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International Monetary Fund

More on Timothy Geithner's Tax "Fraud"

Earlier today and this week, Toomre Capital Markets LLC ("TCM") wrote about the possible willful failure of Treasury Secretary-nominee Timothy Geithner to pay his social security taxes during the 2001-2004 period when he was employed at the International Monetary Fund. Those posts were WSJ: IMF Informed Geithner on Taxes and Timothy Geithner Has Some Past Tax Problems.

Reading further about this failure to pay taxes when due, TCM has concluded that this possible willful failure to pay taxes is much worse than originally portrayed. According to The New York Times, "“Look, is this an embarrassment for him? Yes. He said so himself,” Mr. Obama said, referring to Mr. Geithner’s remarks in a private meeting with the Senate Finance Committee the day before. But Mr. Obama said Mr. Geithner had made a common mistake and corrected it."

Apparently, Timothy Geithner accepted payment from the IMF on an annual basis as restitution or a "true up" for social security taxes he was required to have, but had not, in fact, paid. Further, according to Byron York of National Review, the IMF supposedly

took great care to explain to those employees, in detail and frequently, what their tax responsibilities were. First, each employee was given the IMF Employee Tax Manual. Then, employees were given quarterly wage statements for the specific purpose of calculating taxes. Then, they were given year-end wage statements. And then, each IMF employee was required to file what was known as an Annual Tax Allowance Request. Geithner received all those documents.

The tax allowance has turned out to be a key part of the Geithner situation. This is how it worked. IMF employees were expected to pay their taxes out of their own money. But the IMF then gave them an extra allowance, known as a “gross-up,” to cover those tax payments. This was done in the Annual Tax Allowance Request, in which the employee filled out some basic information — marital status, dependent children, etc. — and the IMF then estimated the amount of taxes the employee would owe and gave the employee a corresponding allowance.

At the end of the tax allowance form were the words, “I hereby certify that all the information contained herein is true to the best of my knowledge and belief and that I will pay the taxes for which I have received tax allowance payments from the Fund.” Geithner signed the form. He accepted the allowance payment. He didn’t pay the tax. For several years in a row.

According to an analysis released by the Senate Finance Committee, Geithner “wrote contemporaneous checks to the IRS and the State of Maryland for estimated [income] tax payments” that jibed exactly with his IMF statements. But he didn’t write checks for the self-employment tax allowance. Then, according to the committee analysis, “he filled out, signed and submitted an annual tax allowance request worksheet with the IMF that states, ‘I wish to apply for tax allowance of U.S. Federal and State income taxes and the difference between the “self-employed” and “employed” obligation of the U.S. Social Security tax which I will pay on my Fund income.”

In a conversation today with sources on Capitol Hill who are familiar with the situation, I asked, “Was Geithner made whole for tax payments that he didn’t make?”

“Yes,” one source answered. “He was getting the money. He was being paid a tax allowance to pay him for tax payments that he should have made but had not.”

If this reporting turns out to be fact, there is no way Timothy Geithner, no matter how much he otherwise is qualified, should be confirmed as Treasury Secretary of the United States. One simply cannot have a tax fraud overseeing the Internal Revenue Service. What is even more troubling though is reporting that President-elect Barack Obama and his transition team have been aware of Geithner's tax issue since early November 2008. Yet, despite what clearly was not an "common mistake", President-elect Obama went forward with this nomination and continues to support Timothy Geithner's confirmation.

What does this say about the judgment and morality of the United States' in-coming President? Henceforth, will it be permissible for other "tax frauds" to be confirmed for leading governmental positions? The events of the coming week will say much about what is permissible for the country's leadership and whether the American electorate even cares whether their leaders lie, cheat and potentially defraud.

Toomre Capital Markets LLC strongly hopes that some of our leaders will draw a line in the sand and hence prevent the successful confirmation of this nominee. A tax cheat simply cannot be allowed to oversee the IRS in our society of voluntary compliance. Leadership means holding oneself up for others to follow and aspire to. Do Americans really want to follow the leadership of a tax cheat???

WSJ: IMF Informed Geithner on Taxes

 Timothy Geithner, Federal Reserve Bank of New York President On Thursday January 15th 2009, The Wall Street Journal published an article entitled IMF Informed Geithner on Taxes. According to the article's lead, "Timothy Geithner, whose nomination as Treasury secretary has been delayed by his past failure to pay taxes, was repeatedly advised in writing by the International Monetary Fund that he would be responsible for any Social Security and Medicare taxes he owed on income he earned at the IMF between 2001 and 2004."

Toomre Capital Markets LLC ("TCM") wrote about this issue two days ago in the post Timothy Geithner Has Some Past Tax Problems. If the information is indeed correct, sadly while admiring Mr. Geithner's work in general, Toomre Capital Markets LLC strongly believes that the willful decision to avoid paying social security taxes, particularly being audited and being required to pay back taxes for the 2003 and 2004 tax years, disqualifies Timothy Geithner from being confirmed as Treasury Secretary in the Obama administration. TCM strongly believes that a tax evader is unqualified to oversee the Internal Revenue Service.

While we wish that Timothy Geithner had paid his taxes when due, his personal decision smacks of tax avoidance when he chose not pay social security taxes for the years 2001 and 2002 (after the 2006 IRS audit) until the business day before his nomination. TCM does not accept the defense offered by the transition officials earlier this week: Mr. Geithner made a mistake common to people who work for international institutions. Mr. Geithner is a pretty sharp individual and he should have at a minimum known that he had made a mistake after the 2006 audit.

If Mr. Geithner did not know that those past taxes were due (after the audit), he surely is not qualified to lead economic policy in the new administration. If he did know that they were due and still did not pay them until recently, the incident speaks volumes to his personal ethics and should likewise disqualify him from overseeing the IRS. As Senator George V. Voinovich (R., Ohio) said, "He may be a smart guy, but the average person on the street sees that he hadn't paid his taxes." In this period of change, Toomre Capital Markets LLC hence hopes that either President-elect Obama will rescind this nomination or the United States Senate will refuse to confirm this nominee.

In short, if one willfully cheats on one's taxes, one definitely is not qualified to oversee the IRS and the United States tax system, not matter how qualified one otherwise is. Will the Senate and President-elect Obama demonstrate that they understand and live true to a world of high ethics? Or will this be yet another example of cutting an ethical corner? Reader comments and thoughts are welcome.