Corporations avoid taxes

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Registered: 04-16-2003
Corporations avoid taxes
8
Fri, 04-09-2004 - 5:45pm
The Corporate Tax Void: Record High Profits and Record Low Taxes

The Corporate Tax Void: Record High Profits and Record Low Taxes

by Christian E. Weller

April 9, 2004

Tax season is upon us. But, at a time when most households are paying taxes, the General Accounting Office (GAO) just reported that most corporations do not and that 95 percent of corporations pay less than 5 percent of their income in taxes. In response, the Chamber of Commerce called these figures misleading since supposedly many corporations did not earn any income. The GAO's report indicates that it ain't so. The corporations that did not pay taxes between 1996 and 2000 appeared increasingly profitable. Further, since 2000, corporate taxes dropped sharply, while profits rose decisively. And rising profits came out of workers' hide since overall wage growth lagged.



http://www.americanprogress.org/atf/cf/{E9245FE4-9A2B-43C7-A521-5D6FF2E06E03}/profitstaxes.pdf

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Registered: 03-18-2000
Fri, 04-09-2004 - 6:03pm

I just heard this on CNN, Wolf Blitzer. He also said that more ordinary people are being audited & less Corp's.


Most Companies Paid No Taxes


http://www.fool.com/News/mft/2004/mft04040803.htm


Our friends at the government's General Accounting Office (GAO) have just dropped a bombshell. A recent GAO report reveals that between 1996 and 2000, when the economy was booming and the stock market was soaring ever higher, the majority of American companies (61%), paid not a penny in federal taxes. Hmm…


In 2003, tax revenues from corporations made up just 7.4% of total federal receipts -- the second-lowest rate since 1934. The current corporate tax rate for major corporations is 35% -- but there are clearly enough loopholes and tax credits available that many firms are able to pay considerably less than 35%. The GAO study reported that the average tax bill of U.S. companies represented about 1.2% of gross receipts.


The study also revealed that small companies were more likely to avoid taxes than their larger brethren. Nearly 40% of firms with more than $250 million in assets or $50 million in revenues paid no taxes during the period studied. Making matters worse, some 70% of foreign-owned firms that operate in the U.S. also managed to avoid coughing up taxes during the late 1990s.


This news will help Senator Kerry and President Bush point fingers at each other for failing to fight corporate tax avoiders. But the truth is probably that both individuals and both political parties and both the Clinton and Bush administrations have too often looked the other way. After all, corporations have increasingly been generous political donors. (This led me to ask, in 2002, "Why are corporations

 


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Registered: 04-16-2003
Fri, 04-09-2004 - 6:13pm
<>

But of course, ordinary people pay most of the taxes and can't afford to hire expensive lawyers to defend their tax preparation. It's a no brainer.

The graphs at the cite are particularly interesting, particularly the recent years. Instead of a war on Iraq we should have declared war on corporations.

iVillage Member
Registered: 04-16-2003
Sun, 04-11-2004 - 11:06am
How Big Business Evades Taxes

Commentary, Lucy Komisar,

Pacific News Service, Apr 09, 2004

EDITOR’S NOTE: As states and municipalities reel from service cutbacks caused by lower tax earnings, big corporations pay virtually no taxes on huge profits. They do it though elaborate “shell” games.

Were you stunned by the revelation, days before your taxes are due, that nearly two-thirds of companies operating in America reported owing no taxes from 1996 through 2000? That over 90 percent of large corporations -- with at least $250 million in assets or $50 million in gross receipts -- reported owing taxes of only under 5 percent?

The law requires firms to pay 35 percent tax on U.S. profits. Had big business complied, corporate income taxes in 2002 would have been $308 billion instead of only an estimated $136 billion. Do you wish you knew the corporate secret?

Is your town or state suffering from service cutbacks because tax revenues are down? Would you like to cut your tax bite from the current 15 to 35 percent to 5 percent or zero? How do corporations do it?

The General Accounting Office report, commissioned by Senators Carl Levin (D-MI) and Byron Dorgan (D-ND) and released April 5, gave a clue to how. It's called "transfer pricing," or improperly shifting income to lower-tax countries.

Firms set up offshore "subsidiaries" which, on their books, perform functions that let them cut onshore taxes. They may sell their own "logo" to the subsidiary and then pay a high price to "rent" it back, deducting "rent" as expense. They may move money to the subsidiary and "borrow" it back, deducting interest payments. If several of their subsidiaries are involved in a deal, the firms may grossly inflate profits assigned to those in offshore tax havens, which levy no or minimal taxes on "profits" claimed there.

The U.S. firm may "trade" with an offshore "shell" it owns -- a phony company set up in a tax haven -- pretending it’s buying goods or services at a high price or selling its product low, to create deductions. Because the tax haven keeps owners' names secret, the IRS won't know the company is "trading" with itself.

Professors Simon J. Pak (Penn State University) and John S. Zdanowicz(Florida International University) examined the impact of over-invoiced imports and under-invoiced exports on 2001 U.S. tax revenues. Would you buy multiple vitamins bought from China at $850 a pound, plastic buckets from the Czech Republic for $973 each, tissues from China at $1,874 a pound, a cotton dishtowel from Pakistan for $154, and tweezers from Japan at $4,896 each?

By contrast, U.S. companies, on paper, were getting very little for their exports. If you were in business, would you sell multiple vitamins to Finland at 61 cents a pound, bus and truck tires to Britain for $11.74 each, color video monitors to Pakistan for $21.90, missile and rocket launchers to Israel for $52.03 and prefabricated buildings to Trinidad for $1.20 a unit?

Comparing claimed export and import prices to real world prices, the professors figured the 2001 U.S. tax loss at $53.1 billion.

We all know that Enron cheated investors by using offshore firms to pretend that money it borrowed was money it earned. We later found it also used shells to hide income from the IRS. Enron had 881 offshore subsidiaries: 692 in the Cayman Islands; 119 in the Turks and Caicos; 43 in Mauritius and 8 in Bermuda. Enron had no office in the Cayman's, but Box 1350 there received mail for 500 affiliates. Enron’s 1996 through 2000 pretax U.S.profits were $1.8 billion, but it paid no tax in four of those five years. It even got a rebate! Because of fancy paperwork that invented tax losses even while it was boasting of profits to investors, Enron got back $381 million from the IRS.

Bob McIntyre, who heads the Washington-based Citizens for Tax Justice, says that in 1996-2000, Goodyear’s profits were $442 million, but it paid no taxes and got a $23-million rebate. Colgate-Palmolive made $1.6 billion and got back $21 million. Other companies that got rebates in 1998 included Texaco, Chevron, PepsiCo, Pfizer, J.P. Morgan, MCI Worldcom, General Motors, Phillips Petroleum and Northrop Grumman. Microsoft, run by the world's richest man, reported $12.3 billion U.S income in 1999 and paid zero federal taxes. In the past two years, Microsoft paid only 1.8 percent on $21.9 billion pretax U.S. profits.

There are some 55 "offshore" zones, including legendary Switzerland; the Caribbean with money-laundries Grand Cayman, Antigua, Aruba and the British Virgin Islands; European favorites Luxembourg, Liechtenstein, Monaco, Austria, Cyprus; and British Channel Islands Jersey, Guernsey, Isle of Man. Many banks in "offshore" centers are subsidiaries of major international banks, including Citibank, Bank of New York and Credit Suisse.

Why does Washington tolerate the offshore tax evasion system? Because powerful people benefit. With President Bush on its board, Harken Energy set up an offshore network that cut its taxes. White House spokesman Dan Bartlett defended Harken for seeking "tax competitiveness,” the preferred euphemism. When Vice President Cheney ran Halliburton, it increased its offshore subsidiaries from 9 to at least 44.

http://news.pacificnews.org/news/view_article.html?article_id=ee214ed3ecddd7aa69de616552365e53

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Registered: 03-18-2000
Sun, 04-11-2004 - 12:54pm

>" “The new shelters are just paper transactions. Nothing's created. There's no real investment. There's no risk. There's no possibility of upside or downside,” says Bankman.

It sounds like a fraud. “That's right,” says Bankman. “And I think 20 years ago that's what all the reputable firms thought.”

So how did they get into the business?

“Well, a few kind of mavericks without these moral scruples went into the business and they did really well. And their clients didn't get caught,” says Bankman. “And then competitive pressures pushed more and more firms and taxpayers into this arena until finally everybody lost their moral bearing or at least most people did. It became the new norm.”

Bankman says it really changed in the early 1990s, when accounting firms began charging clients a percentage of the money they saved them in taxes, instead of billing them at an hourly rate.

“If it's not illegal, it's pretty close. It's certainly somewhat unethical I think,” says Bankman.

Besides Ernst and Young, the biggest names in accounting, law and investment banking have all been caught promoting abusive tax shelters: KPMG, Price Waterhouse, Merrill Lynch, Bankers Trust, and the now defunct Arthur Anderson, among many others. "<


Quote from.........


http://www.cbsnews.com/stories/2003/10/16/60minutes/main578497.shtml

cl-Libraone~

 


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Registered: 04-16-2003
Sun, 04-11-2004 - 4:33pm
<>

Bankman seems to be saying that there is no profit and no risk. I think he is wrong, the avoidance of taxes is a profit and the risk is negligible. That's why corporations now view taxes as a profit center.

iVillage Member
Registered: 04-01-2004
Mon, 04-12-2004 - 10:36am
If these companies aren't paying taxes, does that disprove Bush's contention that capital gains shouldn't be taxed because they were already taxed at the corporate level? Just wondering.
iVillage Member
Registered: 04-16-2003
Mon, 04-12-2004 - 10:54am
LOL you make a good point that I'm sure Bush doesn't want people to know about. This whole double tax belief has many, many holes: people don't realize it. For example if you pay a merchant with after tax dollars does that mean the merchant shouldn't pay taxes because taxes have already been paid. Remember, the corporation is a separate entity from it's stockholders. There are multiple instances of double taxation within the business world. But if America is willing to accept the excuse, then so much better for them.


Edited 4/12/2004 10:56 am ET ET by hayashig
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Registered: 04-16-2003
Mon, 04-12-2004 - 3:15pm
Yet another of GWB's say one thing do another.

Corporate Risk of a Tax Audit Is Still Shrinking, I.R

U.S. Data Show

By DAVID CAY JOHNSTON

Published: April 12, 2004

Since taking office, the Bush administration has repeatedly promised to get tough with tax cheats, saying it has ended a long slide in enforcement of tax laws.

But an independent analysis of new Internal Revenue Service data released today shows that tax enforcement has fallen steadily under President Bush, with fewer audits, fewer penalties, fewer prosecutions and virtually no effort to prosecute corporate tax crimes. The audit rate for the 11,200 largest corporations, which pay nearly all corporate income taxes, has fallen by almost half over the last decade, as has the audit rate for unincorporated businesses.

David Burnham, a director of the Syracuse University research organization that reviewed the government data, said that "President Bush and the I.R.S. commissioner have been running around talking about how they are going after corporate scofflaws, but the I.R.S. data suggest that the effort against corporate scofflaws is continuing to decline."

Today, the I.R.S. has about half the law enforcement resources for each tax return that it did in 1988, the Syracuse researchers said. The university's Transactional Records Access Clearinghouse will post the data at trac.syr.edu.

President Bush has maintained a hard-line stance on white-collar crime, which typically involves tax cheating. In September 2002, he said that his administration was sending "a clear message to every dishonest corporate leader: you will be exposed and you will be punished."

A few weeks ago, he said his administration had responded strongly to corporate crimes, saying "we're not going to tolerate dishonesty in the boardrooms of America."

The I.R.S. data reviewed at Syracuse showed that in the 15-month period that ended on Dec. 31, 2003, convictions had been obtained against six corporate officers in five cases in which the I.R.S. was the lead investigative agency. That was barely more than one-half of 1 percent of such cases, indicating that the law enforcement focus remains on individuals.

Separate data from the Justice Department show a long trend down in federal tax prosecutions. The department, citing United States court records, says that total federal tax prosecutions declined to 483 in 2003 from 1,431 in 1981.

Rod J. Rosenstein, a deputy assistant attorney general who supervises tax prosecutions, said that in 2003, the number of investigations and the filing of criminal tax charges both increased for the first time in years. "It often takes two years or more for a criminal tax defendant to be convicted and sentenced, so the increase in new cases is not yet reflected in completed prosecutions," he said.

Mark W. Everson, who became tax commissioner last May, said that changes he had made to increase enforcement would not show up until statistics for the current year become available next spring. He also said that the increase would happen only if Congress fully funds the I.R.S. in fiscal 2005.

Congress typically appropriates slightly less money than the president seeks, which has not been enough to keep up with the growing number of taxpayers and the increasing complexity and procedural rules of the tax system, resulting in a sharp decline in enforcement - especially against corporations and wealthy individuals, whose returns are more difficult and expensive to audit.

Mr. Everson said that while he had no dispute with the data, "I disagree with the characterization" of the Bush administration as having allowed tax law enforcement to slide.

"Am I overall satisfied?" Mr. Everson asked. "No. I am not satisfied with the enforcement numbers. We do need to do more and that is particularly why we have asked for a large enforcement" budget increase for fiscal 2005.

The increase Mr. Bush requested is 4.8 percent, all of which may end up going to incremental costs for the existing I.R.S. staff. The I.R.S. Oversight Board, a panel of business experts Congress created to monitor the agency, wants an increase of more than double that amount, warning that enforcement will otherwise continue to dwindle to the detriment of honest taxpayers.

Mr. Everson said that when he took charge, "I reversed the standing operating instruction, which was when you have a funding shortfall you take it against enforcement." He said audit figures should now start rising, though corporate audits would likely be the last to show improvement because of the time it takes to examine the tax returns of the largest corporations.

He also noted a change in tactics at the Justice Department, which has been obtaining civil injunctions against people who deny the legitimacy of the tax laws and promote tax evasion. Judges have ordered the arrests of more than a half-dozen business owners who have not complied with civil orders to file returns and pay taxes, including Walter Thompson, the former owner of Cencal Aviation Products in Lake Shasta, Calif. Mr. Thompson, known as Al, is a leader in a movement that claims the tax laws are a trick. He stopped paying personal income tax in 1999 and stopped withholding income tax from his employees' paychecks a year later.

Civil actions are far less costly than criminal prosecutions. In addition, the civil orders can be used against those the Justice Department does prosecute to show that they were on notice that taxes are mandatory, not voluntary.

Mr. Burnham said he was skeptical that any increase in tax law enforcement would occur this year or next. If reports by the General Accounting Office, the investigative arm of Congress, and by the I.R.S. oversight board are correct, he said, "the administration has not asked for sufficient money and staff, so law enforcement will continue to decline."

Mr. Burnham also expressed doubt that the I.R.S. could do more law enforcement with the same or fewer resources. He noted that data for the first four months of the current fiscal year, which began Oct. 1, show continuing declines in tax law enforcement.

Among the largest corporations, the 11,200 with more than $250 million of assets, the audit rate in fiscal 2003 was 29 percent, compared with 33.7 percent the year before and more than 50 percent before 1996. The overall audit rate for corporations of all sizes was 7.3 percent, down from 8.8 percent a year earlier and 29.7 percent in 1993.

The severe drop in audits of corporations raises questions about corporate income tax receipts, which have fallen to historically low levels when counted as a portion of the economy. In 2003, the receipts were a little more than 1 percent of the economy. From 1996 through 2000, no corporate taxes were paid by 60 percent of large corporations, according to a report two weeks ago by the General Accounting Office.

Audits of partnerships and other entities that are not themselves taxable, but whose profits are taxable to their owners, also slipped. The audit rate for fiscal 2003 was 32 for each thousand returns, down slightly from a rate of 33 the year before and 55 in 1993.

Among large taxpayers, only in audits of high-income individuals was there any increase in scrutiny of tax returns in fiscal 2003 and it was only a slight rise. Among people reporting more than $100,000 of income, the I.R.S. audited four returns of every thousand, up from 3.8 returns in fiscal 2002 but still less than one-half of 1 percent.

This tiny increase was more than offset by a slip in auditing returns of sole proprietorships, which file a Schedule C tax return, to 11 of every thousand returns, from 11.4 in 2002. Nina E. Olson, the I.R.S. taxpayer advocate, said in January that Schedule C businesses represent one of the best opportunities for tax cheats.

The data showing a continuing erosion of tax law enforcement come days after it was disclosed that the Bush administration rejected an I.R.S. request for an additional $12 million, a 50 percent increase, in its budget for investigating the financing of terrorist organizations like Al Qaeda and Hamas.

The White House declined requests to explain the rejection but noted that it did ask for a 16 percent increase in the $46.8 million overall federal spending this year to track terrorist finances.

The I.R.S. Oversight Board noted that President Bush's proposed budget for fiscal 2005 is "the fourth year in a row in which the administration has called for I.R.S. staff increases while not covering pay raises or required expenses."

http://www.nytimes.com/2004/04/12/business/12irs.html