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Wednesday, September 20, 2006
Giving Credit Where Credit is Due: IRS
We've been posting recently about some of the bizarre and downright ridiculous things going on over at the Internal Revenue Service lately concerning enforcement of the country's tax laws (see this recent analysis for more background).
While these policy changes certainly deserve criticism, you have to tip your hat when things go right. Within two days last week, the IRS announced the two largest tax settlements in the agencies' history (one individual and one corporate) related to tax evasion.
In the individual case, the IRS settled its case against former telecommunications entrepreneur Walter Anderson. Apparently Anderson failed to pay over $200 million in taxes and did not report $365 million in income in 1998 and 1999. He further attempted to hide over $450 million in income from 1995 through 1999 in offshore companies and accounts. (hat tip: CAP BudgetBlog).
In the corporate case, the IRS settled its 16-year suit against British drugmaker GlaxoSmithKline in a "transfer pricing" scam where the company underreported its profits in the United States since 1989. From a Washington Post article:
At issue was one of the thorniest concerns facing tax collectors -- how multinational corporations apportion profits and expenses among units in different countries. The IRS has said that companies often manipulate cross-border transactions to minimize taxes...
...The IRS had alleged that Glaxo's parent company, GlaxoSmithKline PLC, based in Britain, had allotted too little of its profits from worldwide drug sales to its U.S. subsidiary. Determining the proper split in what are known as "transfer pricing" cases can involve apportioning such intangible items as the value of trademarks and brand names.
The company agreed to pay an unbelievable $3.4 billion to the IRS to settle the case - causing many private analysts and observers to conclude they were in very deep trouble. But no worries Glaxo stockholders - because they case dragged out so long, the company was able to build in the cost of the settlement over time and the payment will not have "any significant impact" on the company's earnings. Company shares rose 17 cents to $55.25 the day the settlement was announced.
Only $341.4 billion per year to go IRS, and the tax gap is closed. Keep it up!
Posted by Adam Hughes
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