Tax Avoidance Just Isn't What It Used To Be

I have previously written on how the government's attitude towards tax planning seems to have changed over the years. Contrary to what I was taught in law school, the IRS now essentially takes the position that if a transaction included tax planning, the tax benefits of that planning should not be sustained.

But even worse, it seems that some within the profession and academics are starting to side with the government. If you don't believe me, read Tax Avoidance Just Isn't What it Used To Be.

I hope this attitude does not continue to spread.

Rebuttal of Op-Ed Article on Tax Policy

I don’t know if any of you read the Amarillo Globe-News. This last Sunday, the following appeared in the paper on the opinion page: Tax policy falls short of Founders' goal. I found it to contain inaccuracies of fact and of reasoning. Since taxes and tax policy are of interest to me as a tax attorney, I felt it appropriate to comment on those errors.

Continue Reading...

Using the Tax Code to Breach a Contract

According to Charlie Rangel, the Chairman of the House Ways and Means Committee, The tax code is not “a political weapon.” That was just a few days ago. Now the House has passed a bill that would confiscate payments made under contracts between AIG and its employees. How quickly the worm turns.

Continue Reading...

Sleep and Creative Thinking

Those of you who are my clients know that when I say "I'll give that problem some shower time," I'm not making a joke and you're likely to get my most creative solution. I take long showers in the morning, and I tend to hatch my most ingenious and innovative ideas while taking my morning shower. Now I have scientific evidence to explain why.

According to the article, We’ll Fill This Space, but First a Nap, sleep is very important to creative thinking. During sleep we continue to process information that leads to creative solutions to problems we're trying to solve in our waking hours. So, re-evaluation of a problem after "sleeping on it," like reconsidering a problem in the shower shortly after waking, many times leads to a solution. So, I'm not kidding when I say my most valuable time of the day is the time I spend in the shower in the mornings.

A Little Tax Humor -- With a Point

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

  • The first four men (the poorest) would pay nothing.
  • The fifth would pay $1.
  • The sixth would pay $3.
  • The seventh would pay $7.
  • The eighth would pay $12.
  • The ninth would pay $18.
  • The tenth man (the richest) would pay $59.

So, that's what they decided to do.

Continue Reading...

New Blog at Sprouse

Please welcome the newest blogger at SSS, Shawn Twing. Here is a link to his new blog, Labor and Employment Law.

Shawn and I both recently attended the annual meeting of the Texas Cattle Feeders Association, where Shawn was a speaker on Immigration issues. You can link to the Power Point presentation for his speech on his blog. Welcome Shawn.

Government Attitude on Tax Planning

The other day I received my annual invitation to attend the Meadows Collier Conference in Dallas. I have a scheduling conflict. So, I won't be able to attend this year's program. But there was something that caught my eye. The very first item on the program's agenda is something called "Tax Planning Under Attack." That item starts out with this description:

The IRS' aggressive examination and litigation tactics essentially take the position that if a transaction included tax planning, the tax benefits of that planning should not be sustained.

This statement actually made me feel better because I was afraid I was becoming paranoid in my views of, and experience with, the IRS. Instead it simply confirms the old adage: Just because you're paranoid doesn't mean they're not out to get you.

However, this statement also made me feel worse, more than it made me feel better, because of the concern it raises not only for my profession as a tax planner, but also for the state of our country and it's taxpayers. When I was in law school, my tax professors, on practically the first day of class, would quote the highly respected and erudite Learned Hand:

.   .   .   a transaction, otherwise within an exception of the tax law, does not lose its immunity, because it is actuated by a desire to avoid, or, if one choose, to evade, taxation. Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes. Gregory v. Helvering, 69 F. 2d at 810 (2d Cir 1934)

While not quite so artfully stated, the U.S. Supreme Court affirmed Learned Hand's statement regarding tax planning in the appeal of Judge Hand's decision:

The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. Gregory v. Helvering 293 U.S. at 469 (1935). 

When the government begins to disregard these long-held principles of tax planning, we should all be wary. Not many taxpayers have the resources to fight off the resources that the government can bring to bear on a single taxpayer, especially if those resources come in the form of criminal accusations -- criminal accusations in situations that a few years ago would have been civil audits. Let us hope that this trend can and will be reversed.