Corporate Cayman Islands tax shelters rip off U.S. taxpayers

*”Corporations are people, my friend.”
–Mitt Romney, August 11, 2011

Statistic of the day: A single five-story office building is the registered address of more than 18,000 companies.

How is that possible? Well, the building is in the tax haven of the Cayman Islands, and most of those businesses are registered there only for tax purposes.

As Citizens for Tax Justice and the U.S. Public Interest Research Group Education Fund explained in a report earlier this year, more than 70% of the Fortune 500 had subsidiaries in tax havens in 2013. The report estimates that multinationals are using these subsidiaries to avoid approximately $90 billion in federal income taxes annually.

US companies reported $129 billion in earnings in the Cayman Islands, Bermuda, and the British Virgin Islands in 2010. “Assuming you believe those figures, the productivity of workers in those countries is amazing,” Floyd Norris, his tongue almost bursting out of his cheek, wrote in The New York Times. “On average, United States companies had profits of $873,611 per person living in those islands.”

Such ridiculous numbers are merely a product of the process by which multinationals can–legally–reduce their U.S. taxes. Currently there is no significant movement on Capitol Hill to close any of the loopholes or change the laws that make these moves possible.

Why do taxpayers think the tax code is rigged in favor of large corporations? Maybe because it is.

IRS penalty on foreign account is more than total $$$ in the account!

Proof once again that the rule requiring U.S. taxpayers to report their foreign bank accounts is being used like a sledgehammer: The IRS has won a court case assessing a 150% penalty–that is not a typo–on the value of a Swiss bank account.

As Bloomberg reports, Coral Gables, Florida, resident Carl Zwerner, 87, was assessed a $2.24 million penalty on the approximately $1.5 million he held in an account with ABN Amro Group, NV.The penalty was for failing to file the Report of Foreign Bank and Financial Accounts. It’s worth noting that the penalty has nothing to do with Zwerner owing any tax on that money. Nope, the penalty is for the simple failure to file a form reporting the assets.

By the way, if you have foreign bank accounts subject to reporting, the deadline for electronically filing your 2013 FinCEN Form 114 (which replaces old friend Form TDF 90-22.1–isn’t this fun??) is June 30.

IRS abandons voters on campaign finance mess

Don’t look to the IRS for potential relief from a tsunami of political advertising during the 2014 off-year elections.

The Service announced in late May that it is pulling back proposed regulations on tax-exempt groups. That means that everyone from the billionaire Koch brothers to tree-hugging lefties will be able to fund ad campaigns through organizations that often aren’t required to disclose where their contributions come from. It also means the IRS probably will not be doing anything to challenge the tax-favored status of nonprofit “educational” groups until after the end of this year.

This is the one place where many people would like to see the IRS doing more, but nooooooo….

Rent or buy? With new boom, here’s a way to figure out what makes sense for you

The strengthening housing market–especially on the East and West Coasts—may be setting some buyers up for another fall.

As The New York Times reports , prices in locations like the San Francisco Bay area and New York City have bounced back so strongly from the lows of 2008-2010 that, for many people, renting now makes more financial sense than buying. “In the country’s most expensive places . . . buying a home again looks like a perilous investment, based on the relationship between prices and rents or incomes,” the Times said.

Of course, buying a home isn’t just a straightforward dollars-and-cents calculation. When I consult with clients on this issue, we run the numbers, but we also spend time talking about the emotional issues of being tied to a piece of property, how long the clients want or expect to live in the same place, their ages, and other factors that may not have dollar amounts directly attached but which are important nonetheless.

For the dollars-and-cents part of the equation, though, the Times’ article also has a link to an excellent calculator that lets you plug in a bunch of variables to figure out your own potential owner-vs.-renter costs.

Multinationals seek tax heavens, er, havens . . . oh, what’s the diff?

More and more U.S.-based corporations are growing wings and flying away from their U.S. tax obligations.

Bloomberg puts it as simply as possible: “U.S. companies looking for lower tax bills are heading for the exits, and Congress is doing nothing to stop them.”

The immediate impetus for the story was Pfizer’s proposed purchase of AstraZeneca, which would result in Pfizer reincorporating in Britain while tapping literally billions of dollars it has been holding outside the U.S., as The New York Times reported.

What’s the solution? Congress could grow a set and change the tax laws so that there is a crackdown on companies that use tax havens to keep profits outside of the U.S. system, as Steven Rattner suggests. Rattner also suggests in essence giving up on taxing corporations and instead increasing taxes on profits at the shareholder level, which would effectively increase the taxes paid by the wealthiest Americans.

I don’t know what the solution is, but when you consider that the effective federal tax rate paid by corporations has dropped from more than 40% in the 1950s to about 15% today, it seems clear that something has to change.