President-elect Barack Obama's choice to run the Treasury Department and lead the nation's economic rescue failed to pay $34,000 in taxes from 2001 to 2004, but the last-minute disclosure didn't stop Senate Democrats from moving forward with his nomination.
Timothy Geithner had paid some of the back taxes in 2006 after the IRS sent him a bill. When the Obama transition team discovered he owed even more back taxes, Geithner paid those additional taxes days before Obama announced his choice in November, according to materials released by the Senate Finance Committee considering his nomination.
Obama's staff told senators about the tax issues on Dec. 5.
Finance Committee Chairman Max Baucus, D-Mont., said he still hoped Geithner could be confirmed on Inauguration Day, asking senators for unanimous consent to skirt rules and schedule a hearing as early as Friday.
"These errors were not intentional; they were honest mistakes," Baucus said after he and other committee members met with Geithner behind closed doors on Tuesday.
It was not clear Tuesday whether committee Republicans would sign off on Baucus' request for a quick hearing.
The panel's senior Republican, Sen. Chuck Grassley of Iowa, hasn't decided whether the revelations are reason enough to oppose Geithner, said spokeswoman Jill Kozeny. He believes they are "serious, and whether or not it's disqualifying is to be determined," she said.
Another prominent Republican, however, spoke up for Geithner. Utah Sen. Orrin Hatch, another committee member, said he continues to support the nominee.
"I have no problem," Hatch told Fox News. "He's a very, very competent guy."
After senators met with Geithner, the panel released 30 pages of documents detailing his tax errors -- and also how he came to employ a housekeeper whose legal immigrant work status had briefly lapsed in 2005.
Senate Majority Leader Harry Reid, D-Nev., dismissed the events as "a few little hiccups," and said he was "not concerned at all" about the impact.
Obama reiterated his support for Geithner.
"He's dedicated his career to our country and served with honor, intelligence and distinction," incoming White House spokesman Robert Gibbs said. "That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed."
Geithner, plucked from his job as president of the Federal Reserve Bank of New York to serve as Obama's treasury secretary, told transition officials and senators that he didn't know he owed self-employment taxes when he worked for the International Monetary Fund.
He failed to pay self-employment taxes for money he earned 2001 to 2004 while working for the IMF, according to materials released by the Senate committee. In 2006, the IRS notified him that he owed $14,847 in self-employment taxes and $1,885 in interest from 2003 and 2004, which he paid after an audit. The IRS waived penalties for those tax years.
Transition officials discovered last fall that Geithner also had not paid the taxes in 2001 or 2002. He paid $19,176 in back taxes and $6,794 in interest for 2001 and 2002 several days before Obama announced his choice, the committee documents showed. All told, Geithner had failed to pay $34,023 in self-employment taxes for the years 2001 to 2004.
Geithner and his supporters have said his mistake was a common one for people hired by international organizations that don't pay the employer share of Social Security taxes. The IRS estimated in 2007 that as many as half those employees had made tax-filing mistakes, and offered a group settlement to let them correct the errors. Geithner told Obama's team and senators that an accountant had reviewed his tax returns after Geithner prepared them and didn't discover the problem.
But some tax experts said the problem is not that common.
Tom Ochsenschlager, vice president of tax for the American Institute of Certified Public Accountants, said it would be difficult for someone preparing a tax return for a self-employed person to skip the Social Security and Medicare tax lines.
"It's such a basic mistake that I kind of wonder if we know all the facts," Ochsenschlager said of Geithner's situation.
Geithner filed amended tax returns for 2001 through 2006 after Obama's team reviewed his records.
The committee's materials said Geithner "has experience with Social Security tax issues." He filed the taxes late for his household employees in 1996 for years 1993 to 1995; he incorrectly calculated Medicare taxes for his household employees in 1998 and received an IRS notice; and he received notices from the Social Security Administration and the IRS after not filing 2003 and 2004 forms for his household employees, the report states.
Geithner also said he didn't realize a housekeeper he paid in 2004 and 2005 did not have current employment documentation as an immigrant for the final three months she worked for him, the documents indicated.
One of his housekeepers' legal authorization to work in the United States expired on July 15, 2005, and the person continued to work for Geithner until October of that year, the committee's report states.
Geithner is the second Obama Cabinet choice to face controversy. New Mexico Gov. Bill Richardson withdrew his name on Jan. 4 as Obama's commerce secretary after questions surfaced about a federal investigation concerning contributions and a state contract.
Geithner's tax problem was at least the second time such a situation has touched an Obama appointee. Nancy Killefer, the management consultant selected last week to become the new administration's chief performance officer, failed to pay unemployment compensation taxes, apparently on household employees. In 2005, the District of Columbia placed a $946.69 tax lien on her home over the unpaid taxes. Over a year and a half, she had failed to pay $298 in taxes plus the rest in interest and penalties, and she cleared up the debt within a few months.
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The allegations were first reported by the Wall Street Journal:
According to people familiar with the matter, Mr. Geithner employed a housekeeper whose immigration papers expired during her tenure with Mr. Geithner, currently president of the Federal Reserve Bank of New York. The woman went on to get a green card to work legally in the country and federal immigration authorities didn't press charges against her, these people said.
The second issue involved taxes due while Mr. Geithner worked for the International Monetary Fund between 2001 and 2004. As an employee, Mr. Geithner was technically considered self-employed and was required to pay Social Security and Medicare taxes for himself as both an employer and an employee.
He apparently failed to do so, resulting in Internal Revenue Service audits his last two years at the IMF. As soon as the IRS brought the issue to his attention, he paid the taxes with interest, these people said.
Here's the full statement from incoming Obama press secretary Robert Gibbs:
"The President-elect chose Tim Geithner to be his Treasury Secretary because he's the right person to help lead our economic recovery during these challenging times. 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. He made a common mistake on his taxes, and was unaware that his part-time housekeeper's work authorization expired for the last three months of her employment. We hope that the Senate will confirm him with strong bipartisan support so that he can begin the important work of the country," said incoming White House press secretary Robert Gibbs.