Thursday, August 12, 2004
Edwards' S-Corporation Tax Shelter Revisited
A couple of weeks back I posted this story, arguing that slamming Edwards with the allegation that he was abusing a tax shelter was wrong. I argued to lay off Edwards on this score.
Turns out the Wall Street Journal was onto something, I was the premature one.
A Certified Public Accountant (and mother of a Screaming Eagle Soldier recently returned from Mosul) squares me away.
And yes, sure enough, her argument checks out. Turns out there's a whole cottage industry devoted to analyzing S-corporation payouts and keeping them within what the IRS would consider reasonable.
And that's the lynchpin here. Under the circumstances, would the IRS consider Edwards' 90-10 breakout between dividends and salary reasonable?
Prolly not. Other businesses have been bitchslapped by the IRS for doing just what Edwards did.
Any other CPA or tax law types want to weigh in, here?
Jason
Turns out the Wall Street Journal was onto something, I was the premature one.
A Certified Public Accountant (and mother of a Screaming Eagle Soldier recently returned from Mosul) squares me away.
I think you are wrong on the Edwards story. The S Corp was simply a scam to avoid paying the Medicare tax. He took $360,000 in salary out of ¼ of 26.9 million each year and that is not a reasonable figure considering that the entire amount was earned by his professional activities. The IRS routinely deconstructs such situations where the salary is not commensurate with the amount earned by professional services. A 50% ratio would have been better. As for a 401(k), the problem with a top heavy plan would have existed at a salary of $360,000. What he should have done is set up a defined benefit plan and put away over 100,000 each year. As for avoiding liability, you can only avoid liability for the actions of others- not your own professional negligence. Since he was the only employee- he effectively has no liability protection at all. Courts routinely pierce the corporate veil to get at the assets of the sole professional shareholder of an undercapitalized corporation.
It was a blatant attempt to cheat the social security system of its money. It was however not a tax shelter and not illegal. It was crass exploitation of a tax loophole and a typical rich democratic ploy- let the poor middle class salaried smucks pay my fair share...
there is an IRS history of unwinding large dividend payments in single person Sub S Corps. A singe person Sub S is usually a personal service type corporation. Since personal services (not sales of goods) are the source of the income, then the IRS gets really testy when small salaries are taken out of large personal service income. His net income was probably about 5 million plus per year. A salary of $300,000 is not reasonable under those circumstances. There is no hard percentage but less then 10% is not reasonable.
Perhaps scam is the wrong word but I think what he did was a contemptable use of a legal loophole which I do not beleive would stand up under an IRS audit as he went way to far beyond the intent of the law.
And yes, sure enough, her argument checks out. Turns out there's a whole cottage industry devoted to analyzing S-corporation payouts and keeping them within what the IRS would consider reasonable.
And that's the lynchpin here. Under the circumstances, would the IRS consider Edwards' 90-10 breakout between dividends and salary reasonable?
Prolly not. Other businesses have been bitchslapped by the IRS for doing just what Edwards did.
Any other CPA or tax law types want to weigh in, here?
Jason
Comments:
CNN.com
Retiring GOP congressman breaks ranks on Iraq
Nebraska's Bereuter calls war 'a mistake'
From Ted Barrett
CNN Washington Bureau
Thursday, August 19, 2004 Posted: 10:38 AM EDT (1438 GMT)
WASHINGTON (CNN) -- Breaking ranks with his party and reversing his earlier stance, a senior Republican lawmaker who is retiring said Wednesday the military strike against Iraq was "a mistake," and he blasted a "massive failure" of intelligence before the war.
The unexpected four-page statement came from Rep. Doug Bereuter of Nebraska, who until earlier this month was vice chairman of the House Intelligence Committee -- a panel that reviewed much of the evidence the Bush administration cited before going to war.
"I've reached the conclusion, retrospectively, now that the inadequate intelligence and faulty conclusions are being revealed, that all things being considered, it was a mistake to launch that military action, especially without a broad and engaged international coalition," Bereuter wrote in a four-page letter to his constituents.
"The cost in casualties is already large and growing, and the immediate and long-term financial costs are incredible."
Bereuter was particularly critical of the prewar intelligence, which described an arsenal of weapons of mass destruction in Iraq. But no such weapons have been found since the U.S.-led invasion in 2003.
Bereuter voted in support of an October 2002 resolution authorizing the use of force in Iraq, but he said that vote was based on what he had been told about the weapons threat from Iraq.
"Left unresolved for now is whether intelligence was intentionally misconstrued to justify military action," Bereuter said.
After 26 years on Capitol Hill, Bereuter is retiring next month, and he will become the president of Asia Foundation.
Congressional Republicans appeared surprised and angry at Bereuter's comments.
Rep. Ray LaHood, R-Illinois, a member of the intelligence panel, described Bereuter as "very bitter" for having been passed over in recent years to head the intelligence and international relations committees. He suggested Bereuter's comments were a parting shot to House GOP leaders and President Bush.
An aide denied Bereuter was motivated to write the letter because he didn't get the appointments.
Rep. James Gibbons, R-Nevada, who is also on the intelligence panel, said Bereuter's new conclusions are wrong.
"The facts don't change. Iraq was a dangerous place," Gibbons said. "Mr. Bereuter is entitled to his opinion."
Bush officials tried to downplay the congressman's statement.
"He is not an opinion maker or someone who has taken a leadership role. I don't think you can take this as a sign his comments are a barometer of other Republican thinking," one Bush political aide said.
Bereuter's critique of the administration on Iraq was sharp.
He said the administration was wrong to disband the Iraqi army -- because so many of its members joined forces with the insurgents -- and was wrong to rely on the Defense Department instead of the State Department to spearhead reconstruction and the interim government.
He also said the administration was wrong to ignore military leaders who warned many more troops would be needed in Iraq to maintain the postwar peace.
"Now we are immersed in a dangerous, costly mess and there is no easy and quick way to end our responsibilities in Iraq without creating bigger future problems in the region and, in general, in the Muslim world," Bereuter said.
Bereuter said it was important for the executive and legislative branches of government to learn from the "errors and failures" relating to the war in Iraq and its aftermath.
Some Democrats see Beureter's comments as a political plus in part because he argued the president should have gone to war in Iraq with a broader international coalition, as Sen. John Kerry, the Democratic presidential nominee, has said.
But Bush aides pointed out a key difference between the two that could benefit the president politically: Kerry, answering a direct challenge from Bush, said recently he does not regret voting to authorize war.
Bush officials said they are in constant contact with congressional Republicans. They said they want to to keep these lawmakers engaged in the president's campaign, and behind his argument that even knowing what he knows now, war in Iraq was the right thing to do.
CNN's Dana Bash contributed to this report.
Retiring GOP congressman breaks ranks on Iraq
Nebraska's Bereuter calls war 'a mistake'
From Ted Barrett
CNN Washington Bureau
Thursday, August 19, 2004 Posted: 10:38 AM EDT (1438 GMT)
WASHINGTON (CNN) -- Breaking ranks with his party and reversing his earlier stance, a senior Republican lawmaker who is retiring said Wednesday the military strike against Iraq was "a mistake," and he blasted a "massive failure" of intelligence before the war.
The unexpected four-page statement came from Rep. Doug Bereuter of Nebraska, who until earlier this month was vice chairman of the House Intelligence Committee -- a panel that reviewed much of the evidence the Bush administration cited before going to war.
"I've reached the conclusion, retrospectively, now that the inadequate intelligence and faulty conclusions are being revealed, that all things being considered, it was a mistake to launch that military action, especially without a broad and engaged international coalition," Bereuter wrote in a four-page letter to his constituents.
"The cost in casualties is already large and growing, and the immediate and long-term financial costs are incredible."
Bereuter was particularly critical of the prewar intelligence, which described an arsenal of weapons of mass destruction in Iraq. But no such weapons have been found since the U.S.-led invasion in 2003.
Bereuter voted in support of an October 2002 resolution authorizing the use of force in Iraq, but he said that vote was based on what he had been told about the weapons threat from Iraq.
"Left unresolved for now is whether intelligence was intentionally misconstrued to justify military action," Bereuter said.
After 26 years on Capitol Hill, Bereuter is retiring next month, and he will become the president of Asia Foundation.
Congressional Republicans appeared surprised and angry at Bereuter's comments.
Rep. Ray LaHood, R-Illinois, a member of the intelligence panel, described Bereuter as "very bitter" for having been passed over in recent years to head the intelligence and international relations committees. He suggested Bereuter's comments were a parting shot to House GOP leaders and President Bush.
An aide denied Bereuter was motivated to write the letter because he didn't get the appointments.
Rep. James Gibbons, R-Nevada, who is also on the intelligence panel, said Bereuter's new conclusions are wrong.
"The facts don't change. Iraq was a dangerous place," Gibbons said. "Mr. Bereuter is entitled to his opinion."
Bush officials tried to downplay the congressman's statement.
"He is not an opinion maker or someone who has taken a leadership role. I don't think you can take this as a sign his comments are a barometer of other Republican thinking," one Bush political aide said.
Bereuter's critique of the administration on Iraq was sharp.
He said the administration was wrong to disband the Iraqi army -- because so many of its members joined forces with the insurgents -- and was wrong to rely on the Defense Department instead of the State Department to spearhead reconstruction and the interim government.
He also said the administration was wrong to ignore military leaders who warned many more troops would be needed in Iraq to maintain the postwar peace.
"Now we are immersed in a dangerous, costly mess and there is no easy and quick way to end our responsibilities in Iraq without creating bigger future problems in the region and, in general, in the Muslim world," Bereuter said.
Bereuter said it was important for the executive and legislative branches of government to learn from the "errors and failures" relating to the war in Iraq and its aftermath.
Some Democrats see Beureter's comments as a political plus in part because he argued the president should have gone to war in Iraq with a broader international coalition, as Sen. John Kerry, the Democratic presidential nominee, has said.
But Bush aides pointed out a key difference between the two that could benefit the president politically: Kerry, answering a direct challenge from Bush, said recently he does not regret voting to authorize war.
Bush officials said they are in constant contact with congressional Republicans. They said they want to to keep these lawmakers engaged in the president's campaign, and behind his argument that even knowing what he knows now, war in Iraq was the right thing to do.
CNN's Dana Bash contributed to this report.
# posted by 
: 12:00 PM
: 12:00 PM
Jason,
You have got to be kidding me.
I don't know who is quoting who here :
"It was a blatant attempt to cheat the social security system of its money. It was however not a tax shelter and not illegal. It was crass exploitation of a tax loophole and a typical rich democratic ploy- let the poor middle class salaried smucks pay my fair share..."
Whoever thinks this - has got to be out of his mind. The democratic party doesn't burden the middle class anymore than republicans - its just that republicans favor the rich and the democrats favor the super poor.
republicans represent wealthy people - they just lie to poor people and say they protect them. What did the bush tax cuts do for you - $200 dollars.
I find your ignorance and totaly blind faith in the bush propoganda - right wing progoganda crap so infurating that it is difficult to even type!!
All you military the type are the same - 'You want to buy into something - you want someone to hold your hand and night, tell you that you are a big strong man, guide you through each step of each day- teach you like an asshole trains a dog - by beating it!" And that is exactly what the right wing is pedaling out!
It disgusts me that you spend so much of your resources greasing the rightwings million dollar press machine. You should so much of your time leading your own life as you do following the propoganda and bull shit.
You know, I am all for free speech. But NOT RHETORIC!
Sincerely
A concerned wealthy republican, with lots of money, that laughs at your mere foolishness, but takes pity on you - a man who wants to see the little guy win & not just get kicked around.
lovingly
Ted McCarthur
You have got to be kidding me.
I don't know who is quoting who here :
"It was a blatant attempt to cheat the social security system of its money. It was however not a tax shelter and not illegal. It was crass exploitation of a tax loophole and a typical rich democratic ploy- let the poor middle class salaried smucks pay my fair share..."
Whoever thinks this - has got to be out of his mind. The democratic party doesn't burden the middle class anymore than republicans - its just that republicans favor the rich and the democrats favor the super poor.
republicans represent wealthy people - they just lie to poor people and say they protect them. What did the bush tax cuts do for you - $200 dollars.
I find your ignorance and totaly blind faith in the bush propoganda - right wing progoganda crap so infurating that it is difficult to even type!!
All you military the type are the same - 'You want to buy into something - you want someone to hold your hand and night, tell you that you are a big strong man, guide you through each step of each day- teach you like an asshole trains a dog - by beating it!" And that is exactly what the right wing is pedaling out!
It disgusts me that you spend so much of your resources greasing the rightwings million dollar press machine. You should so much of your time leading your own life as you do following the propoganda and bull shit.
You know, I am all for free speech. But NOT RHETORIC!
Sincerely
A concerned wealthy republican, with lots of money, that laughs at your mere foolishness, but takes pity on you - a man who wants to see the little guy win & not just get kicked around.
lovingly
Ted McCarthur
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