You
can subscribe to Arianna Huffington's mailing list at the link below
her writings.
Subject: Arianna's Latest Column
Date: Wed, 12 Feb 2003 09:31:56 -0800
From: arianna@ariannaonline, now at the huffingtonpost.com
To: lexigram@goodworksonearth.org
ACCOUNTANTS ROCK THE SEC: GIMME TAX SHELTER
By Arianna Huffington
Talk about perfect timing. To give the millions of Americans
who
are taking up the dreaded yearly task of preparing their
taxes
just a little bit more aggravation, comes the story of
massive
tax avoidance by Sprint CEO William Esrey and his right-hand
man
Ron LeMay. These two paid no taxes on a total of $288
million in
stock-option profits thanks to some highly imaginative
tax
shelters dreamed up by the accounting alchemists at Ernst
&
Young.
Two hundred and eighty-eight million smackeroos. And you
were
worried about whether you could deduct that $42 business
lunch
you had with a friend? You're obviously not aiming high
enough.
And it's not just Esrey and LeMay who aren't paying their
fair
share. According to the IRS, hundreds of other businesses
and
executives -- including Tyco's Dennis Kozlowski and Global
Crossing's Gary Winnick -- have used questionable shelters
to
escape paying billions of dollars in taxes.
So how, exactly, does one make $288 million in taxable
income
disappear?
It's a magic trick that requires a combination of accounting
sleight-of-hand and legal mumbo-jumbo, as well as the
willing
compliance of a wide-array of accomplices -- including
see-no-evil corporate boards, toothless government regulators,
and that crucial building block of any decent tax shelter,
bought-and-paid-for politicians.
Let's start with the accounting industry, which rakes
in hundreds
of millions of dollars a year selling tax shelters. Looking
for
ways to cash in on the go-go 90s -- and pouncing on an
insanely
misguided 1991 rule change that allowed accountants to
pocket a
percentage of the tax money they save a client instead
of merely
charging an hourly fee -- accounting firms began aggressively
devising and marketing complex tax avoidance schemes.
Why go
after boring old bookkeeping work when there was gold
in them
thar shelters?
The rule change created an irresistible new incentive,
and the
big firms responded by creating high-pressure in-house
sales
teams -- units brimming with such arrogance and confidence
in
their impunity that they gave themselves rapacious-sounding
nicknames. At Deloitte & Touche, the "Predator" group
stalked
potential clients; at BDO Seidman, the "wolf pack" was
on the
prowl. The hunt proved extremely lucrative. Seidman's
wolves
dragged in over $100 million in tax shelter commissions
in 2000.
The tax ploys these shelter savants concocted were so
convoluted
that even the finance-savvy executives they were hawking
them to
often had a hard time understanding how they worked.
But that was
okay, because they certainly understood the end result:
a
seriously lowered tax bill.
Take the smoke-and-mirrors trickery Ernst & Young
used to
obliterate the millions in taxes that Esrey and LeMay
owed on the
$288 million they'd made off Sprint stock options. First
the
accountants waved their hands over the execs' money and
turned it
from income into capital gains. Presto! Then they wiggled
their
slide rules and raised the cost of Sprint stock. Change-o!
Next
thing ya know -- Poof! -- Esrey and LeMay didn't owe
the IRS a
cent.
But then the IRS woke up and began cracking down on shelters
that
have no purpose other than cheating the public out of
money it
is due. Now the execs are facing a mountain of
back taxes.
Gumming up the works even more is the fact that,
in addition to
scheming up evasive maneuvers for Sprint's bigwigs,
Ernst &
Young is also the longtime auditor of Sprint.
But don't feel too bad for the embattled execs. It's not
like
anybody was really pulling the wool over their eyes;
indeed,
these tax shelters are usually presented to clients with
a level
of skullduggery usually reserved for characters in a
John le
Carre novel or men cheating on their wives. In many cases,
clients have to sign a nondisclosure agreement before
the
accountants will even pitch them the scheme. And they're
told in
advance that the deal will be kept secret from the IRS
-- both of
which should be pretty good clues that the arrangement
might not
exactly be on the up-and-up.
But as I said before, greedy execs and predatory accountants
are
not the only ones to blame. Not when law firms are reaping
millions in easy money handing out so-called "opinion
letters,"
which theoretically provide assurance to clients that
tax
shelters are legitimate but, in reality, are little more
than the
legal equivalent of crossed fingers. The letters, which
usually
go for between $50,000 to $75,000, have become a tax
cheat's
get-out-of-jail-free card because the IRS will typically
waive
additional penalties for those defendants who have one.
So, in effect, the letters take the risk out of cheating:
if
big-money tax dodgers get caught (and given the IRS's
limited
enforcement budget, the odds favor the cheaters by a
huge margin)
they only have to pay the money they originally owed,
plus
interest. Why not give it a shot? All you have to lose
is your
integrity. Adding to the sleaze, law firms providing
opinion
letters are usually in bed with the tax shelter sellers
-- Ernst
& Young even handed out a sheet listing how much
the coveted
letters would set a client back. How convenient: one-stop
tax
evasion.
And, of course, we can't forget the spineless politicians
and
government toadies who pass the laws -- and leave the
loopholes
-- that make all this financial flim-flam possible in
the first
place. Even with all the corporate horrors and accounting
industry rip-offs we've seen over the last year, our
leaders just
can't break free from the stranglehold that special interest
campaign contributions and lobbyists have on them.
Just two weeks ago, as the Securities and Exchange Commission
was
putting the finishing touches on new rules designed to
put an
end to conflicts of interests at accounting firms,
the idea of
banning these firms from double-dipping as tax advisors
was
considered. And then, after an all-out lobbying effort
by the
accounting industry, rejected. Instead, the commission
crafted a
loophole allowing accounting firms to continue to sell
tax advice
to clients whose books they are "independently" auditing.
The
SEC's dictionary clearly has a very different definition
of
"independent" than mine. Or Webster's. But then he was
probably
dumb enough to actually pay his taxes.
Conflicts of interest must end. Rich corporate executives
should
not be allowed to avoid paying their fair share. Well,
duh! In
saying these things, I feel like all I'm doing is stating
the
blatantly obvious.
So why isn't the blatantly obvious obvious to the people
in
Washington?
------
Arianna Huffington is the author of "Pigs at the Trough:
How
Corporate Greed and Political Corruption are Undermining
America." For information on the book, visit
http://www.pigsatthetrough.com/
Note added 2007 : To see the current writings of Arianna, and her blogger's sharings, visit the Huff Post : http://www.huffingtonpost.com/
This note added 20070425 : The Drumbeat of Impeachment is Resonating Across America.
We invite you to read, A
Cornucopia of Death, Arianna's article of April 12th, 2005,
a fabulous Pope commentary.
We invite you to read Arianna's article of April 6, 2005, Bushes
in the Hood.
We invite you to read Arianna's article entitled, A
Tale of Two Leadership Styles, dated 2 March, 2005.
And so that's exactly what he (Andy Stearn) does, shaking
things up with his reform-or-else threat to break up the AFL-CIO;
with a campaign to bring Wal-Mart to its knees;
and with his pledge to pay back politicians, no matter who they are
or what party they come from . who looked us in
the eye and said they were for us--but then went out and betrayed us.
We invite you to read Arianna's Article entitled, Rummy
TV, dated 23 February, 2005.
We invite you to read another article by Arianna, regarding the book,
Disney
War and more, dated 16 February, 2005.
We invite you to read Arianna's words on the Enronization
of American Corporations, and our Corporate Executives.
We invite you to read an older article of Arianna's, dated March 12th,
2003 : Tax
Havens: Are You With Us Or Against Us?
Copyright Good Works On Earth
All Rights ReServed World Wise
All Wrongs ReVersed World Wiser