Scoppe: Nikki Haley’s income tax problem

Associate EditorAugust 21, 2010 

I HADN’T PLANNED to write about Rep. Nikki Haley’s income tax problem. I didn’t see it as a huge deal, and I wasn’t convinced by claims that missing a couple of deadlines undermined the value of her knowledge and experience as an accountant.

But after her supporters started castigating the media for even reporting that the Haleys filed their taxes late several years in a row, and after Ms. Haley started talking about how she “did nothing wrong,” I checked with the IRS and talked to some accountants. Now I’m convinced that I was wrong.

What I discovered was that most of the people talking about the Haleys’ tax returns either don’t know what they’re talking about or are deliberately trying to mislead people. And while we in the media could have done a better job explaining the facts, Ms. Haley has been going out of her way to contribute to this misunderstanding, as when she insisted in a recent interview with WLTX: “We’ve paid our taxes. We filed extensions in doing so, and did nothing wrong.”

The problem wasn’t that the Haleys sought and received extensions. It is in fact quite common for people to get a six-month extension to file their tax returns. But as the IRS makes clear, the extension applies only to the return, not to the tax payment itself. Taxes are always due by April 15 — at the latest. The Haleys have not paid their taxes by April 15 in any of the past five years. (No taxes were due in 2004, the first year for which they released their income taxes.)

Even more significantly, the extension gives people only until Oct. 15 to file. The Haleys filed their 2005 tax returns on July 30, 2007 — eight months after the extended deadline. They filed their 2006 tax returns on July 23, 2008 — also eight months after the extended deadline. Their 2007 returns were filed Nov. 5, 2008, just a few days after the extended deadline. (Their 2004, 2008 and 2009 returns were filed after April 15, but before Oct. 15, so the IRS doesn’t consider them late.)

Now, in my book, anytime you have to pay the government a penalty, you’ve done something wrong, and the Haleys have paid the IRS $4,452 in penalties in the past five years — $2,853 for filing late, and $1,599 for paying late.

“It’s not a criminal act, so it’s not the kind of thing they put you in the jail for,” my accountant, Mike Lowrance, told me. “But it certainly is contrary to public policy.”

Mike said that although people with complex investments sometimes don’t receive all their tax information by Oct. 15, that doesn’t relieve them of the obligation to file by then. He advises clients to file anything they can, and amend it later, because of the huge legal distinction between filing an incomplete return and filing a delinquent return: People who don’t pay their taxes by April 15 are charged interest and a monthly penalty of 0.5 percent of the taxes due, even if they receive an extension to file. People who don’t file their tax return by Oct. 15 are charged penalties of 10 times that much — 5 percent per month — on top of the late payment penalty.

An accountant I know socially was more adamant, describing the failure to file the tax return by the Oct. 15 deadline as “E.W. Cromartie behavior.” I think that’s a stretch, because there is no reason to believe that the Haleys were trying to dodge their taxes, as the former Columbia City Council member did for years before pleading guilty this spring to federal charges; in fact, by filing an extension, they put the IRS on notice that they had to file a return, which you wouldn’t do if you were planning to avoid the taxes.

Still, the idea that paying your taxes late, and waiting eight months after the extended deadline to file a return, is doing “nothing wrong” is more of a stretch.

But the biggest stretch is the way Ms. Haley has sought to spin her income tax problem into a virtue. She talks about how she and her husband fell upon tough economic times and cut back on their spending and learned to live within their means, which she says demonstrates what a fiscally responsible governor she would be. It seems to me that her actions demonstrate just the opposite.

The Haleys didn’t pay their taxes late once or twice, when things were bad; they paid their taxes late in every one of the past five years — not just in 2006, when their income dropped by half, but also in 2005 when it was going up, and in 2007, 2008 and 2009, when it was going up substantially, topping out at nearly $200,000 last year.

I admire Ms. Haley’s discipline in reining in the family budget, but the fact is that part of her strategy was to avoid paying her bills on time, by essentially giving herself a loan from those of us who paid our taxes on time. A bailout if you will, albeit temporary, for the candidate who deplores federal bailouts. And since she failed to pay her taxes on time five years in a row, it raises questions about her stewardship of money.

Worse, there is absolutely nothing about being unable to pay your taxes that prevents you from filing your tax return. Although about 12 percent of Americans paid penalties last year for making late tax payments, just 2.5 percent of Americans had to pay delinquent filing penalties, which could be seen as squandering money. In other words, even among people who can’t afford to pay their taxes on time, most still manage to file them by the end of the extension.

I questioned Ms. Haley’s campaign several times to make absolutely sure that the Haleys had not somehow managed to get an additional extension, and her spokesman never attempted to give any sort of justification for their missing the extended deadlines. I’m not sure what the repeated delinquent tax filings suggest: Poor organizational skills? Inability to delegate authority — or, if delegated, to choose trustworthy people to whom to delegate? A disregard for the laws the rest of us have to obey? What I am sure of is that if it were me, I wouldn’t be bragging about it.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.

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