IRS Eyes Albany Pols (Spin Cycle)

A stern letter from the U.S. Internal Revenue Service has set off an anxious buzz among state lawmakers - with whispers in the Capitol about who among them may end up in tax trouble or owe big payments.

The issue involves when the state's 212 legislators may deduct a per diem amount as a business expense. The IRS says it applies only to days when their houses are either in session or on a break of four or fewer days.

"It has come to our attention," opens the recent IRS letter, "that there may be a misinterpretation by some state legislators" of how the deductions work - including errors in how many days they are in session.

That's not surprising, since a web of sophistry and legal loopholes has long surrounded the question of when the legislature is actually in session. Even when most lawmakers are not around, a local legislator will go through the lonely off-season ritual of banging a gavel in an empty chamber to keep the body legally "in session." This surreal practice mainly has to do with keeping certain powers from being transferred to the governor.

With that in mind, some legislators are said by colleagues to be declaring business-expense deductions for every day of the year - or for at least some days during their months-long recesses late in the year.

Dan Janison

An IRS memo released Feb. 2, accompanying the letter to legislators here and in other states, signals a crackdown. The memo says the legislature is "in session" only when it is "sitting in an organized capacity for the transaction of legislative business and is capable of conducting legislative business." (Attending committee meetings also triggers the tax deduction.)

Of deeper concern to nervous legislators is that the IRS is not just talking about future filings but previous ones, spurring a flurry of phone calls by Assembly members and senators to their accountants. Specifically, the letter states that the IRS has proposed a "compliance program" in which filers review their 2004 and 2005 federal income tax returns "for the proper reporting of business expenses."

"People are trying to figure out what to do," said a veteran legislator who spoke under condition of anonymity, as did several colleagues. "It could be a matter of thousands of dollars if you're affected."

The IRS also is looking at another issue: legislators who do not subtract their travel reimbursements when adding up their unreimbursed employee business expenses.

States the IRS letter: "This is an opportunity for you to correct any errors on your return without incurring a penalty by filing amended returns." Otherwise, it warns, an "examination" will follow.

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