The Washington Post reports this morning on several apparent financial improprieties involving Governor Palin's filing and personal receipt of questionable Alaska state taxpayer monies. As one example, Palin received over 300 days' worth of "per diem" payments from state taxpayers for days when she was living at her home. This same practice, as the Post reports, caused a scandal and resulted in the end of an Alaska state commissioner's career in 1988.
However, there is another potentially explosive issue that demands serious investigation in this matter. According to the IRS, per diems may only be paid for business travel "away from home." Other payments from an employer would apparently be taxable as ordinary income.
Did Governor Palin evade federal taxes by filing for and then receiving "per diems" she was ineligible to receive, and then by not paying taxes on those payments?
To answer that question requires both an examination of Governor Palin's tax returns and a closer examination of IRS tax regulations. The tax regulations may also bear on other issues the Washington Post uncovered, including payments Palin family members received. (The IRS has rather precise definitions of "business travel," and those definitions almost never include family members.)
Has Palin released her tax returns yet? If so, where are they available?
The IRS has a Frequently Asked Questions list covering per diems here. That's interesting, but the more interesting (and official) IRS information comes from other publications, including Publication 1542 which refers to an "away from home" requirement, then cites Chapter 11 of Publication 535 ("Business Expenses") and Revenue Procedure 2007-63, 2007-42 Internal Revenue Bulletin. Publication 535 again has the "away from home" language. I have not checked the IRB references yet.
Note that, if ordinary income, these payments would likely also be subject to other federal taxes, including Social Security and Medicare, in addition to federal income tax. Per diem abuse has been a way for unscrupulous employers and/or employees to evade taxes in the past, including recent past.
Would any tax experts like to comment on this dimension to the Washington Post's story?
Update #1: IRS Tax Topic 511 has a lot of information on business expenses that may be quite useful in this investigation.