Well, apparently the Globe has its talons dug deep into the burning question whether various state officials’ campaigns have paid required state and federal taxes on investment earnings from campaign funds that were invested in vehicles like certificates of deposit. Not exactly the kind of hot-button issue that makes voters’ heads explode, but obviously, taxes owed should be paid.
What’s the upshot of all this? Several campaigns – Martha Coakley’s, Tim Cahill’s, Tim Murray’s, and Guy Glodis’s – appear to have made more or less the same mistake in terms of not paying the required taxes. The mistakes shouldn’t have been made, but they were. The correct reaction is the reaction from the Coakley, Cahill, and Murray campaigns: we screwed up, we owe the taxes, and we are going to pay them. That is how to make the story go away quickly, and for those three campaigns, it seems very likely to do so.
The story that threatens to stick around longer than a day or two comes from the Glodis campaign, which is taking an unusual approach, particularly when the candidate is running for Auditor:
Glodis argued that he did not have to pay federal taxes on income his committee earned. He asserted the Internal Revenue Service code governing political committees allows them to deduct fund-raising expenses, which in his case, he said, were greater than the interest income….
“My committee sought opinions from two separate certified public accountants over a four-year period, both of whom advised the committee that there was no tax liability for interest earned on certificates of deposit because fund-raising expenses exceeded interest earned on the CDs, according to IRS instructions attached to the applicable tax form,” said Glodis, whose committee at times has held as much as $428,000 in certificates of deposit over the past four years.
This interpretation appears to conflict with the instructions accompanying IRS Form 1120-POL, the tax return for political organizations. It specifically states: “No deduction is allowed for general administrative or indirect expenses.” It does allow deducting for expenses incurred in making investments….
Secretary of State William F. Galvin, whose committee has paid $30,000 to $40,000 a year in state and federal taxes, said he has no doubt the IRS code does not allow deducting for administrative or fund-raising costs. “My reading of the instructions does not allow me to do that,” Galvin said. “Believe me, if I thought I was entitled, I would take it.”
Big, big mistake on Glodis’s part. First, he’s practically begging the IRS to audit or otherwise make unpleasant inquiries into the situation. Second, he is begging dogged reporters to figure out who the CPAs were who gave these opinions, and whether they have any connection to Glodis’s impressive political operation. Third, he appears to be trying to take advantage of a highly technical interpretation (some might call it a “loophole”) in the IRS regulations that ends up being financially very favorable to his campaign – all the while, campaigning for an office whose basic purpose is to make sure that money ends up where it’s supposed to be.
Glodis has the money. He’d be smart just to pay the federal taxes and be done with it.