More Accounting Tricks to Avoid Paying Tax by U.S. Multinational Corporations

As noted in this blog, the difference between tax evasion and tax avoidance is a fine line.  To assist in drawing the line properly and legally, corporations and individuals employ tax attorneys and accountants to minimize their tax liabilities.

As previously discussed in this blog, the triumvirate of "legal" tax dodging by U.S. Multinational Corporations ("USMNCs") is Inversions, Transfer Pricing and Earnings Stripping.  Another less publicized tool used by accountants of USMNCs is the "stock option loophole".  As the Citizens for Tax Justice ("CTJ") reports, USMNCs have utilized the "stock option loophole" to reduce their taxable income in the amount of $64.6 billion over the past 5 years.

Notable (Top 5) USMNCs which have utilized the stock option loophole include:

USMNC Stock Option Tax Benefits from 2011-2015
Facebook $5,665,000
Apple $4,673,000
Google $1,951,000
Goldman Sachs Group $1,775,000
J.P. Morgan Chase & Co. $1,666,000

The CTJ list documents 310 other companies that have reduced their federal and state corporate income taxes by a combined $64.6 billion dollars over the last 5 years.

What is the "stock option loophole"?  Simply put, it is an accounting mechanism to "track" stock options and to deduct the expense of stock options.  Why is this a loophole? The simple answer is that there is a disparity between the price the employee pays for the stock option and the price the stock options are worth.  For a more technical explanation see this PricewaterhouseCoopers (Accounting Firm) explanation.  Based on the PWC article, the USMNCs deduct this difference between the exercised price and the price their employees paid for the stock on the corporate taxes in the year that the options are exercised.

CTJ questions why the USMNCs are allowed a deduction fro giving their employees a benefit but in reality does not cost the USMNCs anything.  CTJ also states that reversing this may help to minimize the Tax Gap.

If you have specific and credible information about a company failing to pay its tax liabilities, contact our firm about filing an IRS Whistleblower claim to assist the IRS in holding the company liable for the taxes they should be paying.

Not even Federal IRS Employees or Federal Tax Court Judges are Immune to Alleged Tax Evasion

In a bit of shocking news, a former federal tax court judge (Judge Diane L. Kroupa) and her husband were indicted on charges for filing fraudulent tax returns and conspiracy to defraud the United States.  As recounted in a recent Forbes article, the shocking facts in the indictment reflect alleged evasion of taxes and obstruction of justice in the examination/audit of Judge Kroupa as follows:

  1. Alleged claimed personal expenses as business deduction including “rent and utilities for the Maryland home; utilities, upkeep and renovation expenses of the Minnesota home; Pilates classes; spa and massage fees; jewelry and personal clothing; wine club fees; Chinese language tutoring; music lessons; personal computers; and expenses for vacations to Alaska, Australia, the Bahamas, China, England, Greece, Hawaii, Mexico and Thailand;”
  2. Alleged false insolvency claim to avoid discharge of indebtedness income of $33,301;
  3. Alleged failure to report income from sale of property in the amount of $44,520;
  4. Alleged concealment of records from tax return preparer and IRS compliance officer during an audit in 2006;
  5. Alleged submission of misleading documents to an IRS employee in 2012 audit to conceal expenses of Grassroots Consulting; and
  6. Alleged understated income from 2004-2010 of $1,000,000 and understated taxes in the amount of $400,000. 

While the indictment and allegations contained in the indictment have yet to result in a conviction for conspiracy and tax evasion, the mere fact that the indictment and charges against Judge Kroupa have been filed in Court reflects that even federal tax court judges may still have allegedly evade taxes and allegedly defrauded the IRS and the United States of taxes allegedly owed.

In other news, based on a recent Tax Court case, a federal IRS Revenue Agent was indicted and plead guilty to tax evasion.  A summary of the relevant facts are as follows:

  1. Petitioner Husband was an IRS revenue Agent;
  2. Petitioner Husband had side business in which he set up trusts for another taxpayer to reduce taxes but was used to allegedly embezzle funds from the other taxpayer;
  3. Petitioner Husband allegedly embezzled funds from other taxpayer;
  4. Petitioner Husband was indicted and initially plead guilty to tax evasion related to the alleged embezzled funds because he failed to report the income associated with the alleged embezzled funds;
  5. Petitioner Husband tried to recant plea agreement.

In the Tax Court case, the Court determined that while the Petitioner Husband plead to tax evasion and failed to report income for 2003 in the amount of $252,726, the plea does not support improper calculations by another IRS revenue agent that analyzed the tax deficiency of Petitioner Husband because the other IRS revenue agent failed to account for amounts repaid to the other taxpayer by Petitioner Husband.  The Tax Court ultimately determined that there was no deficiency or penalty liability for 2003.  Despite the Tax Court’s holding that there was no deficiency, the facts in this case reflect that even a federal revenue agent is not immune from allegedly under-reporting or allegedly failing to report his/her tax liabilities.

Both cases show that federal employees and federal tax court judges are not immune from committing alleged tax evasion or other tax violations.  Therefore, if you have specific and credible information (specific documents outlining the tax evasion or other tax violations) on any individual which would result in taxes due in excess of $2,000,000, contact us to discuss filing an IRS tax whistleblower claim to claim an award and to alert the IRS to the alleged wrongdoing.