about the tax matters since Dec. 5, and staff members have reviewed Mr. Geithner’s tax records and interviewed three of his accountants and an I.M.F. representative.
Mr. Geithner met with committee staff members on Dec. 19 to answer questions about the taxes on his I.M.F. income and about other relatively minor issues the staff had found. Those issues, for which Mr. Geithner recently paid $4,334 in back taxes and $1,232 in interest, include his mistaken claim of the dependent care credit on his income taxes for the costs of sleep-away camps in three years. The Geithners have two teenage children.
After Mr. Geithner’s meeting with senators on Tuesday, Mr. Obama’s press secretary, Robert Gibbs, issued a statement calling the nominee the “right person to help lead our economic recovery during these challenging times.” It continued: “He’s dedicated his career to our country and served with honor, intelligence and distinction. That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed.”
Senator Harry Reid of Nevada, the Democratic leader, restated his support, as did other Democrats. The senior Republican on the Finance Committee, Senator Charles E. Grassley of Iowa, declined to take a position, but two others from his party stood behind Mr. Geithner.
“I still support him,” Senator Orrin G. Hatch of Utah said. “He’s a very, very competent guy.”
Senator Judd Gregg of New Hampshire, called the matter “a lot to do about nothing.”
“I just find it to be really unfortunate,” Mr. Gregg said, “because here is an extraordinarily qualified guy who we really do want to have in leadership here in Washington.” |
