Is the IRS getting its share of Portland "clean money"?
Amidst all the apparent hanky-panky that's been going on with the taxpayer money flowing out to Portland politicians in the Sten-owned voter-owned elections "system," an interesting question has been raised: whether the recipients of said "clean money" are breaking the tax laws with it. Dave Lister, a former City Council candidate who ran a couple of years ago on "dirty money," reports that he recently wrote to the city auditor as follows:
I've been wondering about something that has come up on the blogosphere.Hey, Dave, don't forget Tri-Met payroll tax, buddy!When I ran in 2006 I had one paid campaign worker. Before he started work, I had my CPA obtain a federal ID number for the campaign and I set up payroll withholding accounts for both Federal and State. I withheld FWT, FICA, Medicare and SWT from my employee's wages and made the appropriate 941 and state quarterly filings. At the end of the year, I issued their W2 and filed the federal reconciliation and Oregon form WR. I also paid 940 unemployment as required.
I did this because this person, at that time, was working exclusively for the campaign and did not meet the test of independent contractor as described by both IRS and state regulations.
It occurs to me that most of the people working for the various candidates that have been certified for public financing most likely also do not meet the independent contractor test.
My question is this: Do the expenditure reports for these campaigns indicate that the appropriate payroll taxes are being withheld for their employees and, if not, is your office in any way concerned whether people being paid as contractors meet the independent contractor tests as prescribed by state and IRS regulations?
Of course, all the candidates, not just the "clean money" ones, may have the same little problem. But is there any requirement in the city code or regulations that "clean money" candidates cut square corners on their employment taxes? And if there isn't, shouldn't there be?
And while you're at it, Dave, maybe you want to copy the IRS on your question. I know this form is still available. There are probably some nice folks down in Salem who would take an interest as well.
| Posted at 3:22 AM | Permalink |
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Comments (10)
What would be quite interesting is if a candidate doesn't pay employment taxes, spends his or her full allotment of "clean money," and later on gets audited and has to pay the taxes. Doesn't that violate the city spending cap?
Indeed, what if he or she is sued after the election by a campaign worker for back pay, and loses the case? If that pushes the candidate over the spending limit, what then?
Posted by Jack Bog | April 7, 2008 3:58 AM
Shouldn't the candidate have to pay taxes on money received from the city? It is a big pile of free money I would think it needed to be taxed.
Posted by Anthony | April 7, 2008 6:30 AM
Pages 9-10 of the City's Participating Candidate info packet says:
"When the candidate later files their Request for Certification with the Auditor, the candidate will need to provide the Auditor with their Committee's Federal Employer Tax Identification number so that the Auditor may set up the Committee in the City Accounting System. See the Campaign Finance Manual and IRS website (www.irs.gov) for more information about obtaining this number and other reporting requirements."
Page 8 of State Campaign Finance Manual:
"The Elections Division does not interpret federal or state tax law. All committees should carefully review their tax reporting requirements and
seek appropriate legal and tax advice."
Posted by Manuals | April 7, 2008 8:48 AM
Yes, I forgot about Tri Met. I paid that one too... it's on the Oregon quarterly report. Unemployment too.
Posted by Dave Lister | April 7, 2008 8:49 AM
This is clearly an issue for all campaigns and candidates, not just clean money candidates.
Whether a particular campaign worker needs to be paid as an employee versus a contract really is a case by case question depending on the nature of their job duties, the level of oversight being provided, etc. Many many high level campaigns pay their managers on a contract basis, so if there's a problem here, it's a problem shared with campaigns all across the country.
Posted by Emily George | April 7, 2008 12:01 PM
Emily,
I think you're right. I think it is a big probablem for many, many campaigns. The independent contractor tests are stringent, and most of the campaign workers I am familiar with would not meet them.
I got a reply from Andrew Carlstrom in the auditor's office. He forwarded my e mail to all the candidates in the current city election. They can get themselves squared up if they move fast... the first quarter 941 and state report is due April 30th. None of them got any money in 2007, so they wouldn't have any payroll from the fourth quarter of last year.
I also heard from Jim Middaugh. He has been doing the proper withholdings for his folks.
The publicly funded candidates have to remember that they must deposit the employer side of FICA and medicare and tri met and unemployment. They need to factor that in when calculating their capped expenditures.
I'd be happy to talk with any of them about what they need to do. I did it during my campaign and I've been managing a small payroll for over twenty years.
Posted by Dave Lister | April 7, 2008 12:52 PM
We have been doing the proper withholdings as well. Given that Charles operates a large payroll at his non-profit this was a no-brainer for us.
Posted by Charles Lewis for City Council | April 7, 2008 1:42 PM
Yes, it's not difficult if you are already used to processing a payroll. I'll bet you dollars to donuts though that there was no withholdings on some of the big lump sums we've been hearing about.
Posted by Dave Lister | April 7, 2008 2:02 PM
OK, so now I'm curious. What happens with both VOE rules or the IRS if a city council candidate paid staff in 2007 (not contractors but actual staff) with seed money and didn't pay taxes on that? And yes, there is a candidate that did that on multiple occasions.
Posted by Curious | April 8, 2008 12:01 PM
curious,
Nothing, unless somebody files an IRS complaint.
If a complaint is filed and the IRS looks into it, the employer (campaign) will be assesed for the back taxes including penalties and interest. You'd need a CPA to tell you for sure about the non-withheld FICA and Medicare, I don't know if the employee has to cough that up or if the employer gets nailed for both sides.
If a COP publicly financed candidate pays their staff as contractors, and spends up to their limit, and then the IRS rules that they weren't contractors, the campaign will have to come up with the FICA and Medicare. That would result in their spending more than the cap (because they didn't budget for it), and they would get disqualified from public financing... unless the "flexible rules" are quickly changed to cover them somehow.
Oh... they need to remember Tri Met and Unemployment also.
Posted by Dave Lister | April 9, 2008 3:52 PM