I was reading through an interesting commentary by Linda Beale ‘ law professor at Wayne State University Law School who teaches various courses in the area of federal income tax’ about a US tax avoidancde scheme case where she discusses:
the evidence revealed in the government’s brief in opposition to a request to bifurcate the trial, in terms of what it shows about the way the tax minimization standard dominates tax advisers’ thinking and
the court’s approach to the adequate disclosure issue of the limitations question, in terms of what it shows about the way the tax minimization standard appears to justify efforts to obfuscate aggressive tax transactions by embedding them within larger and apparently unnoteworthy business transactions.
Eh? Is that whacky or what? Basically, the system is encouraging tax advisers to dream up schemes in such a way that they can be disguised and yet still shave it past the attention of the taxing authorities. This is an incredibly dangerous strategy. In an astonishing and revealing interpretation Linda notes:
(tax advisors) brief provides interesting evidence of the taxpayer’s (and its advisers–McKee and Nelson) willingness to present positions inconsistently to different audiences and to portray transactional elements as designed specifically to be viewed as one thing for IRS purposes even though the context shows the parties viewed it differently for substantive purposes. In other words, tax minimization as a goal appears to justify whatever level of twisting of information is necessary.
She goes on to add:
They structured the way the partnership worked as a complicated transaction just to make sure the IRS couldn’t discover its economic substance. The government’s brief notes a Coopers & Lybrand memorandum that describes the partnership allocations as being “intentionally complicated so as to steer the IRS away from this unequitable risk of loss”
This entire line of reasoning reminded me of an essay I wrote about Dissociative Identity Disorder as classified in the DSM as part of my final honours thesis. The DSM is a symptoms based codification of mental health disorders used by psychiatrists as a diagnostic tool. DID allows for those personalities to be completely separate from one another although this is very rare as one personality usually seeps into another.
My argument at the time was that DSM is a social construct that reinforces class structures and so for example disadvantages black people and those from poor backgrounds. I should have been egalitarian and included suited and booted tax advisors.
Now before everyone dismisses this as another of those ‘only in America’ things, consider this. On Sunday evening’s Panorama, the theme was online gambling and the UK government’s role in encouraging this business in the UK. Except that most of the companies who operate do so out of Gibralter. A tax haven. The Department of Leisure, which is punting this line is asking the Treasury to give a nod, a wink and a wee bit of tax encouragement to woo the online gaming industry. The reporter never even attempted to get behind this revelation.
When you’ve got that kind of barmy thinking going on inside government and reporters not cute enough to pick it up, is it any wonder that UK tax advisors might be tempted to learn lessons from their US cousins? And in this day and age, the gory details are all just a mouse click away.
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