Geithner's Tax History Muddles Confirmation

By JONATHAN WEISMAN

WASHINGTON -- Timothy Geithner didn't pay Social Security and Medicare taxes for several years while he worked for the International Monetary Fund, and he employed an immigrant housekeeper who briefly lacked proper work papers.

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President-elect Barack Obama's pick for Treasury secretary, Timothy Geithner, left, employed an immigrant housekeeper with expired work papers.

Those issues, and a series of other tax matters, scuttled a tentatively scheduled confirmation hearing Tuesday for Mr. Geithner as Treasury secretary, Senate Finance Committee aides said. The tax matters were instead the subject of a closed-door meeting between the nominee, currently president of the Federal Reserve Bank of New York, and members of the Senate Finance panel, in whose hands his confirmation lies.

Several senators said after the meeting that they intended to remain supporters of Mr. Geithner, who has playing a central role in tackling the financial crisis. Senate Finance Chairman Max Baucus (D., Mont.) called the issue serious, but not disqualifying.

"I still support him," said Sen. Orrin Hatch (R., Utah) as he emerged from the meeting. "He's a very competent guy."

Sen. Charles E. Grassley of Iowa, the committee's senior Republican, didn't give Mr. Geithner a pass. "It's serious, and whether or not it's disqualifying is to be determined," Mr. Grassley said after the meeting.

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Obama aides said they didn't think these issues would present a problem, given what they characterized as the minor nature of the infractions and the gravity of the role Mr. Geithner has been nominated to take. Mr. Geithner's "service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed," Obama press secretary Robert Gibbs said in a statement.

Senate aides said a new hearing, which promises to be contentious, was scheduled for Friday.

At the closed-door meeting, Mr. Geithner was contrite, several participants said. He told senators the mistakes weren't intentional, but that he should have known better. The Internal Revenue Service makes up by far the largest piece of the Treasury's budget.

Mr. Geithner declined to comment on any matters as he left the closed-door meeting Tuesday.

The tax issue relates to Mr. Geithner's work for the International Monetary Fund between 2001 and 2004. As an American citizen working for the IMF, Mr. Geithner was technically considered self-employed and was required to pay Social Security and Medicare taxes for himself as both an employer and an employee.

The IMF and World Bank reimburse employees, including U.S. citizens, for their U.S. income taxes. They don't, however, make contributions toward Social Security and Medicare taxes, which individuals are expected to pay on their own.

In 2006, the IRS audited Mr. Geithner's 2003 and 2004 taxes and concluded he owed taxes and interest totaling $17,230, according to documents released by the Senate Finance Committee. The IRS waived the related penalties.

During the vetting of Mr. Geithner late last year, the Obama transition team discovered the nominee had failed to pay the same taxes for 2001 and 2002. "Upon learning of this error on Nov. 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years, plus interest," a transition aide said. The sum totaled $25,970.

The Obama team said Mr. Geithner's taxes have been paid in full, and that he didn't intend to avoid payment, but made a mistake common for employees of international institutions. That characterization was contested by Senate Finance Republicans, who produced IMF documents showing that employees are repeatedly told they are responsible for paying their payroll taxes.

As to why Mr. Geithner didn't pay all his back taxes after the 2006 audit, an Obama aide said the nominee was advised by his accountant he had no further liability. Senate Finance aides said they were concerned either Mr. Geithner or his accountant used the IRS's statute of limitations to avoid further back-tax payments at the time of the audit.

Other tax issues also surfaced during the vetting, including the fact Mr. Geithner used his child's time at overnight camps in 2001, 2004 and 2005 to calculate dependent-care tax deductions. Sleepaway camps don't qualify.

Amended tax returns that Mr. Geithner filed recently include $4,334 in additional taxes, and $1,232 in interest for infractions, such as an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use.

The other cloud for Mr. Geithner involved an immigrant housekeeper whose work-authorization papers expired during her tenure working for Mr. Geithner. For three months, until she stopped working for the family to have a baby, the woman was working on the expired papers. An Obama aide said the woman reapplied for the papers and received them, and now resides legally in the U.S.

Mr. Geithner, 47 years old, has been a central figure in the government's efforts to tackle the housing collapse and its aftermath. He has spent most of his career managing government responses to financial crises.

His nomination was widely praised last fall. People on both sides of the aisle saw him as someone capable of carrying on the government's efforts, while also representing a fresh start.

Such issues, however, have derailed other nominations. President Bill Clinton's first and second choices for attorney general both withdrew amid allegations they failed to pay taxes for household help. President George W. Bush's first choice for Labor secretary withdrew after it emerged she had housed an illegal immigrant.

Write to Jonathan Weisman at jonathan.weisman@wsj.com