Wednesday, August 25, 2004

Some questions in the comments I may as well answer.

Q. What do you think about people you meet during on-campus interviews who tell you that they want to litigate when you damn well [know?] that the only reason why they are saying that is because firms are not hiring as many transactional attorneys?

A. Who says firms aren't hiring as many transactional attorneys? But more importantly who says we care what the students say? They have no idea, and we can manipulate it however we need to over the summer. Need more associates who want to do litigation? Well then all of a sudden all the litigation assignments we give out are going to be as good as it gets ("want to go to court?") and all the transactional assignments are going to be as dull as we can make them ("Here's a stack of documents. I think there are some typos. Find them!"). Suddenly, surprise surprise, they all want to be litigators. And it works in the reverse too. Want to do some document review? Or sit in on a negotiation? Your choice! Like it matters what they think they want to do. Come on.

Q. What do you think about law students that tell you: "I want to be a corporate/securities/M&A lawyers" when you know perfectly well that they have absolutely no idea what any of those areas entails" (lawschool seeming to focus solely on the analysis of appeals cases).

A. First I tell them to learn some English grammar, and that we like to try for singular/plural agreement in our documents. Again, I don't care what they say, although they get bonus points for convincing me they do at least think they have some idea of what they want to do and can sell me on it. We know they don't know what securities lawyers do. We know that first week of the summer when we tell them all about the '40 Act group and then ask who wants some assignments from them and everyone runs for cover.

Q. Does the secretary pay for the candy or does the firm shell out for it?

A. I assume she pays, but if she submits a receipt it's not like anyone even looks at them. She'd get reimbursed. Hell, I get reimbursed for a new piece of office furniture every year and I just take the old ones home.

I hope the partnership accounts reflect the fact that you appropriate furniture, otherwise you're evading tax.
Everyone dodges taxes. Especially American corporations. A chair compared to the millions that any given business fails to pay in taxes to the IRS? Priceless. Wasn't it like 60% of for-profit corporations in America pay absolutely NO taxes?
67% of all statistics are made up on the spot
>Wasn't it like 60% of for-profit corporations in
>America pay absolutely NO taxes?

I doubt it, but there are a considerable number of American corporations which don't make any money, so why would you expect them to pay any taxes?

If you look at the 2003 Fortune 15, the arithmetic, geometric, and harmonic means of their income tax rates were 29.23%, 28.91%, and 25.49%, respectively. The high figure was 45% (Conoco Phillips), and the low figure was 9.9% (Ford). The reason Ford's taxes were so low is because they were barely profitable in FY03. They posted the fourth highest revenue of any American corporation in that financial year, but only managed a pre-tax income of $1.4B.

I'm not sure if the problem is that there are too many tax breaks for corporate entities, or that few people are capable of creating a successful business today.
Why are so many lawyers so passive aggressive?
Are you being deliberately dense CIS?

Companies do not make a profit in order to avoid paying taxes. Creative accounting, accrued tax losses, tax qualifying amalgamations, acquisition of assets at inflated values and then depreciated like hell ... these are the tricks of the trade.

In terms of income (ie EBITDA) 1.4 billion is a lot of money.
Large Firms Dodged Federal Taxes From 1996-2000 As Profits Soared

By JOHN D. MCKINNON, Wall Street Journal

WASHINGTON - More than 60% of U.S. corporations didn't pay any federal taxes for 1996 through 2000, years when the economy boomed and corporate profits soared, the investigative arm of Congress reported.

The disclosures from the General Accounting Office are certain to fuel the debate over corporate tax payments in the presidential campaign. Corporate tax receipts have shrunk markedly as a share of overall federal revenue in recent years, and were particularly depressed when the economy soured. By 2003, they had fallen to just 7.4% of overall federal receipts, the lowest rate since 1983, and the second-lowest rate since 1934, federal budget officials say.

The GAO analysis of Internal Revenue Service data comes as tax avoidance by both U.S. and foreign companies also is drawing increased scrutiny from the IRS and Congress. But more so than similar previous reports, the analysis suggests that dodging taxes, both legally and otherwise, has become deeply rooted in U.S. corporate culture. The analysis found that even more foreign-owned companies doing business in the U.S. -- about 70% of them -- reported that they didn't owe any U.S. federal taxes during the late 1990s.

"Too many corporations are finagling ways to dodge paying Uncle Sam, despite the benefits they receive from this country," said Sen. Carl Levin (D., Mich.), who requested the study along with Sen. Byron Dorgan (D., N.D.). "Thwarting corporate tax dodgers will take tax reform and stronger enforcement." A 1999 GAO study on corporate tax payments reached similar results.

The latest report has given new ammunition to the campaign of Democratic presidential challenger Sen. John Kerry, who has criticized President Bush for failing to crack down on corporate tax dodgers. Mr. Kerry wants to end corporations' ability to park their overseas earnings in tax havens, in order to discourage outsourcing; in return, he is proposing a lower U.S. corporate tax rate.

A spokeswoman said that Mr. Kerry "wants to make America more fair, so that average Americans don't have to pick up the tab for corporate-America profits."

Tomorrow, Mr. Kerry is expected to outline his ideas for reducing the budget deficit. Yesterday, he criticized Mr. Bush for dropping a budget rule, used in prior administrations, mandating that any new tax breaks be paid for by revenue or spending cuts elsewhere in the budget.

To be sure, Mr. Kerry has supported some of the most recent big corporate breaks, such as those contained in a 2002 economic stimulus bill. And the latest GAO report focused on tax avoidance that took place entirely during the Clinton years.

A spokesman for the Bush campaign said Mr. Kerry's own campaign has acknowledged its plan wouldn't stop outsourcing. "Sen. Kerry has a habit of putting forth political statements that wouldn't achieve the policy goals that he says they would," Bush spokesman Scott Stanzel said.

An IRS spokesman noted that the agency recently has stepped up enforcement activity for business taxpayers. The Bush administration's 2005 budget request includes a 10% increase for IRS enforcement, mostly to go after more corporations.

The GAO report also may further fuel a drive in Congress to crack down on a variety of corporate tax-dodging strategies, such as a recently discovered leasing maneuver that allows companies to buy up depreciation rights to public transit lines, highways and water systems. Senate tax-committee leaders have released a list of companies involved that includes a number of well-known financial firms, such as First Union Commercial Corp., a unit of Wachovia Corp. Wachovia has defended its involvement, saying the transactions are legal.

The new report also could spur further IRS action against tax-shelter peddlers and their customers. The IRS is closely examining tax-shelter deals sold by accounting firms such as KPMG LLP, for example. That firm recently experienced a management shake-up in response to the inquiry.

Conservatives depicted the GAO report as an argument for tax-code overhaul for both corporations and individuals. Dan Mitchell, a fellow at the Heritage Foundation, a conservative think tank, also noted in corporations' defense that they have an obligation to shareholders to pay as little tax as they legally can.

The report examined a sample of tax information for the years 1996 through 2000; for 2000, it covered about 2.1 million returns filed by U.S.-controlled corporations and 69,000 filed by foreign-controlled corporations. It showed that big companies -- defined as those with at least $250 million in assets or $50 million in gross receipts -- were more likely to pay taxes than smaller ones. Still, the GAO said 45.3% of large U.S.-controlled companies and 37.5% of large foreign-controlled companies had no tax liability in 2000. More than 35% paid less than 5% of their income.

The basic federal corporate-tax rate for big corporations is 35%. But the federal tax code also offers many credits and loopholes that allow many companies to pay far less than that.

Despite the rising rate of tax avoidance among corporations, collections from the federal corporate income tax rose to more than $200 billion in 2000, from $171 billion in 1996. But over the next three years they fell each year, reaching $131.8 billion in 2003 -- the lowest annual total since 1993. They are projected to reach $168.7 billion this year.

(Rob Wells contributed to this article)
Re: Anonymous @ 7:29 PM -

>Companies do not make a profit in order to avoid
>paying taxes.

I haven't a clue as to what you're talking about. Someone brought forth a figure of 60% regarding the number of American companies which don't pay any taxes, and I find this hard to believe. I then put forth statistics pertaining to the Fortune 15, and that these profitably companies are all paying a significant amount of their income in the form of corporate income tax.

>In terms of income (ie EBITDA) 1.4 billion is a lot of

Except it's lower than that of any other Fortune 15 company by a factor of 2. The company with the second-lowest pre-tax income on that list was HP ($2 888B), except they're still busy dealing with company restructuring due to the acquisition of Compaq in 2002. HP also managed that profit on less than one-half the revenue of Ford.

'Cis, you are so stupid. HP and Ford are in two completely different markets. It is idiotic to compare their revenues and profit margins.'

Ok, we will compare Ford to General Motors. GM managed more than 2.5x the pre-tax income of Ford on only 19% higher revenue.

Conclusion: Ford sucks.
Wouldn't that be anonymous number three? Counting is fun,

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