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Treasury Nominee Accounts for Own Tax Errors

By Michael D. Shear and Lori Montgomery
Washington Post Staff Writers
Wednesday, January 14, 2009

Timothy F. Geithner, the man tapped to lead the nation out of the greatest economic crisis in decades -- and who would oversee the Internal Revenue Service -- trekked to Capitol Hill yesterday to explain to senators how he made almost $43,000 worth of mistakes on his own tax returns.

As Treasury Secretary, Geithner would be tasked with directing a mammoth rescue of the nation's economy. President-elect Barack Obama selected him for the post late last year, citing his "unparalleled understanding of our current economic crisis, in all of its depth, complexity and urgency."

But on Tuesday, Geithner appeared before members of the Senate Finance Committee to argue that mistakes on his tax returns early this decade were unintentional and that he has since paid back the $42,702 he owed, including interest.

There was little evidence yesterday that Geithner's errors, which included a related disclosure about a housekeeper who worked for him briefly without proper employment documentation, would derail what has been a smooth confirmation process for Geithner, who is the president of the Federal Reserve Bank of New York.

But the revelations could delay consideration of Geithner's nomination. Late Tuesday, Republican Sens. Jim Bunning (Ky.) and Jon Kyl (Ariz.) blocked a request to proceed with his confirmation hearing Friday. Democratic lawmakers still hoped to confirm Geithner to the critical economic post before Inauguration Day.

In his appearance yesterday, Geithner told the committee that he had failed to pay Social Security and Medicare taxes because he mistakenly believed that his employer at the time, the International Monetary Fund, was deducting those taxes from his paycheck.

Several senators from both parties quickly came to Geithner's defense, saying in interviews Tuesday night that the mistakes were common and innocent and that his confirmation was not in jeopardy. Through an aide, Senate Finance Committee Chairman Max Baucus (D-Mont.) called Geithner's errors "serious" but said they do not disqualify him from being Treasury Secretary.

"I still support him. I have no problem," Sen. Orrin G. Hatch (R-Utah) told Fox News. "He's a very, very competent guy."

"Tim came to the committee, admitted he had made some mistakes and was very contrite," said Sen. Charles E. Schumer (D-N.Y.). "In my opinion, these mistakes were not at all disqualifying."

Senate Minority Leader Mitch McConnell (R-Ky.) said he would defer judgment while Finance Committee members review a staff investigation. "The committee's taking a look at it," he said.

But the situation echoed past revelations that led to the withdrawal or rejection of Cabinet nominees. Zoe Baird, Bill Clinton's first choice for attorney general, withdrew after it was revealed she had not paid the proper taxes for her nanny.

Others who ran into trouble because of back taxes included Bobby Ray Inman, nominated by Clinton to succeed Les Aspin as Defense Secretary; Linda Chavez, who was President Bush's choice for Labor Secretary; and Bernard B. Kerik, who Bush hoped to make secretary of Homeland Security.

The complication of Geithner's nomination, reported on the Wall Street Journal's Web site yesterday, was the latest in a series of missteps by Obama's team, a list that includes New Mexico Gov. Bill Richardson's decision to withdraw from consideration as Commerce secretary because of an ongoing grand jury investigation and the rocky reception in the Senate when Leon Panetta was announced as Obama's choice to head the CIA.

Documents released by the Finance committee documented the errors made by Geithner. One showed his signature on a tax worksheet that states that he has an "obligation of the U.S. Social Security tax, which I will pay on my fund income."

Obama aides described Geithner's failure to pay Social Security and Medicare taxes as innocent mistakes he made between 2001 and 2004, when he was employed at the IMF.

Because the organization employs many foreigners, it does not automatically withdraw those taxes from the paychecks of its employees, requiring them to pay the taxes themselves. Geithner did not do so for the four years he worked there.

A source at the IMF, who spoke on the condition of anonymity because he or she was not authorized to speak for the organization, said last night that Obama aides and the Senate committee staff provided an accurate description of a complicated employment situation.

"The system is very complex, and it is not unheard of for mistakes among U.S. nationals to happen," the source said.

Obama aides said Geithner became aware of the mistakes in 2006, when an IRS audit revealed that he had not paid what he owed for the returns he filed for 2003 and 2004. At the time, Geithner paid back taxes and interest totaling $16,732.

After he was chosen to be the next Treasury secretary, Obama's vetting team discovered on Nov. 21 that he made the same mistake in 2001 and 2002 -- mistakes overlooked in the earlier IRS audit.

Upon learning of the additional mistakes, aides said that Geithner paid an additional $25,970, aides said, even though the statute of limitations on the tax return errors had expired and he was not legally required to pay.

Obama press secretary Robert Gibbs said Geithner's "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."

Obama aides said Geithner had been forthcoming about the tax problems and his audit when he was selected for the Treasury post. "Geithner is not trying to hide anything," spokeswoman Stephanie Cutter said.

The situation with his housekeeper involved a legal immigrant for whom Geithner had properly paid all taxes; he also had checked work documents when he hired her, Obama aides said. Three months before her employment with Geithner ended, the documentation allowing her to be employed in the country expired.

Aides said the housekeeper, married to a U.S. citizen, was never in the country illegally while she worked for Geithner, and she received new, proper work documents a few months after leaving his employ.

Senate Majority Leader Harry M. Reid (D-Nev.) told reporters on Tuesday that he was not concerned about Geithner's nomination.

"There's a few little hiccups, but that's basically what they are," he said. "I am not concerned at all."

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