Are things getting progressively (note the sarcasm) worse, or is it just me?
Latest Congressional Anti-Tax Shelter Proposals Attempt to Legislate Profit and Risk
The late, great American humorist, Oklahoma's Will Rogers, once said: "This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer."
This quote came to mind when I read reports about new possible offshore legislation. Recently, legislation has been introduced in the U.S. Senate and House that would write into statutory law the "economic substance doctrine" used by American courts to judge whether certain tax shelters are "abusive" or whether they are valid.
Start from the basic fact that the U.S. Internal Revenue Code is one massive mess. The International Revenue Code is more than 10,000 pages of muddled tax law, tens of thousands of pages of ruinous regulations and rabid rules. Plus, theres still thousands more pages of obtuse opinions and ill gotten letter rulings. Billions of dollars are spent annually to finance tens of thousands of tax lawyers and accountants, who are supposed to sort through this mass confusion and save their clients taxes legally.
This tax shelter business has been under attack for years now by the greedy IRS. There has been a three year federal investigation into tax shelter fraud that resulted in the indictment of four partners of the accounting firm Ernst & Young. These indictments ran counter to American due process since the advisors are being accused of promoting tax shelters that have never been ruled illegal. The IRS just thinks these shelters should be illegal.
But efforts to raise the legal hurdle that determines whether a shelter is "legitimate" are again gaining in the new Democratic Congress. The efforts are aimed at reining in questionable tax shelters that allegedly have deprived the government of hundreds of billions of dollars in taxes in recent years.
The hurdle is the doctrine of "economic substance," a topic usually debated only in academic papers and court rulings. The economic substance doctrine holds that a transaction must have genuine economic substance, as well as a legitimate business purpose other than tax savings, so it can qualify for a legitimate tax benefit. In other words, if a convoluted tax shelter follows, or appears to follow, the letter of the tax code but violates its spirit by existing mainly to generate tax deductions, then it is a sham shelter in the jaundiced eyes of the IRS.
Congressional proponents argue that enacting this subjective doctrine into a law will make it easier to crack down on abusive shelters and raise billions of dollars and impose stiff penalties. But critics, including most tax lawyers and tax professors, argue that the doctrine has worked well enough as it is. You can tell the doctrine works because there have been a string of high profile IRS victories in tax and federal courts on the issue. The U.S. Treasury and the IRS oppose these proposals.
What most upsets tax lawyers, policy analysts and officials -- and it should upset us all -- are proposals in the current Senate and House bills to impose definitions of profit and risk when defining whether a tax transaction is legitimate. In a world of complicated financial transactions involving complex derivatives and the like, such concepts are murky as best. Just imagine what definitions the radical lefties on Capitol Hill will come up with when they define what they think are "legitimate" profits and risk.
All this brings to mind another saying I used to quote when I had the honor to serve in the U.S. House of Representatives: "No man's life, liberty or property is safe when Congress is in session."
I have those words embroidered on a sampler that hangs in my office. Every congressman should have one on their office wall as well as a constant reminder.
Latest Congressional Anti-Tax Shelter Proposals Attempt to Legislate Profit and Risk
The late, great American humorist, Oklahoma's Will Rogers, once said: "This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer."
This quote came to mind when I read reports about new possible offshore legislation. Recently, legislation has been introduced in the U.S. Senate and House that would write into statutory law the "economic substance doctrine" used by American courts to judge whether certain tax shelters are "abusive" or whether they are valid.
Start from the basic fact that the U.S. Internal Revenue Code is one massive mess. The International Revenue Code is more than 10,000 pages of muddled tax law, tens of thousands of pages of ruinous regulations and rabid rules. Plus, theres still thousands more pages of obtuse opinions and ill gotten letter rulings. Billions of dollars are spent annually to finance tens of thousands of tax lawyers and accountants, who are supposed to sort through this mass confusion and save their clients taxes legally.
This tax shelter business has been under attack for years now by the greedy IRS. There has been a three year federal investigation into tax shelter fraud that resulted in the indictment of four partners of the accounting firm Ernst & Young. These indictments ran counter to American due process since the advisors are being accused of promoting tax shelters that have never been ruled illegal. The IRS just thinks these shelters should be illegal.
But efforts to raise the legal hurdle that determines whether a shelter is "legitimate" are again gaining in the new Democratic Congress. The efforts are aimed at reining in questionable tax shelters that allegedly have deprived the government of hundreds of billions of dollars in taxes in recent years.
The hurdle is the doctrine of "economic substance," a topic usually debated only in academic papers and court rulings. The economic substance doctrine holds that a transaction must have genuine economic substance, as well as a legitimate business purpose other than tax savings, so it can qualify for a legitimate tax benefit. In other words, if a convoluted tax shelter follows, or appears to follow, the letter of the tax code but violates its spirit by existing mainly to generate tax deductions, then it is a sham shelter in the jaundiced eyes of the IRS.
Congressional proponents argue that enacting this subjective doctrine into a law will make it easier to crack down on abusive shelters and raise billions of dollars and impose stiff penalties. But critics, including most tax lawyers and tax professors, argue that the doctrine has worked well enough as it is. You can tell the doctrine works because there have been a string of high profile IRS victories in tax and federal courts on the issue. The U.S. Treasury and the IRS oppose these proposals.
What most upsets tax lawyers, policy analysts and officials -- and it should upset us all -- are proposals in the current Senate and House bills to impose definitions of profit and risk when defining whether a tax transaction is legitimate. In a world of complicated financial transactions involving complex derivatives and the like, such concepts are murky as best. Just imagine what definitions the radical lefties on Capitol Hill will come up with when they define what they think are "legitimate" profits and risk.
All this brings to mind another saying I used to quote when I had the honor to serve in the U.S. House of Representatives: "No man's life, liberty or property is safe when Congress is in session."
I have those words embroidered on a sampler that hangs in my office. Every congressman should have one on their office wall as well as a constant reminder.
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