Playing the Tax 'Audit Lottery' : Offshore Tax Crimes Scorecard: Bankers, Lawyers, Advisers

• I acted from conviction:’ PwC whistleblower speaks out 
• Whistleblowers should be protected, not prosecuted 

Wall Street Journal, How Google, GE and U.S. Firms Play the Tax ‘Audit Lottery’:

Buried deep in American companies’ securities filings is an indicator for how aggressively they are working to shield their income from the IRS and other tax authorities.

The obscure entry—under the heading “uncertain tax positions” or “unrecognized tax benefits”—is where companies account for tax breaks that push the envelope. And they are adding up.

Exxon Mobil reported that it had $7.8 billion of these uncertain tax positions outstanding as of Dec. 31, including $1.5 billion from 2013 alone. Pfizer reported $6.1 billion, including $1.2 billion from 2013. Google reported $3.1 billion at the end of September, up from $2.6 billion at the end of 2013.

All told, companies in the S&P 500 had amassed $188 billion in unrecognized tax benefits by the end of their 2013 fiscal years—$21 billion of which was related to that year’s taxes, according a Wall Street Journal analysis of figures from Calcbench Inc., a financial data provider. The companies have added between $19 billion and $22 billion of new uncertain tax positions each year since 2010.

Accounting rules define these tax benefits as ones that tax authorities have strong grounds to reject, by the companies’ own analysis. Seeking those breaks is perfectly legal, and since companies have already lowered their profit numbers as if the taxes had been paid, there’s little risk in rolling the dice. A win down the road will boost profits, while a loss typically does no additional damage. Either way, companies often get to use the disputed cash in the meantime. ...

Offshore Tax Crimes Scorecard: Bankers, Lawyers, Advisers

German state buys tax CD containing Swiss bank client data   

Bank Leumi Admits to Assisting U.S. Taxpayers in Hiding Assets in Offshore Bank Accounts  

Swedish TV documentary on Luxembourg tax leaks and PFI business  

The Vatican Bank, Christmas Cheer, and FATCA (Tax Analysts Blog). “The pontiff is cool with tax transparency.”

Michael Hatfield (University of Washington), Taxation and Surveillance: An Agenda:

Among government agencies, the IRS likely has the surest legal claim to the most information about the most Americans: your hobbies; your religious affiliation; your reading; your travel; and your medical information are all potentially tax relevant. Privacy scholars have studied the arrival of Big Data, the internet-of-things, and the surveillance joint venture of government and private companies, but neither privacy nor tax scholars have considered how these technological advances could improve tax administration. As government agencies and private companies increasingly pursue what has been described as the “growing gush of data,” the use of these technologies in tax administration will become increasingly important to consider. This Essay provides an agenda of items for discussion, debate, and research related to the development, implementation, and effects of moving towards a surveillance-facilitated tax system.

Tracy A. Kaye (Seton Hall), Innovations in the War on Tax Evasion, 2014 BYU L. Rev. 363:

Offshore tax evasion is a global problem that requires a global solution. Nevertheless, the United States unilaterally responded to the offshore tax evasion problem by enacting the Foreign Account Tax Compliance Act. FATCA requires foreign banks to report information about financial accounts held by U.S. taxpayers directly to the Internal Revenue Service and imposes a thirty percent withholding tax on certain U.S. payments to any bank that will not cooperate. Yet, U.S. banks were not required to report any information on nonresident account holders (except for Canadians) to anyone. FATCA garnered worldwide attention. The European Union expressed its concerns to the U.S. Treasury about the compliance burden on the financial industry and the conflict with EU Member States’ laws on privacy and data protection. Treasury is resolving these issues by negotiating bilateral agreements known as Intergovernmental Agreements (IGAs) that will require reciprocity on the part of the United States in the exchange of information. These IGAs are furthering the movement toward global transparency as most FATCA partner jurisdictions intend to require reporting on all nonresident accounts rather than just U.S. accounts. This could lead to the development of a multilateral platform for the exchange of information that is critical to combating offshore tax evasion. This Article urges the United States to adopt the regulations and legislation that are necessary before the United States can provide its FATCA partners with the same information that they have been asked to give the U.S. government. The United States should play a leadership role in furthering global transparency and take the steps required to no longer function as a tax haven for tax evaders from other countries. The IGA with Mexico that entered into force on January 1, 2013, is an appropriate vehicle for the United States to demonstrate this renewed commitment to the exchange of information.

Bloomberg:  The Greatest Tax Story Ever Told, by Zachary R. Mider:

The only operetta ever written about Subpart F of the Internal Revenue Code made its debut on a rainy Sunday evening in May 1990, in a Fifth Avenue apartment overlooking Central Park. In bow ties and spring blazers, partners of the law firm of Davis Polk & Wardwell dined on lobster prepared by a Milanese chef. Then everyone gathered around a piano, and a pair of professional opera singers, joined by the few Davis Polk men who could carry a tune, performed what sounded like a collaboration of Gilbert & Sullivan and Ernst & Young.

The 13-minute operetta, Charlie’s Lament, told how the party’s host, John Carroll Jr., invented a whole category of corporate tax avoidance and successfully defended it in a fight with the Internal Revenue Service. The lawyers sang:

The Feds may be screaming,
But we all are beaming
’Cause we’ll never pay taxes,
We’ll never pay taxes,
Never pay taxes again!

The first corporate “inversion,” as Carroll’s maneuver came to be known, was obscure then and is all but forgotten now. Yet at least 45 companies have followed the lead of Carroll’s client, New Orleans-based construction company McDermott International, and shifted their legal addresses to low-tax foreign nations. Total corporate savings so far: at least $9.8 billion—money that otherwise would have gone to the U.S. government.