She Doesn’t Want Your Stinkin’ Money…

During my first year of law school, one of my professors told us that the B students become judges. Maybe he was right. You see, it’s been reported that a Pennsylvania Superior Court Judge has taken a stand on statutory pay for judges – but her tax analysis seems to be a little off.

Out of our sister city of Pittsburgh, PA, comes the news that Judge Joan Orie Melvin returned her entire paycheck this week to the Commonwealth because of an issue related to the much-disputed pay raise for judges and legislators. For those outside the Commonwealth, the issue involved a substantial pay raise that many legislators felt entitled to in mid-2005, despite concerns about rising taxes and budget shortfalls. Voters were not amused. The pay raise was eventually thrown out a few months later, though judges kept their raises.

Melvin, a Pittsburgh native and graduate of the Duquesne University School of Law, received a $17,000 raise. She filed suit to avoid taking the raise, which I have to say was quite admirable. However, Court Administrators insist that she take the full salary, claiming that the salary was set by law. Melvin, however, has declined to take the full amount and this week actually returned her entire paycheck.  According to an account posted by the Pittsburgh Tribune-Review, Melvin won’t accept the checks because she does not want to pay taxes on them, claiming, “Our accountant told us this was the safest way to do it.”

Did someone explain to the accountant that isn’t how the Tax Code works?  Income is income when received, or when constructively received. Constructive receipt means you are taxed on income when it’s made available to the taxpayer. You cannot avoid taxation by giving your paycheck to another person, squirreling away checks and not cashing them or, ostensibly, mailing them back to your employer. The technical tax term is that an individual may not “turn his back on income” in order to avoid tax on that income.

Like many tax cases, this will probably hinge on the facts, which, granted, I have only gleaned through articles from sources like the Pittsburgh Tribune-Review and Philadelphia Inquirer. But one fact really stands out: that quote from the Tribune-Review attributed to Melvin’s brother, who said she returned the check because she didn’t want to pay taxes on the amount. On its face, that fact is a loser for Melvin. You can’t return income to avoid paying taxes.

That said, I admire Melvin’s chutzpah. She apparently took a stand, and she’s willing to stick to her guns. Bravo. I just don’t think she has the tax part exactly right. I suspect, unless there’s something we don’t know yet, that she’ll be responsible for tax on the entire amount of her statutory pay. But thanks, Judge Orie Melvin, for trying to do the right thing by returning the check. I suspect voters will appreciate it come next year.