The Washington Post has a story today about how the State of Alaska paid Sarah Palin a per diem for days when she was at her home in Wasilla. As a tax teacher, the first question that popped into my head was: Did Governor Palin pay federal income tax on these reimbursements? I can’t wait to ask my students whether they think that she should have had to pay tax on her per diem when we reach the deductibility of travel expenses in class in a few weeks.
If, as the story in the Post seems to imply, she was not engaging in business while in Wasilla, then there seems to be a nice question about whether her expenses while in Wasilla qualify either as traveling expenses deductible under section 162 or for the exclusion applicable to employer reimbursements of employee expenses (through, for example, a per diem) under Treas. Reg. section 1.62-2. If these are really just personal expenses paid by her employer, that sounds like taxable income to me.
In this respect, Governor Palin’s situation calls to mind the famous (infamous? well, at least for tax folks!) Flowers case in which a lawyer lived in Jackson, Mississippi, but worked in Mobile, Alabama. The lawyer refused to move to Mobile for personal reasons. In that case, the Supreme Court held that the lawyer could not deduct the costs of going from Jackson to Mobile and could not deduct his expenses while in Mobile because, in essence, this was just one long commute and commuting expenses are nondeductible. It would seem that the converse would also be true in Governor Palin’s situation.
Another intriguing question arises with respect to all of the airfare reimbursements for Governor Palin’s family members. This calls to mind a topic that I will actually cover in class sooner than the one described above; namely, the taxability of fringe benefits. This situation calls to mind the Joint Committee on Taxation’s examination of President Nixon’s tax returns and its conclusion that he should have included in his gross income the value of air travel on government jets by his family members.
If there are any tax folks out there reading this (Bridget?), I would be interested in hearing their thoughts on this and whether I missed anything.