From today's Washington Post: Palin Billed State for Nights Spent at Home; Taxpayers Also Funded Family's Travel, by James V. Grimaldi & Karl Vick:

Jack Bogdanski (Lewis & Clark) outlines the tax problems Governor Palin faces as a result of these per diem payments in Governor Palin, Your Tax Return, Please:

"Per diem" allowances received by an employee can legally be omitted from her gross income if they constitute reimbursements for amounts that the employee could have deducted as business expenses had the employee paid for them out-of-pocket and not been reimbursed. Thus, for Palin, the tax question would appear to boil down to whether, had she not been reimbursed for the $60,441 of travel, meals, and lodging expenses, she could have legitimately taken business deductions for them.

It does not appear that such deductions would have been allowable for any amounts attributable to travel by her husband and children. Section 274(m)(3) of the Internal Revenue Code strictly forbids deductions for bringing spouses and dependents along on business travel unless the spouses and dependents (a) are employees of the taxpayer (here, the taxpayer is the governor), (b) are travelling for a bona fide business purpose, and (c) would otherwise be entitled to deduct the travel on their own tax returns. Unless Palin's spouse and kids are also her employees and she can show that they were away on their own businesses, their expenses would not be deductible by the governor. And therefore she cannot exclude from income any per diems attributable to any of them. (By the way, since she's the employee, the income would be required to be reported on her own return, not her kids'.)

As for her own travel, Palin could also run into tax problems. Only travel "away from home" qualifies for tax exclusion (or deduction), and for this purpose, one's "home" is generally the principal place of one's business. In this case, the governor reportedly works out of offices in both Anchorage and Juneau, but since she has only one state job, she can declare only one of those as her tax "home." If Juneau is her tax "home" (which would seem to be the case, since that's the capital), she cannot exclude or deduct meals and lodging expenses incurred in Juneau, and if Anchorage is her tax "home," she cannot exclude or deduct such expenses incurred in Anchorage or Wasilla. If she got per diem reimbursements for stays in both places, stays in only one place would appear to be excludible or deductible. And perhaps more importantly, the cost of regular commuting between one's residence and one's tax "home" is not deductible at all, no matter how long the distance between them; it is certainly possible that Palin's treks between the two locales are simply long-distance commuting for tax purposes.