Ethics of tax planning

[grumbler]

"Legally available" how?
It's there and clearly highlighted and well known, designed to b a way to reduce taxes for valid reasons?
Or it's a shady loop hole that requires jumping through a bunch of hoops that nobody would ever use for legitimate reasons?

This type of response shows a fundamental misunderstanding of how tax planning works.

What's a "shady loop hole"?

I assume he is referring to the fact that there is often a fine line between effective tax planning and non compliant structures.  Of such things tax litigators make their living.

Yeah but that the latter would be illegal, wouldn't they?

I also believe that laymen like him do not appreciate the amount of intellectual effort that goes into developing an effective tax structure. I mean, in what other industry it is unethical to use an idea unless it is "clearly highlighted and well known"? All innovation and development is based on coming up with ideas nobody else has thought of. It does not make them "shady".

Hi Grumbler.

Hi, Raz!

[DGuller]

This begs the question:  what does begging the question actually mean?

[alfred russel]

Dorsey: does US global taxation of US citizens and residents apply to earned and unearned income, or just earned?

I know you prefer not to respond to my posts but the US taxes on all income.

It does, although the first $80k or so of earned taxable income is deductible, and you get a tax credit for any foreign taxes paid.

[Razgovory]

"Legally available" how?
It's there and clearly highlighted and well known, designed to b a way to reduce taxes for valid reasons?
Or it's a shady loop hole that requires jumping through a bunch of hoops that nobody would ever use for legitimate reasons?

This type of response shows a fundamental misunderstanding of how tax planning works.

What's a "shady loop hole"?

I assume he is referring to the fact that there is often a fine line between effective tax planning and non compliant structures.  Of such things tax litigators make their living.

Yeah but that the latter would be illegal, wouldn't they?

I also believe that laymen like him do not appreciate the amount of intellectual effort that goes into developing an effective tax structure. I mean, in what other industry it is unethical to use an idea unless it is "clearly highlighted and well known"? All innovation and development is based on coming up with ideas nobody else has thought of. It does not make them "shady".

Hi Grumbler.

Hi, Raz!

So have you stopped ignoring me and are just confused or what?

[Eddie Teach]

It's funny because you are clearly more like grumbler and Tyr more like Marty.

[Berkut]

Where I differ from Berkut is that when dealing with the state treasury/tax collection apparatus there is, imo, no area which can be described as "legal but unethical" (which is obviously different from dealing with individuals, where such area exists). If you obey the law (which means also that you are committing no fraud), you are not - and should not - be accused of any unethical activity if you seek to reduce your taxation.

WHat about something that is possibly illegal, or even certainly illegal, but your tax advisor assures you that you can get away with it?

[dps]

Where I differ from Berkut is that when dealing with the state treasury/tax collection apparatus there is, imo, no area which can be described as "legal but unethical" (which is obviously different from dealing with individuals, where such area exists). If you obey the law (which means also that you are committing no fraud), you are not - and should not - be accused of any unethical activity if you seek to reduce your taxation.

WHat about something that is possibly illegal, or even certainly illegal, but your tax advisor assures you that you can get away with it?

Being able to get away with something doesn't make it legal.

[MadImmortalMan]

I voted option 2 because taxes are not in the ethical realm. You pay them because you have to. Paying them does not make you good and avoiding them does not make you bad.

[Martinus]

Where I differ from Berkut is that when dealing with the state treasury/tax collection apparatus there is, imo, no area which can be described as "legal but unethical" (which is obviously different from dealing with individuals, where such area exists). If you obey the law (which means also that you are committing no fraud), you are not - and should not - be accused of any unethical activity if you seek to reduce your taxation.

WHat about something that is possibly illegal, or even certainly illegal, but your tax advisor assures you that you can get away with it?

Legality is really a binary situation. Either something is legal or it isn't. And the idea of tax advisors "assuring" people something is legal, when there is a chance it isn't, is largely a myth - they have too much skin in the game if they get it wrong.

[DGuller]

I voted option 2 because taxes are not in the ethical realm. You pay them because you have to. Paying them does not make you good and avoiding them does not make you bad.

They kind of are.  Taxes are how society pitches in to get things done that are in common interests.  Someone who avoids taxes via loopholes or worse is shirking the arrangement.

[Berkut]

Where I differ from Berkut is that when dealing with the state treasury/tax collection apparatus there is, imo, no area which can be described as "legal but unethical" (which is obviously different from dealing with individuals, where such area exists). If you obey the law (which means also that you are committing no fraud), you are not - and should not - be accused of any unethical activity if you seek to reduce your taxation.

WHat about something that is possibly illegal, or even certainly illegal, but your tax advisor assures you that you can get away with it?

Legality is really a binary situation. Either something is legal or it isn't. And the idea of tax advisors "assuring" people something is legal, when there is a chance it isn't, is largely a myth - they have too much skin in the game if they get it wrong.

Bullshit.

There is a huge grey area in what is and is not strictly kosher when it comes to taxes. I know this because I myself am often wondering what I can and can not write off, and I suspect that when it comes to people with millions at stake, the "skin in the game" is all about the risk of a fine or penalty versus the reward of current value of cash in your pocket.

It is not at all binary, and a tax advisors job is to figure out how to skirt the line as best they can without the projected cost of an audit and fine becoming greater than the potential tax savings.

Binary my ass. If it was that simple, they wouldn't have entire law firms doing nothing but figuring out how to help the wealthy not pay taxes.

[Berkut]

Where I differ from Berkut is that when dealing with the state treasury/tax collection apparatus there is, imo, no area which can be described as "legal but unethical" (which is obviously different from dealing with individuals, where such area exists). If you obey the law (which means also that you are committing no fraud), you are not - and should not - be accused of any unethical activity if you seek to reduce your taxation.

WHat about something that is possibly illegal, or even certainly illegal, but your tax advisor assures you that you can get away with it?

Being able to get away with something doesn't make it legal.

Indeed. But I suspect that when it comes to taxes, the wealthy drive their practices based mostly on what they can get away with, rather than any rigorous attempt to meet the letter and spirit of the law.

Just like all of us, of course - except that the non-rich don't have nearly the same resource to devote to the problem, or the mechanism by which our pathetic income and wealth can be hidden and sheltered.

[Gups]

Where I differ from Berkut is that when dealing with the state treasury/tax collection apparatus there is, imo, no area which can be described as "legal but unethical" (which is obviously different from dealing with individuals, where such area exists). If you obey the law (which means also that you are committing no fraud), you are not - and should not - be accused of any unethical activity if you seek to reduce your taxation.

WHat about something that is possibly illegal, or even certainly illegal, but your tax advisor assures you that you can get away with it?

Legality is really a binary situation. Either something is legal or it isn't.

I'm honestly flabbergasted that a lawyer at a big international firm could have written this.

[alfred russel]

WHat about something that is possibly illegal, or even certainly illegal, but your tax advisor assures you that you can get away with it?

Speaking for major corporations, I think the idea of tax advisors pitching illegal structures is more myth than reality. Working on the edge of the tax world and spending lots of time with tax attorneys, what I see is this:

-unlike personal returns, major corporations are often under continuous audit, so the question of an auditor looking at something is very high
-even if an auditor doesn't find something, there are signficant whistleblower benefits, including IRS bounties, that can turn a whistleblower into a multimillionaire
-the incentive to do something illegal is lower than you might think--if caught destroy your career and possibly go to jail, versus a windfall going to your employer?
-the tax code has lots of ambiguities, to the extent that outright illegal activity tends to be an issue far less than a topic of multiyear litigation regarding whether the corporate taxpayer underpaid.

[alfred russel]

They kind of are.  Taxes are how society pitches in to get things done that are in common interests.  Someone who avoids taxes via loopholes or worse is shirking the arrangement.

But what is a loophole?

When I was in public accounting, I audited (financial not tax) a publicly traded company that made paper and packaging products.

An environmental bill was passed at that time, that gave generous tax benefits to companies that used organic materials and recycling in manufacturing processes. It turned out that the law was worded in a way that certain normal paper and packaging processes could get the benefit, and the effect on tax revenues was in the billions. It was, imo, a classic loophole--there was no public policy purpose for this to apply to the existing industry.

There were a couple theories I heard why the "loophole" for paper and packaging companies came about:
1) Congress made amendments to the bill at the last minute, and fucked up.
2) A lobbyist for the industry with a sympathetic congressman got language into the bill at the last minute and know one noticed.

Either way, the company I audited took advantage as did the rest of the industry. On conference calls, the CEO said, "hey, this is not going to last forever, eventually congress will cut this off."

And for a few years congress did nothing. It eventually got closed as a part of Obamacare - it was one of the tax loopholes closed to provide additional revenue to offset the cost of the bill. The cynical part of me wonders if congress didn't let it sit out there as a kind of piggybank to pay for a future spending program like obamacare.

I don't think the company i audited did anything unethical. In fact, management probably had no choice. All their competitors were taking advantage, and I suspect investors would have pushed for a management change had they decided not to take advantage.