Palin's settlement to pay state for children's travel doesn't address potential tax issues

JUNEAU, Alaska - Gov. Sarah Palin's agreement to reimburse the state for trips her children took at government expense does not address potential tax problems she might face for charging Alaska thousands of dollars for their travel, lawyers handling the settlement said.

Palin already is drafting changes to her 2007 and 2008 tax returns, spokesman Bill McAllister said. This comes after learning that she is responsible for taxes on personal use of a state vehicle and nearly $18,000 she improperly collected as expenses from the state while staying at her Wasilla home about 40 minutes from Anchorage.

Palin now will show those benefits as income for tax purposes. Lawyers negotiating a settlement over state payments for her children's travel said Thursday they did not consider whether Palin also should include that benefit as income in her taxes.

"That's not anything I examined," said Timothy Petumenos, a lawyer hired by the Alaska Personnel Board to investigate an ethics complaint filed against Palin after The Associated Press reported in October that she charged the state for her children's travel.

Instead, Petumenos focused only on issues related to the state ethics law, and whether the payments to Palin amounted to an inappropriate personal benefit.

Palin said Thursday she hasn't considered whether state payments for her children's travel should be part of a broader review of her taxes.

"I haven't even looked at it. All I know is there isn't a need for an audit of that," she said.

McAllister said the governor already has committed to paying all back taxes owed if there are problems with state payments she received. He said he was not aware of any tax issues she faces because of the travel payments for her children. But if payments are required, she will make them, McAllister said.

When Palin released her family's tax records as part of her vice presidential campaign last fall, some tax experts questioned why she did not report the children's state travel reimbursements as income.

The Palins at the time released a review by a Washington, D.C., attorney who said state law allows the children's travel expenses to be reimbursed and not taxed when they conduct official state business.

But now those expense payments have come under question following Petumenos' finding that some of the trips did not meet the definition of official state business.

Palin is expected to pay the state about $10,000 for 10 trips as part of the settlement reached in a state ethics complaint filed against her, Petumenos said.

Palin's lawyer, Tom Van Flein, initially estimated her reimbursement to the state for the children's travel at just under $7,000. On Thursday, though, Petumenos said he completed a more accurate tally, and added another trip Palin will pay for that was not included in the settlement announcement earlier this week.

There were other trips taken by her children at state expense that could have been challenged as inappropriate if the matter had not been resolved, Petumenos said. But he agreed not to pursue those. Palin also agreed not to challenge his claim that the travel payments were inappropriate because the children's trips did not meet the definition of "an important state interest."

Van Flein said he was not familiar with possible tax issues Palin faces for the expense payments made on behalf of her children. He said that issue was not reviewed in his work on the ethics complaint.

But Van Flein said he believed Palin's reimbursement to the state of travel expenses would correct any federal tax problems she might face. He also noted that Palin followed the advice she received from the state that such expenses are not considered taxable. However, tax experts said in October that incorrect state government advice would not trump IRS regulations.

The ethics complaint related to her children's expenses was filed after The AP reported that Palin charged the state for her daughters to travel with her, including to events where they were not invited, and later amended expense reports to specify that they were on official business.

In all, Palin charged the state $21,012 for her three daughters' 64 one-way and 12 round-trip commercial flights after taking office in December 2006. In some other cases, she has charged the state for hotel rooms for the girls.

Alaska law does not specifically address expenses for a governor's children. The law allows for payment of expenses for anyone conducting official state business, but Petumenos concluded in his review that state rules don't clearly define what family trips should be paid by the state.

He has asked the attorney general to develop clearer rules outlining when the state should pay for the travel of a governor's family.

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Associated Press writer Brett J. Blackledge reported from Washington.