Fair Tax Would Close Transfer Pricing Loopholes

Jesse Drucker, writing this week in Bloomberg Businessweek, tells the fascinating story of “Forest Laboratories’ Globe-Trotting Profits” and bemoans the fact that billions in U.S. income tax are legitimately avoided by corporations like Forest through international transfer pricing strategies. Drucker’s last paragraph is the best:

“If multinationals cannot be prevented from shifting profits to low-tax jurisdictions, then it becomes impossible to maintain the domestic corporate tax base,” says Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan Law School. If that bleeding can’t be stanched, he says, “we might as well abandon the income tax.”

So true and so timely.  But what would replace the income tax?  Why not the Fair Tax?  The Fair Tax would entirely close transfer-pricing loopholes while at the same time allowing corporations and their customers to save the billions they now squander on designing elaborate tax-minimization strategies.

Posted in Tax

Good for All Americans: Decreasing Capital Gains Tax

As this video illustrates, every American would be better off if Congress decreased the capital gains tax instead of increasing it as recommended by President Obama.  In fact, it is hard to imagine a tax policy change that would be more detrimental to economic growth than increasing capital gains.  At this particular moment in our nation’s history — when we most need to create incentives for risk-taking and entrepreneurship — the right tax policy move would be to reduce capital gains taxes, not increase them.

Posted in Tax

American Needs the Fair Tax, Now!

I’ve been practicing and teaching in the income tax arena since 1987, almost a quarter of a century.  I got into the income racket — yes, racket is a fair way to describe it — at then Price Waterhouse, on the heels of the great Reagan tax code overhaul called the Tax Reform Act of 1986.

Over the ensuing two-and-a-half decades, I have watched with mingled horror and disgust as income tax-related code, regulations and related court decisions have mushroomed to the point where no human being is capable of fully comprehending the whole thing — ever.    I cannot imagine any tax professional believing this is the best tax system America has to offer.  It is high time for the Fair Tax. Continue reading

Stimulus bill features 344 pages of tax code changes, credit for plug-in electric cars

The House of Representatives this afternoon passed the 1,071-page Obama-Pelosi “economic stimulus” bill on a 246-183 vote with no Republican support and seven Democrats voting against.  One clear group of winners are tax advisors who can look forward to additional work parsing the bill’s 344 pages of tax changes.  Continue reading

Geithner nomination reduces Obama’s trust account

Timothy Geithner’s tax pecadillos should disqualify him for the nation’s top tax post.  Secretary of the Treasury is too high an office for a brilliant lawyer who repeatedly and apparently knowingly underpaid his taxes by thousands of dollars.  But to be fair, neither should Barack Obama be sworn in as President of the United States next Tuesday unless he first produces a valid birth certificate proving that he meets the constitutional prereqs for the nation’s highest office.

The disparity in the level of scrutiny applied to Geithner and Obama is remarkable.  On balance, a President’s qualifications for office should be viewed as more essential than those of the Treasury Secretary.  Yet, in this case, Geithner’s integrity and transparency are being examined far more closely than Obama’s. Continue reading

Bank bailout commentary: Not so fast!

Haste makes waste. Any time 535 people reach an agreement this quickly, you know most of them did not even read it before signing off. That, sports fans, is how we got into this mess to begin with.

What remains to be seen is whether the measure will pass (probably) and whether the markets will be fooled (possibly). Early signs are not good with the Dow off 300 points, as I write. However, one should never overestimate the intelligence of investors who, after all, bought all of those mortgage-backed securities in the first place.

From a starting point of three pages last week, what appears to be the agreed bank bailout legislation runs to 109 pages of text that will generate millions if not billions in legal fees over the next five or ten years. My preliminary observations are as follows: Continue reading

Carl Levin’s Tax Tempest in a Teapot: Dividend abuse?

Sex abuse has so dominated the headlines of late that I was beginning to miss stories about tax abuse. But tax abuse aficionados now have something to chatter about thanks to the justifiably obscure Permanent Subcommittee on Investigations of the U.S. Senate’s Committee on Homeland Security and Governmental Affairs (“PSIHSGA”).  Apparently for political effect, PSIHSGA Chair Carl Levin timed for September 11, 2008 this shocking (not) exposé on dividend abuse. Continue reading

SEC blotter: Former KBR CEO pleads in Nigerian bribery case

Yesterday, the SEC charged former Kellogg, Brown & Root, Inc. (KBR) executive Albert Jackson Stanley with participating in a “scheme” to win more than $6 billion in construction contracts by bribing Nigerian government officials. According to the SEC, “The contracts were awarded to a four-company joint venture of which The M.W. Kellogg Company, and later KBR, was a member.

The SEC’s complaint in the case — filed at Houston, in the U.S. District Court for the Southern District of Texas — can be accessed here and the SEC’s press release, here. Continue reading

DOJ loses thirteen KPMG tax indictments through prosecutorial misconduct

The U.S. Department of Justice took another ethical black eye yesterday, this time from the 2nd Circuit Court of Appeals in Manhattan. The court held — in a widely watched KPMG tax fraud case — that DOJ attorneys illegally interfered with the defendants’ access to legal counsel which is protected under the 6th Amendment to the United States Constitution.

At its launch in October 2005, the DOJ touted the case — against thirteen KPMG partners and employees — as “the largest criminal tax case ever filed.” Perhaps they should have christened it “The Titanic.” In the related press conference, U.S. Attorney Michael J. Garcia proclaimed with requisite gravitas: Continue reading

Lerach, S-corps & the Savvy Guy Syndrome

Today, attorney William Lerach was sentenced to two years in the federal pen for obstructing justice and making false statements. He once won a $7 billion judgment against Enron for . . . (drum roll) making false statements. It’s a classic example of what I call the “savvy guy syndrome,” a behavioral disorder in which an individual or a group follows the lead of so-called “savvy guys” right over the edge of legal or ethical cliffs.

W Lerach leaves court

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