Taxation & Estate Planning

No Wrongdoing in Lawmakers? Allowance Use, Lawyers Admit

By Darrin Mish

How do our lawmakers in the state assembly use their legislators? allowances?  The truth may astound you.

Lawmakers in California, like their counterparts from other states, receive tax-free allowances for their legislative work.  These allowances, calculated daily, are meant to compensate for out of pocket expenses the legislators have to incur while living in the state capital.

California state law states that a lawmaker?s home is where he is registered to vote, which obviously is the district he or she represents.  In addition, a special provision inserted into the federal tax code provides for state legislators in any state to choose which home is their primary place of business.  If they choose their district, and their district isn't located near the state capitol, they will be given their tax-free allowance.  The allowance is known as a ?per diem?, Latin for ?per day.?

Not many people may know this, but what many lawmakers have done is use their per diem allotment to buy a second home in the capital city, Sacramento where they stay for the duration of their legislative work.   What stands out about California is the amount of allowances lawmakers receive in comparison to that of assemblymen in other states.  California?s assemblymen receive a per diem of $141.86.  This is among the highest in the country, though not the highest, as other states like Alaska ($189 per day), Tennessee ($185 per day), Georgia ($173 per day) and Pennsylvania ($154 per day) pay higher rates.  But the Californian lawmakers still take home more than these other states? lawmakers because of the state?s unusually long billable period ? more than 200 days in 2009.  Compare this with Alaska (90 days), Georgia (40 days), Tennessee (45 days) and Pennsylvania (100 days).

And if using taxpayers? money to purchase their houses is not appalling enough, these lawmakers usually sell their properties for hundreds of thousands of dollars in profit when their term of service comes to an end.  Furthermore, there are other benefits to taxpayer-subsidized homeownership.  If the mortgages of their two homes do not exceed $1 million, under federal income tax laws, they can deduct the property taxes of their second home in addition to the home mortgage interest thus earning them more savings.

The Orange County register, as reported in MSN.com?s local news portal interviewed Darrin Mish, a prominent IRS attorney and tax expert on his views on this apparent loophole in the law.  In an emailed response, Mr. Mish stated, ?I can't seem to find anything illegal about what they're doing.  I think that given the economic condition of California and of the US that it cuts against the spirit of the law for lawmakers to be personally enriching themselves using the benefits of elected office.  But again I can't seem to find anything illegal about the situation.?

Mr. Mish?s views are shared by other prominent tax lawyers also.

No Wrongdoing in Lawmakers? Allowance Use, Lawyers Admit is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on March 01, 2010 (boomark / email).