Abusive tax shelter still alive for the ultra-rich

This past week an interesting Appeals decision from a Tax Court case in the 9th Circuit was published in an older tax matter of Altera Corporation and Subsidiaries vs. IRS. I must immediately qualify the use of the word “interesting”. By any common usage this is not an interesting topic. This is a tax shelter case lacking any type of business purpose other that the possibility of allowing the top executives of big powerful companies to avoid paying federal income taxes. The core issue in the case combines the use of intellectual property sale/leaseback, tax haven nations, stock based compensation, and allocation of expense among divisions of a multi-national corporation. The transaction defies any type of business purpose or other redeeming characteristics except that it saves the ultra-rich in companies like Alphabet and Amazon million and eventually billions of dollars and provides employment to lots of high-priced tax attorneys. I think that’s all that most of us care or need to know about the case.

The two things that the small business and self-employed readers of this blog might find interesting are:

  1. Despite all the tax shelter crackdown talk in recent years, schemes like this Cayman Island scheme are alive and well. The lesson: IRS has not cracked the shelters of the richest and most powerful.
  2. The legal decisions are very close. This one reversed a tax court decision by a 2-1 vote in Appeals Court. It may still be argued before a full panel court. The lesson: we do not yet have clarity on where we,  as a nation, are headed on these types of abusive (my word, not the court’s) tax shelters.

This new case decision is getting lots of attention from main stream media tax writers, in addition to the professional publications by writers who want to show their command of intellectual prowess over complex tax law minutiae. I saw coverage in The Wall Street Journal, Forbes and Accounting Today in much less complex framework. I think all of the coverage is missing the main point.

I feel like saying “come on guys, this just isn’t where we want to be” and just move on right now.


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