Wednesday, October 24, 2007

Call Out The Cops

"Lawmakers and law-enforcement officials have taken a keen interest in tax advice provided by Big Four accounting firms and other consultants. ... In May, four current and former Ernst & Young [E&Y] partners were indicted for their tax shelter work. ... In recent years, authorities have cracked down on cookie-cutter tax shelters mass marketed by accounting and law firms. ... Wal-Mart paid tax-deductible rent ... even though the rent payments never left the company. ... [E&Y] dreamed up a novel way to sidestep combined reporting requirements in California. It used an unusual type of dividend to transfer income from one subsidiary to another in such a way that the second unit wouldn't be taxed", WSJ, 23 October.

These all look like substance vs. form issues to me. These "shelters" won't stop until the various state accountancy boards ban the firms which dream this stuff up from practice. What would E&Y do if California banned if from practice within the state?

"It is insisted that the proceedings were all conducted according to the forms of law. Very likely. Some of the most atrocious frauds are committed in that way. Indeed, the greater the fraud intended the more particular the parties to it often are to proceed according to the strictest forms of law", Graffam v, Burgess, 117 US 180, 186 (1886). That the Supreme Court's opinion. That a transaction was made to look legal doesn't make it so.

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