Tax Shelter Madness – More Free Speech

Am I the only one bothered by this?

The Justice Department accused KPMG LLP of improperly withholding documents from the Internal Revenue Service to hide tax-sheltering activity, signaling the government’s increasing frustration with what it considers delaying tactics by the large accounting firm.

KPMG’s actions “demonstrate a concerted pattern of obstruction and non-compliance, threatening the integrity of the IRS examination process,” the Justice Department said in documents filed Monday in federal court in Washington, D.C., on behalf of the IRS. The filings stem from a civil investigation by the IRS into whether KPMG is liable for penalties as a promoter of potentially abusive tax shelters.

Do you see what’s going on here? The IRS is prosecuting tax advisors for giving advice. Let’s think about this. Congress writes thousands and thousands of pages of tax law, most of which even they would be unable to decipher. Corporations, in the business of doing whatever it is that they do, and wealthy individuals, who choose to spend their lives doing something other than studying the tax code, rely on tax advisors to help them navigate their way through the mess that congress has created.

So what does the tax advisor do? The advisor looks at the code from both an accounting and a legal sense. The accountant looks for financial instruments that seem to fit within the code, and the lawyer determines based on past case law and current judicial temperament whether or not the maneuver would stand up in court. Based on these analyses and a little bit of guesswork, the advisors make their recommendations.

Now observe what’s happening here. The IRS is upset that they’re losing tax revenue. But instead of challenging the financial maneuver in court, they seek to silence the advisor who told them how to do it. Normally, if the IRS wanted to challenge a maneuver or tax shelter, they’d challenge it directly in court, and if they won, then tax advisors would cease recommending the practice, and indeed may be sued for malpractice, as KPMG indeed is. That I’m fine with. But for the IRS to investigate whether, “KPMG is liable for penalties as a promoter of potentially abusive tax shelters” seems to me to be trampling on free speech by intimidating tax advisors into not giving aggressive advice. That’s where my problem lies.

It goes even deeper than free speech. It touches on the utter incomprehensibility of the law. And if the law is simultaneously so incomprehensible and immune to clarification in court by aggressive legal advisors, then the law can in essence mean whatever the damned hell the IRS wants it to mean. And THAT’S where it gets really scary. Out with the rule of law, in with a government of men.

In any event, you can read the whole thing here.


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