Thursday, January 23, 2020

NYT Article on Perhaps Biggest Tax Heist Ever (1/24/20)

The NYT has this article:  David Segal, It May Be the Biggest Tax Heist Ever. And Europe Wants Justice (NYT 1/23/20), here.  I haven't yet figured out how the scam works, but it is a cum-ex deal.  The article says cryptically:
Through careful timing, and the coordination of a dozen different transactions, cum-ex trades produced two refunds for dividend tax paid on one basket of stocks. 
One basket of stocks. Abracadabra. Two refunds.
Another quote:
Before it all unraveled, the cum-ex ecosystem of lawyers, advisers and auditors enjoyed heady days. Last year, the lawyer who testified anonymously at the Bonn trial described the culture of the cum-ex world to Oliver Schröm and Christian Salewski, two reporters on the German television show “Panorama,” under disguising makeup. It was a realm beyond morality, he said: all male, supremely arrogant, and guided by the conviction that the German state is an enemy and German taxpayers are suckers.
And another quote:
American bankers didn’t try cum-ex at home because they feared domestic regulators. So they moved operations to London and treated the rest of Europe as an anything-goes frontier. Frank Tibo, a former chief tax officer at a bank where Mr. Shields and Mr. Mora worked, said American and British cum-ex traders regarded the Continent as a backwater of old economies ripe for swindling.
The article says that the traders were reluctant to pull the scam in the U.S., so did so in Europe.  One of the larger scammers is reported to tell his cohorts queasy about the scam:
“Whoever has a problem with the fact that because of our work there are fewer kindergartens being built,” Dr. Berger reportedly said, “here’s the door.”
As I read the article, I kept thinking about the Son-of-Boss bullshit tax shelters where lawyers, major law firms, accountants, major accounting firms, brokers, brokerage firms, financial and math gurus and others came together to create and implement raids on the U.S. Treasury.

JAT Comment:

1. A less aggressive scam of (I think) a similar nature was done and approved in Compaq Computer Corp. v. Commissioner, 277 F.3d 778 (5th Cir. 2002), here, reversing 113 T.C. 214 (1999).  Edith Jones, once on the Supreme Court shortlist wrote that opinion.  In my mind it is one of the worst opinions ever written.  Well, I should qualify that.  Frank Lyon Co. v. United States, 435 U.S. 561 (1978), here (well even saying Frank Lyon was the worst, some other Supreme Court tax cases are equally bad).

2.  If I figure out how "Cum-Ex" works, I may come back with an explanation.  But it may be above my pay grade.  Even so, as the Tax Court is fond of saying for bullshit tax shelters--the claimed tax benefits are too good to be true.

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