State reviewing per diem payments to Palin

Alaska Gov. Sarah Palin's practice of charging the state when she stays in her home must be reviewed to determine if she should pay taxes on the payments, state Finance Director Kim Garnero said Tuesday.

Palin, the Republican vice presidential nominee, released two years' worth of tax returns last week that did not list the per diem payments she received since becoming Alaska governor in December 2006. She collected nearly $17,000 during that period for 312 nights spent in her Wasilla home about an hour's drive from Anchorage, according to state travel records.

Palin has relied on the state's calculation of her taxable income, reported in her annual income statements known as W-2s, said Roger Olsen, a Washington, D.C., tax lawyer asked by the Palins to review their tax returns before they were made public last week.

"The income tax aspects of fringe benefits are complex and highly technical, and not subject to second-guessing by laymen," Olsen wrote in a three-page letter outlining his review of the returns.

Palin listed 157 days spent in Anchorage during 2007 on her travel forms. Garnero said Palin's work place as governor is considered to be Juneau, so she filed for the per diem payments - most times the full $60 a day - when she worked in her Anchorage office and stayed at her Wasilla home.

But state officials consider changing an employee's work station when they spend most of their time in another area, she said. That review will occur for Palin, Garnero said, which may require Palin to report future per diem payments as income.

"That's something we need to confer with the governor's office on," said Garnero, who said she was not aware of the number of days Palin spent working in Anchorage.

State rules for employees who receive a large amount of per diem payments are difficult to apply to Palin because she has no supervisor monitoring how long she works at another state office, Garnero said.

A typical work year for most employees is 260 days, but Garnero said the governor's staff told her Tuesday that her work year is considered 365 days because she is on call around the clock. That would mean Palin spent about 43 percent of last year working in Anchorage, and would allow the governor to continue receiving per diem payments that aren't taxed when she stays at her home, Garnero said.

The state review will not consider whether Palin should report past per diem payments as income. "In the past, we've gone prospective. We've never gone retroactive" when reviewing per diem paid to state employees, Garnero said.

The final decision likely will be made by the Internal Revenue Service, said Allen Bingham, an Anchorage accountant and member of the Alaska Society of Certified Public Accountants' taxation committee. IRS officials could determine that Palin owes taxes on past and future per diem payments, he said.

Bingham said Palin's situation is unusual because she claimed such a large number of days working away from Juneau, something that would typically raise red flags when considering whether the per diem should be considered income.

"It's certainly one of those things that some of us have raised our eyebrows about," he said.

The IRS likely also will want details about $43,490 the state paid Palin over 20 months for family travel, including commercial airline tickets the state bought for some of her children to join the governor. Bingham said taxpayers must show a specific business purpose for the state reimbursement, some actual work or duty performed for the expense.

"I guess I'm surprised that the state is paying for the kids. I don't know what the state business purpose is here," Bingham said.

Palin's returns showed that she and her husband underpaid their estimated taxes with an April extension and likely will owe interest. The per diem payments and family travel expenses were not included as income in those returns.

During the two tax years for which Palin released her returns, she claimed four dependent children. She gave birth this year to a fifth child. The family travel was a legitimate paid expense because Palin's husband and children represented the state at events, said Maria Comella, a campaign spokeswoman.

"The only time the children's travel was reimbursed was when they were traveling as part of an official event," she said.

Olsen, who worked in the Reagan administration's Department of Justice's tax division as an assistant attorney general, noted in his review of Palin's tax returns that her per diem payments were handled correctly by state officials as non-taxable because the governor's place of business was considered to be Juneau.

"No special consideration was ever given to Governor Palin, notwithstanding that she was the governor of Alaska," Olsen wrote.

Olsen said state law allows the governor's relatives to receive payment for travel costs "when conducting official state business." But his review did not address what state business was performed by Palin's children.

"Such payments for family members traveling on state business would not properly be included as taxable income on Governor Palin's federal tax returns," Olsen wrote.