Did Al Franken pay the $70,000 back taxes he owes? He's not telling

With Congress in the hands of the Democrats, we're all still waiting a final count in the close Minnesota race for the U.S. Senate seat between incumbent Norm Coleman and his challenger, Al Franken. Franken is a comedian and political commentator who travels the country making speeches and earning speaker fees. Last spring as the Senate race started to heat up... so did the news that Franken had unpaid taxes in 17 states, plus other problems.

One blogger wondered aloud if Franken might've been seeking the Senate seat so he could "feel more at home skipping out on his taxes."

Franken's situation is somewhat different than the usual stuff we've been hearing recently in the stories about Obama's cabinet picks, Tim Geithner, Tom Daschle, and Nancy Killefer, or about House Ways and Means Chairman, Charles Rangel (D-NY). Franken's problems arise mostly from not paying taxes in all the states where he earned money – 19 to be exact, on his 2003-2006 returns. He relied on the advice of his accountant who refers to himself a specialist in this kind of tax apportionment.

Franken says his CPA told him he only needed to pay taxes in the two states where he lived at the time. That means that he overpaid in New York and Minnesota where he maintains residences, but paid nothing to the other states. Even so, Franken said he would pay the $50,000 due in taxes, plus another $20,000 in interest and penalties and would seek refunds from New York and Minnesota. Close to a year later, he has not answered requests to see proof that the tax bills were paid and has not provided his tax returns.

Franken is not shy about blaming his accountant of 18 years, Allen Chanzis, for giving him bad advice, although ultimately, he himself is responsible for filing accurate returns. Minnesota Public Radio sent a survey to 60 CPAs to get a feel for whether Franken or the accountant was at fault. Twelve surveys were returned and they agreed, apportioning taxes among different states is a complex process but they still considered this a rookie mistake by the CPA. Even so, they also agreed that in the end, the law is clear... it is Franken's responsibility.

Newsmax.com reported on February 6 that Chanzis has not verified Franken's account and refuses to talk to the press. Since Chanzis' Web site says he "handles multi-state filings" and has "unique expertise in all aspects of tour accounting and reporting," the presumption, says Newsmax, is that Franken directed the CPA to not pay the taxes.

A whole lot of smoke...

Compared to the more significant tax woes of Rangel, Geithner, and Daschle, Franken's shortfalls seem less dramatic. But there are other issues that keep the buzz of irresponsibility circling the would-be Senator.

For example, he owes the state of California just under $5,800 in corporate taxes. California corporations pay a minimum of $800 in taxes per year. Franken's California corporation, AFI (Allen Franken Inc.) hasn't done business for five years, but because the corporate status was never properly dissolved, the taxes continue to accrue unpaid, plus nearly $1,800 in interest and penalties. Franken maintains that a letter was sent to the tax authorities in California asking them to remove AFI from the tax records in 2003. Franken's accountant defends the corporation by saying they made an "honest and reasonable attempt" to let the state tax authorities know they no longer intended to do business in the state. Unfortunately, a simple letter is not sufficient to dissolve a California corporation.

"When you start a corporation, whether it's Al Franken or Joe Blow, it's a legal entity almost like a human being, with a date of creation and a date of death," John Barrett, a spokesman for the California State Franchise Tax Board told the Minneapolis Star Tribune. Franken "hasn't filed his '03-'07 corporate returns."

Barrett added that once Franken fills out the necessary forms, which include past due tax returns, pays the delinquent tax, penalties, and interest, California can close down the corporation.

According to Barrett, the state sent several notices to AFI, at the mailing address for Franken's accountant, informing him that tax returns had not been filed. When asked by the Tribune why the California taxing authorities had such trouble tracking down a nationally known celebrity, Barrett said that celebrities typically do not provide their personal addresses, but only the address of their attorney or accountant, as Franken did.

The Tribune pointed out last April that the California tax ordeal was the second unpaid tax penalty filed against AFI in a two month period.

There's more

Franken recently paid the state of New York a penalty of $25,000 for failure to pay workers' compensation insurance on his employees from 2002 to 2005, plus a fine of $833 for failure to pay disability. Although the failure to pay occurred over a four-year period, Franken's defense is that he never received the dozen-plus notices from the state because he had recently moved to Minnesota.

Mark Drake, the head of the Minnesota Republican Party told the Tribune, "Al Franken doesn't follow the law, and he thinks there is one set of rules for Al Franken and one set of rules for somebody else. Now it turns out the state of California has been looking for him for years, so Al Franken has a real credibility problem here."

In each case of failure to pay, Franken lays the blame outside of himself, mostly saying he got bad advice. While "bad advice" is a real problem, a series of such situations has observers wondering if all that smoke is a symptom of an underlying fire.

How many sets of rules are there?

After the withdrawal of two of President Barack Obama's Cabinet nominees for tax failures – Tom Daschle and Nancy Killefer – Obama said, "Ultimately it's important for this administration to send a message that there aren't two sets of rules. You know, one for prominent people and one for ordinary folks who have to pay their taxes." But, if Franken is seated as the next U.S. Senator from Minnesota the opposite message will be sent.

Stars Behind Bars

Stars Behind Bars

As the list grows longer of prominent politicians who didn't pay their fair share of taxes until pushed to do so - several of them Obama's choices to fill his Cabinet - one might remember the admonition of then-vice presidential candidate Joe Biden last fall when he told America it is patriotic to pay higher taxes. Paying taxes isn't even about patriotism - it's simply about obeying the law.

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.