Thursday, March 28, 2013

More thoughts on Lawyer's Behavior -- Ethics and Criminality (3/28/13)

I have recently posted two blogs on Ethics -- (1) Random thoughts on Ethics, Tax Opinions and A Tax Lawyer’s Life at a Big Law Firm (3/27/13), here, written by a guest blogger and (2) Ethicist Question About Tax Professionals Exploiting Loopholes (3/24/13), here, referring to an NYT Ethicist question.

I thought I would point readers to another blog, by Christopher Bergin of Tax Notes, The Legend of Rusty Pipes (3/7/13), here.  His blog was written in response to the recent announcements of E&Y's deferred prosecution agreement and a tax shelter lawyer's sentencing. See E&Y Admits Wrongdoing on Bullshit Tax Shelters; Will Pay $123 Million (3/1/13), here, and USA SDNY Announces Sentencing of Daugerdas Related Defendant (3/23/13), here.

Some excerpts from Mr. Bergin's article to whet your appetite to read his full blog:

Referring to the tax shelter abuses in the 1990s:
For me, the most disturbing fact of those days was the involvement of lawyers in the tax shelter scandal. Please don’t misunderstand me. It’s a good tax lawyer’s job to legally minimize what a client pays in taxes. I also believe lawyers are the stewards of the tax code and should protect it. Lawyers need to know where the line is and not to cross it. In the 90s, there were good lawyers at good law firms who forgot that. The rallying cry was “we are just taking care of our clients.” The truth was that some lawyers were simply taking care of themselves. One was actually famously quoted as saying, “It’s a question of sleeping or eating, and I’d rather eat.” 
Today, there is a whole new generation of tax lawyers. They should learn the lesson of the 90s. And not learn it the hard way.
Quoting some of his comments in an article from the early 1990s:
You may have heard this one, but I’m trying to illustrate a point. A guy walks into a crowded bar, stumbles over to the bartender, orders a drink, and turns to the crowd and shouts, “All lawyers are jerks!” (When retelling the story, “jerks” can be substituted with something stronger.) Way in the back of the room another guy stands up and says, “I resent that!” The first guy looks at him and says, “What are you, a lawyer?” The second guy says, “No, I’m a jerk.”
I also point readers to Mr. Bergin's more recent offering, Pop (or Is That BEPS?) Goes the Weasel, 138 Tax Notes 1499 (Mar. 25, 2013), here.

Mr. Bergin makes the point I have sometimes made before.  Transfer pricing is the abusive tax shelter for U.S. multi-national corporations with the right profile.  So, here is Mr. Bergin's introduction (again to whet the appetite):
A few weeks ago I blogged on the Tax Analysts website about the corporate tax shelter scandals of the 1990s. I was moved to do so by two announcements: one regarding yet another accounting firm paying millions of dollars for its involvement in abusive corporate tax shelters, and the other about a tax lawyer sentenced to eight years in prison for her involvement in abusive corporate tax shelters. The sad fallout from the '90s continues. 
My point was simple: A whole new generation of tax lawyers should learn from what happened. I'm a lawyer, and I'm extremely proud of my profession. Most of my friends are lawyers, many of them tax lawyers. Watching a few tax professionals abuse a system they should have been guarding by designing and promoting shelter products for a few bucks (well, maybe more than a few) was deeply disturbing. I got no pleasure from covering what was happening and knowing that sooner or later, the clown would spring from the box. 
Despite the carnage, we won the shelter war, right? We did win the battle. The war? I'm not so sure. To stick with bad metaphors, maybe the '90s were the Dark Ages and we have now entered the Renaissance. Today, some can abuse the system and avoid paying about as much corporate tax as they want, and nobody will go to jail. That's because it's all legal. Just think of where we are. Abusive transfer pricing: legal. Abusive cost sharing: legal. Income stripping: legal. The cockamamie U.S. check-the-box rules: legal. Aren't these modern times just great? 
* * * * 
Take the art of transfer pricing. And it is art. Brilliant professionals work with huge multinational conglomerates to manipulate intragroup pricing to shift taxable income to low-tax jurisdictions while shifting deductions to high-tax jurisdictions. And the conglomerates and their advisers get a secret get-out-of-jail-free card, called an advance pricing agreement, courtesy of the government. What a brilliant scheme. (I use "scheme" advisedly because that word seems to offend some people.) 
To me, the APA is an obscenity in the tax code. What else would I think? I work for Tax Analysts. But seriously, what else would you call a multinational corporate taxpayer's ability to secretly set tax rates with the U.S. government? All you have to do is pay your lawyers, which is cheaper than paying your taxes. And it's all legal. At least we got the tax system back to where nobody gets hurt -- except for the chumps who actually pay their taxes. 
Perhaps a little hypberbole there, but not much.

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