Tax Me If You Can (full documentary) | FRONTLINE
FRONTLINE PBS | Official・42 minutes read
Tax shelters in corporate America exploit loopholes to evade taxes, creating a significant tax gap of $250-300 billion annually and lowering corporate tax rates to as low as 6%. Major companies use deceptive practices like creating phantom losses to manipulate profits, while the IRS struggles to combat these schemes due to resource shortages and a lack of regulatory oversight.
Insights
- Tax shelters in corporate America lead to a $250-300 billion annual tax gap, with companies exploiting loopholes to significantly reduce tax rates, manipulating profits to impress shareholders and the IRS, and relying on tax professionals to create and sell these schemes.
- KPMG, a prominent accounting firm, engaged in deceptive tax shelter practices, selling schemes to wealthy individuals like Dale Earnhardt and William Simon, prioritizing profits over integrity, avoiding registration of shelters for secrecy, and facing legal challenges and internal turmoil as a result of aggressive sales tactics.
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Recent questions
What are tax shelters?
Tax shelters involve creating phantom losses to lower tax liabilities, impressing Wall Street with artificially reduced profits. Companies keep two sets of books, reporting higher profits to shareholders and lower profits to the IRS to minimize taxes. Tax professionals, accounting firms, and law firms play a crucial role in creating and selling tax shelters.
How do major corporations reduce tax rates?
Major corporations exploit tax loopholes and shelters to reduce their tax rates significantly, sometimes down to 6%. They use tax tricks to reduce their tax burden, leaving honest taxpayers to pick up the tab. Corporate tax rates have significantly declined due to loopholes and shelters, with companies paying less than half of what they should.
What challenges did the IRS face in combating tax shelters?
The IRS was understaffed and overwhelmed in combating tax shelters, unable to keep up with the sophisticated schemes. Efforts to tackle the tax shelter problem were hindered by the IRS's lack of resources and inability to spot fraudulent transactions effectively. The IRS faced challenges tracking leasing business activities.
What was KPMG's involvement in tax shelter schemes?
KPMG, a top accounting firm, devised tax schemes involving basis shifting to create artificial losses to offset real gains. They sold tax shelters to over 160 wealthy individuals, prioritizing profits over integrity. KPMG avoided registering tax shelters to maintain secrecy and maximize profits.
What actions were taken against tax shelter promoters?
Republican Charles Grassley of Iowa led the Senate to pass a bill with an economic substance Rule and harsher penalties for tax shelter promoters. Despite opposition from powerful firms, calls for Congress to outlaw tax shelters entirely and for the administration to take action against those involved persist. Tax shelter reform remains stalled in the House Ways and Means Committee.
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Summary
00:00
Corporate Tax Shelters: A Hidden Profit Scheme
- Tax shelter business is a hidden profit center in corporate America, involving sham transactions to avoid paying taxes.
- Companies use tax tricks to reduce their tax burden, leaving honest taxpayers to pick up the tab.
- Tax shelters are a significant source of the tax gap, amounting to around $250-300 billion annually.
- Major corporations exploit tax loopholes and shelters to reduce their tax rates significantly, sometimes down to 6%.
- Tax shelters involve creating phantom losses to lower tax liabilities, impressing Wall Street with artificially reduced profits.
- Companies keep two sets of books, reporting higher profits to shareholders and lower profits to the IRS to minimize taxes.
- Tax professionals, accounting firms, and law firms play a crucial role in creating and selling tax shelters.
- Corporate tax rates have significantly declined due to loopholes and shelters, with companies paying less than half of what they should.
- The IRS was understaffed and overwhelmed in combating tax shelters, unable to keep up with the sophisticated schemes.
- Efforts to tackle the tax shelter problem were hindered by the IRS's lack of resources and inability to spot fraudulent transactions effectively.
17:50
Tax Audits Uncover Corporate Leasing Schemes
- Fortune 100 companies deal with extensive paperwork, even under continuous audit.
- Corporate tax managers do not typically uncover tax shelters.
- The IRS faced challenges tracking leasing business activities.
- Carrie Allen, a senior tax auditor, played a crucial role in uncovering leasing deals.
- Leasing activities showed a significant increase, indicating potential tax breaks.
- Leasing transactions could reach up to $100 million, $500 million, or even billions.
- The IRS banned over two dozen types of tax shelters, including lilos.
- KPMG, a top accounting firm, devised a tax scheme for entrepreneur Joe Jacoboni.
- Jacoboni invested $2.4 million in a tax scheme to eliminate capital gains tax.
- KPMG's tax scheme involved basis shifting, creating artificial losses to offset real gains.
34:00
KPMG's Unethical Tax Shelter Sales Tactics
- KPMG was informed to halt the sale of a program due to its ineffectiveness, prioritizing profits over integrity.
- KPMG sold tax shelters to over 160 wealthy individuals, including Dale Earnhardt and William Simon.
- Tax lawyer Mike Hammersley observed KPMG's aggressive and deceptive tax shelter practices.
- KPMG's top priority was selling tax shelters, leading to a significant increase in revenue.
- KPMG avoided registering tax shelters to maintain secrecy and maximize profits.
- KPMG's fees were based on the tax savings generated for clients, incentivizing aggressive tax shelter sales.
- Senate investigations revealed KPMG's involvement in tax avoidance schemes, prompting scrutiny.
- KPMG's telemarketing tactics and aggressive sales strategies were condemned.
- KPMG's high command, led by Jeff Stein, pushed for proactive tax shelter sales.
- KPMG faced legal challenges and internal turmoil due to unethical tax shelter practices.
51:20
Grassley pushes tax shelter reform in Senate.
- Republican Charles Grassley of Iowa led the Senate to pass a bill with an economic substance Rule and harsher penalties for tax shelter promoters, despite opposition from powerful accounting, legal, and investment firms; however, tax shelter reform remains stalled in the House Ways and Means Committee, with calls for Congress to outlaw tax shelters entirely and for the administration to take action against those involved.
