It’s not a bad thing nor is it a crime…to have tax shelters. After all, these loopholes were Congressionally created as a medium to allow individuals and businesses the opportunity to reduce major income taxes. But… let’s not get it confused. As with anything in our society that we place in an ethical or unethical category, there is a right way and a wrong way to achieve the end. As a business ethics speaker, I see the application of this principle daily. The use of legal and legitimate tax shelters is a means to avoid high or excessive taxes…not to totally evade them…or do you think tax evasion is ethical?
Do we assume that one of the largest business accounting firms in the world with over 167, 000 employees in more than 140 countries would not know the difference? And why is it so important to such a reputable company such as Ernst and Young to help multi-billion dollar companies evade their obligation to America’s tax structure? As American citizens do we not think the consequential issue resulting from Ernst and Young’s unethical handling of its tax shelters is beyond the interpretation of tax laws and congressional loopholes?
To that end, we should also clarify that though legitimate tax shelters commonly help avoid high taxes, most also generate a taxable income as well. On the other hand, the purpose of illegal and unethical tax shelters is mainly to conceal existing monies so that it cannot be taxed. No matter how you look at, there is a big difference in claiming additional tax shelters based on vague interpretation of the tax language in comparison to claiming shelters based on blatant deception.
From 1999 to 2002, this major accounting entity (E&Y), in conjunction with various other law firms and banks created and implemented four tax shelter products, COBRA, CDS, CDS Add-On, and PICO. The vaguely defined and carefully implemented tax shelter products were to appear to the IRS as bona fide investments. The tax shelters initially reputed as a means to legally deter excessive tax penalties were in fact just unethical plans to defer or totally eliminate $2 billion in tax liabilities for approximately 200 of its high net clients. The firm also admitted that it helped to prepare tax returns reflecting tax losses derived from those tax shelter products.
After a decade of investigations, and in lieu of criminal prosecution for its participation in the tax shelter scheme, the company agreed to pay $123 million in restitution, the same amount it was paid to administer the abusive shelters. But are we really surprised? Why get upset when again this is not a societal precedence? E&Y’s unethical practice of selling phony tax shelters that generate losses for well-off clients is not a first.
Most of American tax payers and small businesses struggle with finding simple tax breaks to keep their heads above financial waters. What is the motivation that makes multi-million dollar, and, multi-billion dollar companies and individuals, for lack of better words, cheat on income taxes? Are millions and billions of dollars in revenue not enough? When then is it enough? Various other organizations have also been cited for bogus tax shelter violations in an attempt to hang on to millions and billions of dollars in taxes.
From the early 2000’s till now, companies and organizations such as KPMG, Deutsche Bank, Swiss Bank, and Dow Chemical have been sited with unethical tax shelter violations that total over some 2.8 billion dollars in fines and restitution. Just this past January, Wegelin & Co, Switzerland’s oldest bank was forced out of business after it plead guilty to helping to hide some 1.2 billion dollars in revenue for various American businesses and individuals hiding taxable funds.
As an example of questionable “individual” tax shelters, let use the allegations of last summer from Senator Harry Reid of Nevada, Senior Congressional Majority Leader. He profoundly accused Mitt Romney of siphoning off and hiding millions of taxable dollars in “charity shelters”. Romney’s charity shelter of choice…his own Church. According to Reid, also a Mormon, Romney used his Mormon church as a means to hide millions of dollars for the last 15 years, accounting for his accumulated mass wealth.
Even so, it would not be fair to state the facts and not clarify the conditions. In Romney’s case, his tax shelter, formerly called a “charitable remainder unitrust”, is technically a legal tax shelter. Its ethical and moral standard that is the question that Senator Reid and many others have asked.
I can say with certainty that none of our questions as law abiding taxpayers has anything to do with envying the rich and the well-off. It goes well beyond whether a tax shelter such as the one Romney used is legal and justified or whether it is abusive and fraudulent as in the case of E&Y. It is well beyond whether we are American, Hispanic, English, or Irish. The question is; “What is it that makes an entity or individual reason they can look beyond what is moral and ethical and then determine they are above and beyond the normal and reasonable standards of everyday taxpayers? Does wealth create a different standard when it comes to ethical behavior?
YOUR COMMENTS ARE WELCOME!
http://online.wsj.com/article/SB10001424127887324662404578334591048912854.html
