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The Wrinkle to Geithner's Tax Troubles

Treasury Secretary Nominee Timothy Geithner and President-elect Barack Obama. (Chip Somodevilla/Getty Images)How big a deal is it that Obama's pick for Treasury secretary underpaid his taxes for four consecutive years?

The story about Timothy Geithner's $43,000 tax troubles is getting big play in both the media and on the Hill, with Republicans stalling his confirmation hearing as a result of the revelations.

Here's the deal. Geithner worked at the International Monetary Fund from 2001 to 2004, which, as an international organization, does not pay the employer share of U.S. taxes like Social Security and Medicare on behalf of its employees. Instead, the Fund gives that money directly to the employees, who are supposed to pay both the employer and employee contributions directly.

Geithner failed to do that for each of the four years he worked there, effectively pocketing tens of thousands of dollars that should have gone to the IRS.

It sounds bad, but according to the IRS, it’s a common mistake -- made by up to half of the employees of international organizations -- and Geithner paid his bill plus interest when, he says, he became aware of the problems. Obama officials also told the New York Times that Geithner's accountant incorrectly told him he was exempt from some of the self-employment taxes.

So is this really a scandal?

There's one detail that deserves special attention.

The IRS audited Geithner in 2006 and discovered the problem for his 2003 and 2004 returns. Geithner paid just under $17,000 at the time, and the IRS waived any possible penalties.

So far, so good. But then there's this: "A three-year statute of limitations had precluded the agency from auditing the 2001 and 2002 tax returns, a committee aide said."

Why didn't Geithner volunteer to look over his returns from those years, regardless of whether there was a statute of limitations that blocked the IRS from forcing him to do so? Surely he would have realized that he had made the same mistakes on the earlier forms. Instead, he kept the extra cash -- which turned out to be around $25,000.

The additional amounts were discovered by the Obama vetting team in November, and Geithner promptly paid up.

It might be worth asking at his confirmation hearing why it took until then for him to fix the problem, especially given that the Treasury secretary is responsible for the IRS.

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