Clinton to Meet Swiss Minister, Discuss Friendship, Possibly Chocolate

Posted on by Caleb Newquist

300px-Toblerone-1.jpgThe whole UBS/IRS tug of war has achieved a whole new level of ridiculousness because now, Secretary of State Hillary Clinton will meet with the Swiss Foreign Minister on July 31, just prior to the deadline settlement date of August 3rd.
We’re expecting a lovely exchange of smiling, glad-handing, back-slapping, etc. but would implore with Secretary Clinton to do the right thing and get the Swiss Minister to pony up the Toblerones.
The Swiss deserve part of this blame for not seeing the genius in this offer but our American representatives in this case have not been pushing for it, deciding instead, that our need for a reformed healthcare system should motivate our Swiss friends to turn over the 52,000 American names.
The Swiss, who no doubt laugh at our bureaucratic nightmare of a healthcare system, are instead more concerned about their sovereignty and their long tradition of client confidentiality. They have vowed not to turn over any names and this doesn’t really fit in with the IRS’s plans to get billions in back taxes on the UBS accounts, hence the need to call in the big guns.
Swiss minister to meet Clinton ahead of UBS deadline [Reuters]

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(UPDATE 2) News Corp. Appears to Be a Big Fan of Offshore Tax Havens

Sure, GE may have the “best tax law firm” in house but the boys and girls working for Rupes seem to have a few tricks of their own. David Cay Johnston reports:

News Corp. has 152 subsidiaries in tax havens, including 62 in the British Virgin Islands and 33 in the Caymans. Among the hundred largest U.S. companies, only Citigroup and Morgan Stanley have more tax haven subsidiaries than News Corp., a 2009 U.S. Government Accountability Office study found.

News Corp. had nearly $7 billion permanently invested offshore in 2009, money on which it does not have to pay taxes unless it brings the money back to the United States. Meanwhile, it can use that money as collateral for loans in the United States, where interest paid is a tax-deductible expense.

This and other tax planning strategies result in a 20% tax rate for the company. And not a single phone hacked!

[via Reuters]

UPDATE:
Via NPR’s The Two Way news blog, Reuters has posted this statement:

Please be advised that the David Cay Johnston column published on Tuesday stating that Rupert Murdoch’s U.S.-based News Corp made money on income taxes is wrong and has been withdrawn. News Corp’s filings show the company changed reporting conventions in its 2007 annual report when it reversed the way it showed positive and negative numbers. A new column correcting and explaining the error in more detail will be issued shortly.

As of now, Johnston’s post remains unchanged and what I blockquoted above doesn’t seem to be in dispute but the situation appears to be fluid.

UPDATE 2:
Here’s a portion from Johnston’s new column:

Readers, I apologize. The premise of my debut column for Reuters, on News Corp’s taxes, was wrong, 100 percent dead wrong.

Rupert Murdoch’s News Corp did not get a $4.8 billion tax refund for the past four years, as I reported. Instead, it paid that much in cash for corporate income taxes for the years 2007 through 2010 while earning pre-tax profits of $10.4 billion.

For the first time in my 45-year-old career I am writing a skinback. That is what journalists call a retraction of the premise of a piece, as in peeling back your skin and feeling the pain. I will do all I can to make sure everyone who has read or heard secondary reports based on my column also learns the facts and would appreciate the help of readers in that cause.

Johnston goes on to explain in detail how the error occurred. He also states that a number of the facts originally reported, including the number of News Corp. subsidiaries in tax haven (that we blockquoted above), remain.

One Diligent CPA Forced the IRS to Use a ‘Staggering’ Amount of Resources

Sure, NYU has produced lots of fancy-pants tax lawyers. And many high-powered big-school tax accountants haunt the cubicles of the Final Four accounting firms. But if driving the IRS to distraction is a mark of tax distinction, an obscure Kansas City attorney/CPA, formerly of Grant Thornton and Coopers and Lybrand, is a true tax all-star.


Or was. A federal judge this week made it inconvenient for GT alum Allen R. Davison to pursue his tax practice by enjoining him from marketing some of his most creative ideas:

Davison is hereby enjoined from organizing, establishing, promoting, selling, offering for sale or helping to organize, establish, promote, se any tax plan, as addressed herein, involving sham parallel C management companies, sham 412(i) plans, sham flock contracts or any other illegal tax scheme, plan, or device, even if not specifically addressed herein. Additionally, Davison shall not organize, establish, promote, sell, offer for sale or assist in any financial or tax related arrangement without submitting in writing to an IRS designee, a detailed plan explaining the financial or tax arrangement and all steps necessary for the arrangement to be legal under the tax code.

That would all be rather inconvenient for a practitioner. Why are the feds so down on Mr. Davison? From the injunction order:

Davison’s numerous, complex, ever-changing, tax-fraud schemes and his deliberate efforts to disguise his true involvement in the promotion of these tax-fraud schemes have required the IRS to expend a “staggering” amount of resources on discovering and combating these schemes. If this outlay of resources continues – and it almost certainly will continue in the absence of an injunction barring Davison from offering tax advice without significant restraint, then these resources will not be available to service honest tax paying Americans. Nor will these resources be available to investigate other promoters of tax-fraud schemes.

What were these “schemes”? Some of them used “management fees” to shift income from taxable businesses to sham S corporations owned by tax-exempt ESOPs or Roth IRAs. Others involved improper pension plans. But good old Midwestern farm ingenuity was behind what may be his most creative plan:

Davison drafts purported flock contracts for his clients. (Tr. 398:21-399:4). He argues that by executing these agreements, his clients become farmers, who are eligible to claim deductions for the cost of purchasing a flock of layer hens during the tax year in which that cost is incurred, pursuant to Revenue Ruling 60-191. (Tr. 412:10-20; PX 165). That revenue ruling provides “that farmers employing the cash method of accounting may deduct the cost of baby chicks and egg laying hens in the year of payment therefor, provided such method is consistently followed and clearly reflects income.”

The judge found that Mr. Davison has an overly-inclusive view of what “farming” means. The judge said that a guy with dirty boots who actually fed and raised chicks might be a farmer, but a “self-employed insurance salesman,” for example, who loaned money to a real farmer, did not.

There are many fascinating threads here, but let’s just hit three for now:

• Mr. Davison began selling many of these ideas while working for Grant Thornton, and according to the court order, marketed them through a network of CPA firms set up by GT alums. Networking pays!

• The elaborate system of preparer registration, testing and continuing education that IRS Commissioner Shulman is ramming through will spend enormous resources making honest and competent preparers jump through hoops; they would have done nothing to stop Mr. Davison. Shulman’s plan will spend money on driving honest preparers crazy with paperwork rather than chasing scammers.

• The cash-basis chicken flock technique that is outrageous for an insurance salesman is hunky-dory when done by a wealthy farmer. Because America Needs Farmers!

Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.