Since I have written a good bit about corporate tax shelters and the need to rein-in both accounting firms that develop complex shelter products for their audit clients and a tax bar that appears in some cases to have lost its bearings (see, e.g., Putting SEC Heat on Audit Firms), I must comment here on a post on another blog, May It Please the Court, titled "Paying Taxes: Sport or Folly?. The blogger appears to think no tax lawyer could ever do wrong when it comes to helping clients to shelter taxes. The blog post complains about IRS investigations, and possible indictments, of lawyers at Jenkens and Gilchrist who profited enormously from the mass marketing of "get rich quick" schemes that helped taxpayers get rich by paying less taxes to Uncle Sam than one would otherwise have expected. If you look at the Jenkens & Gilchrist site, linked above, you'd find nothing to suggest that the firm had been an active provider of cloned shelter opinions for deals that are marketed with cathcy names like "COBRA" (currency options bring reward alternatives). But the firm is the subject of civil lawsuits from disgruntled clients, appeared conspicuously in the materials developed by a Senate investigative subcommittee, and has received several summons from the IRS and Justice Department in the course of their investigation into its involvement in promoted shelters. See Lynnley Browning's Jan. 25 story in the New York Times, Tax Shelter Inquiry Expands. Three Jenkens & Gilchrist lawyers are now the subject of a cirminal investigation in Manhattan. Opinions for shelters garnered the firm as much as $75,000 a piece, even though the opinions were cloned the same way the tax shelter transactions were, and the highest paid among them garnered more than $90 million in fees from 1999 to 2003. Id.
Now, the blogger suggests that it's simply "wrong" for the IRS to prosecute tax lawyers, since they are merely "figur[ing] out what [the Congress] did wrong when they wrote the code." Loopholes, the blogger would have us to believe, are simply Congress's little accidents that tax lawyers are free to lap up and utilize to cut their clients' taxes, even if the loophole requires using a provision in ways clearly in contravention of the purpose behind its enactment.
The tax minimization norm, and the zealous advocacy of client's position that goes with it, have animated the tax bar ever since Learned Hand's famous lines supporting tax planning. But tax lawyers get carried away, and tax planning can become the rationale for a business to enter into transactions, rather than the handmaiden of the business's normal operating needs. James Maule again hits the nail on the head when he notes that tax lawyers can go too far as easily as anyone else. And until we know more about their particular behaviors, it is simply premature to judge the wisdom of the government's investigation of the attorneys. As Maule notes on his "Mauled Again" blog discussion of the May It Please the Court post, what causes trouble for tax attorneys is generating the appearance of a business transaction, when all there is is a tax avoidance deal. Tax attorneys in those cases are trying to perform a kind of tax alchemy--for example, making an ordinary business transaction into one that magically transforms a transaction without a tax benefit into one that provides a loss to use against a pre-existing capital gain. A lawyer involved in tax alchemy deserves to land in front of a grand jury panel explaining his millions.
Meanwhile, the reality of the repatriation provision of the America Jobs Creation Act (the one that lets big companies bring home profits they've stored overseas at a pitifully low tax rate, on the basis that the tax dividend will be invested in creating new jobs at home) has hit again, as Ford brings home hundreds of millions at a savings of $250 million, while laying off tens of thousands of workers. See this story.
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