IRS Shuts Down Tax Loophole, But Not Before It Saves IBM Over $1 Billion

from the just-in-time dept

The government may be slow footed with respect to most things, but it moves awfully fast anytime its tax revenue is threatened. This week, IBM announced that it had avoided paying $1.6 billion in income taxes by using a loophole that involved foreign subsidiaries buying up company stock and using it to pay executives. Following this announcement, the IRS needed only two days to announce that this loophole would henceforth be disallowed. Apparently, variations on this loophole have been in place for 45 years, and each time a company comes up with a new one, the IRS moves quickly to stamp it out, so there’s not much reason to think that this will never be done again in some form or another. The incident also serves to demonstrate the inherent regressiveness of a complex tax code, as large multinationals like IBM have the resources to continually discover new loopholes, while smaller firms (without armies of lawyers and accountants) have fewer ways of avoiding their obligations.

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Comments on “IRS Shuts Down Tax Loophole, But Not Before It Saves IBM Over $1 Billion”

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Anonymous Coward says:


Im all for big corporations paying of the governments debt. good thing they closed that loophole.

my logic is this. if they IRS dosn’t get there money from big things, then they turn to the little things (ME!) and suck the living life out of it till this isn’t enough money to buy a #2 pencil (to fill out next years tax return)

RH says:

Two Day??

Two days, to change law? Oh that’s right, its not the law, it regulation that has the effect of law. So I guess a “decision maker,” a lawyer, and a regulation writer is all that is required to “change the law.”

That said, in times past, the federal government derived its tax revenues from import taxes and corporations (once cooperations came into existence). For that reason (and a few others), the corporate structure was not nearly as popular as it now (individuals did not pay federal tax).


Joe Smith says:

False Premise

Like most discussions of loopholes the government starts from the premise that any money we might make belongs to them and any attempt to keep our money is a crime.

In this case, IBM made money offshore and presumably paid taxes in the jurisdiction where the profit was made. If IBM had transferred the money to the parent corporation in the US then it would have had to pay US taxes on it. Rather than do that the subsidiary decided that the best thing it could do for shareholders was to buy IBM shares.

If the subsidiary, for example, bought the shares directly from off shore holders the money never had to go through the United States. Hard to see why IBM would be expected to structure their deals in a way which unnecessarily increased their American taxes by unnecessarily transferring income to the United States.

g says:

Fair Tax is NOT Fair, and progandized names dont h

Clear Skies Act did not make our skies less free of soot, and No Child Left Behind did not ensure that no child was left behind in education.

Fair Tax proposal is NOT fair, and heres why so many major capitalists (like Forbes) want it:

Rich people dont spend most of their money in retail. They “invest” (different than buying things according to taxes) it into a wide variety of areas.

They make money on this, and are taxed on it, and don’t want to be. If they only had to pay taxes at retail, they would save on almost all their potentially taxable income, as it’s not being spent on retail items. Moving them even further out of the group that pays high percentages of their actual income in taxes.

People in lower economic standings do NOT invest their money, they spend almost all of it in retail settings or rent and services. An enormously higher percentage of their income is spent at retail.

Do the math on someone who makes a billion a year and buys 10 ferraris and lots of diamonds and other expensive crap on top of normal purchases, versus someone who makes $30K a year and buys normal purchases. The $30k a year guy pays a very significant amount of his yearly income at the retail level. The billion dollar a year guy spends maybe 0.5% of his income on retail.

Now, why do rich people want a retail based tax system instead of an income based tax system?

Look at who the rich supporters of this system are, and find out what they say when addressing OTHER rich people about the system, instead of what they say on sites dedicated to getting the working man and woman on their side.

Anonymous Coward says:

Re: Fair Tax is NOT Fair, and progandized names do

Your argument doesn’t make any sense. On the one hand you’re saying that rich people don’t spend money, but on the other hand you’re saying they buy a ton of stuff.

But let’s pretend for a second that what you said is true. Let’s say that they don’t spend money but instead invest it. How is that a bad thing? That means they are investing their money to built your houses, cars, computers, and a load of other stuff. It’s investors who fund the corporations that supply us with every thing we use.

Jack says:

inventing loopholes?

1) Companies (nor individuals) “come up” with loopholes.
2) Complex tax legislation begets complex tax loopholes.
3) Complex systems of any kind beget complex unintended consequences. (Ever maintained complex software?)
4) Just like in IT, the best course is to simplify, simplify, simplify.

reed says:

Re: inventing loopholes?

Let me get this straight, IBM gets out of paying 1.6 billion dollars in taxes using a “loophole” but if I forget to pay the two thousand dollars I owe the IRS they will screw me up against the wall real slow like.

Sounds like a fair and equitable system if I ever heard of one. God bless our form of capitalism where those who have the most keep it all and everyone else loses their shirt of their back.

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