Friday, June 5, 2009

John Kerry Campaign Has $800,000 Tax Lien

In 2004, Senator John Kerry ran an unsuccessful campaign to become President of the United States. His campaign, John Kerry for President, Inc., had employees and was required to issue Forms W-2 to those employees. However, there appears to be an ongoing dispute between the Kerry campaign and the IRS concerning whether those forms were properly issued and filed. The Washington Times reported (click here to read) that a recordkeeping issue may have resulted in the asserted liability. The IRS and the Kerry campaign, however, disagree on which side has the recordkeeping problem. The disagreement has resulted in the filing of a Notice of Federal Tax Lien against the campaign (copy below).

The tax lien shows a unpaid balance of $819,848.44 for the tax year ending December 31, 2004. The kind of tax referenced is that imposed under Section 6721 of the Internal Revenue Code. Section 6721 of the Code is actually not a tax at all. Rather, it is a penalty for the failure to file correct information returns (in this case Forms W-2). The IRS asserts that the Kerry campaign failed to properly issue the W-2s resulting in the imposition of the substantial penalty. Interestingly, however, the penalty is generally limited to a total amount of $250,000 for all such failures during a calendar year. That the tax lien reflects a liability in excess of $800,000 suggests that the IRS is asserting that the Kerry campaign intentionally disregarded the W-2 filing requirements. In the case of an intentional disregard, the $250,000 limitation does not apply.

Both sides say that they have been trying to resolve the issue. The Kerry campaign explains that they have been in regular contact with the IRS to sort out the problem. The IRS, on the other hand, explains that it has been trying to recover the amount due for well over a year and has yet to receive payment. As such, the IRS filed a federal tax lien.

So what does this all mean? Before anybody is too eager to lump Mr. Kerry into the same category as other recent headlines of government officials with tax problems, we can be certain that it was not John Kerry himself who was responsible for making sure that the W-2s were filed. Arguing that he was directly involved in any such failures by the campaign would simply be silly.

The question is whether the IRS will be able to recover any of the currently asserted liability. The campaign (a corporation) has since been dissolved and has no money. The likely option for the IRS to collect any of the amount due would be to pursue another party on the basis of a transferee liability (i.e. that the campaign transferred monies to somebody else instead of paying the IRS). This transferee liability issue may arise as the Washington Times has reported that at least $200,000 was transferred from the presidential campaign to Mr. Kerry’s senate campaign. Yet, any recovery under a transferee liability theory would likely be limited to the amount that was transferred to the senate campaign.

Below is a copy of the Notice of Federal Tax Lien that was filed. It is important to note that the filing of a federal tax lien is rather routine when a tax liability asserted by the IRS goes unpaid. The requirements for filing a tax lien are relatively nominal. The IRS must make a demand for payment of the liability that it believes to be due and, if that asserted liability is not paid, the IRS has the right to file a tax lien. The interesting part of this story is not so much that a lien was filed but will be whether the IRS pursues any other person or entity (i.e. John Kerry himself or his senate campaign) for recovery of the liability. Otherwise, this liability quite likely go unpaid.

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