Why Is Daschle Off The Hook?

The big story in the Houston Chronicle today is that former Senator Tom Daschle has withdrawn his name from consideration for Secretary of HHS, even though he had paid the taxes and interest he owed from 2005, 2006 and 2007. But did he?

Daschle reported that he paid $128,203 in back taxes, and $11,964 in interest. Even at first glance, the interest figure seems shockingly low, constituting an average annual interest rate over 4 years of a little more than 1%. When you calculate the actual taxes including compound interest, it appears he should have paid far more than reported, at least per the relevant IRS code found at this link:

http://www.irs.gov/individuals/article/0,,id=200320,00.html

This document reports that interest for the period from 2005 to 2009 ranged from a low of 5% to a high of 8%. As reported, Daschle underpaid $128,203 over that period. Let's work the numbers in his favor using the tables, and assume he underpaid $30,000 in 2005, $30,000 in 2006 and $68,000 in 2007. Since the interest on the unpaid taxes is compounded for every year that they are unpaid, he would have 2.75 years compound interest on '05, 1.75 years interest on '06, and .75 years on '07.

Applying an average interest rate of 6.5%, that's an interest penalty of $10,655.62 for 2005, $4,970.06 for 2006, and $3,315.00 for 2007 for a total interest penalty of $18,940.68.

So how is it that Daschle got away with paying only 60% of that amount? It appears his accountants calculated his entire unpaid taxes is if they had originated with the 2007 tax year and did not compound the interest.

Sounds like tax fraud to me.