Tax Roundup, 9/14/2012: Jenkens partner pleads guilty ahead of re-trial. And a David Cay Johnston – Tax Policy Blog cage match!

September 14th, 2012 by Joe Kristan

After winning a new trial, Jenkens partner pleads guilty in tax shelter case, one of the Jenkens & Gilchrist attorneys accused of crimes in connection with the tax shelter frenzy of the late ’90s and early ’00s gave up the fight yesterday.  The Wall Street Journal reports:

Donna M. Guerin, 52 years old, admitted she wrote false opinion letters designed to justify complex financial transactions that reduced the potential taxes to be paid by the firm’s clients. The overall scheme created more than $400 million in false tax losses, she said.

“I knew in my heart then, and I acknowledge to Your Honor today, many of our clients were only interested in reducing their tax liabilities,” Ms. Guerin said.

At a hearing in Manhattan federal court on Thursday, Ms. Guerin pleaded guilty to conspiracy to defraud the U.S. and tax evasion. She faces up to five years in prison on each charge. Sentencing is set for Jan. 11.

Ms. Guerin had been convicted of the charges last year, but the verdict was thrown out because of a juror’s misconduct, and a new trial was set.  Two of her partners still face charges, including the prosecutor’s biggest target, Paul Daugerdas, who was the mastermind of tax shelters that created hundreds of millions of dollars of tax losses.  Many of these shelters failed in court.

The TaxProf has a roundup.


How good is your state’s credit rating (Tax Policy Blog)

Anthony Nitti,  Can An S Corporation Make Disproportionate Distributions?

This is a commonly misunderstood area of tax law. In short, S corporations have more flexibility than you realize to make distributions that are not perfectly pro-rata to its shareholders. That being said, I wouldn’t tempt fate.

S corporations can only have one class of stock, which means that all distributions must be equal among shares (though differences in voting rights are allowed).  The hair-trigger proposed rules that would have terminated S elections for trivial  violations of the one-class-of-stock rule were never enacted, thank goodness.  But disproportionate distributions should be avoided, and if they happen, they should be corrected with make-up distributions or reimbursements.


Howard Gleckman,  Who Pays the Corporate Income Tax? (TaxVox).  Mr. Gleckman is with the Tax Policy Center, an influential center-left think tank.  Their conclusion is important:

The bottom line: For the first time, TPC assumes that workers bear some of the corporate tax burden.

In newly-published assumptions, TPC figures 20 percent of the corporate income tax is borne by labor and 80 percent by capital. TPC further refines the capital share by dividing it into two chunks.  Twenty percent of the levy is reflected in normal returns (essentially, equal to the return from low-risk bonds) and 60 percent in any additional returns received by shareholders.

The revision, similar to adjustments made recently by the Treasury Department and the Congressional Budget Office, will be important as TPC analyzes tax reform plans that reduce corporate rates.

That’s because, until now, TPC assumed investors ultimately paid the entire corporate tax in the form of lower returns to capital. Now, TPC concludes that labor also pays through lower wages. As a result, workers, as well as shareholders and other owners of capital, would benefit from any cut in the corporate tax. Similarly, both would take a hit if corporate taxes are hiked.

So corporations are people, too.  No, corporations don’t bleed, but corporations are ultimately voluntary organizations of cooperating individuals.  If you take money from a big evil corporation, you don’t hurt some insensate Balrog.  You hurt shareholders, retirement investors and employees.


Jim Maule,  Building It With Publicly-Funded Tax Breaks:

It amuses me to listen to the private sector claim that “we built it.” Surely the private sector has built things, but the public funding of sports arenas and other private enterprise facilities, such as warehouses, factories, and office buildings, makes it impossible to consider the private sector claim as anything other than, at best, a gross exaggeration, and at worst, a calculated lie.

When the well-connected pull strings to get government money to build stadiums, they are using the power of the state to take money from the rest of us for themselves.  That’s an argument agains the power of the state, and its bureaucrats and elected officials who facilitate the looting, not against the unsubsidized who get up early, stay late and grow their businesses without special favors.


Paul Neiffer,  Mistakes to Avoid In Lifetime Giving – Part 1

Trish McIntire,  Gift Tax

TaxProf,  NY Times: A Tax Tactic That’s Open to Question.  Shockingly, the Times has problems with Mitt Romney.

Kay Bell,  California shoppers, tax offices stocking up in advance of Amazon tax collection

They can be, but they don’t have to be.  Pennsylvania Supreme Court Finds H&R Block Customers Not Necessarily Gullible (Peter Reilly)


Cage Match!  In this corner with the neck beard, David Cay Johnston,  Which tax cuts stimulate the economy?:

Studies examining the impact of cutting personal income tax rates on job growth or economic activity generally have been inconclusive, said Will McBride, chief economist for the Tax Foundation.

 William McBride demurs in Journalists Too Quick to Conclude There is No Tradeoff between Taxes and Growth:

It is true there are a lot of studies that find only a weak statistical connection between personal income taxes and economic growth, including my own regression analysis of OECD countries.  However, in the same study which will be published shortly, I find a strong statistical connection between corporate income taxes and economic growth.   This is in line with other research, such as that by Gordon and Lee

Pass the popcorn.


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