Guest columnist
Hiding clever little accounting tricks deep inside corporate tax returns can save companies big sums, as long as no tax agent finds the golden nuggets.
It's a game of hide-and-seek that taxpayers take for granted. If a creative interpretation offers a tiny space for wriggling through a rule, squirm away. If some poor agent of the Internal Revenue Service can dig through thousands of corporate tax return pages to find those questionable deductions and figures the potential payoff makes it worthwhile to challenge them, fine.
That is about to change if a rule proposed by the IRS sticks.
The rule would force businesses to list on their returns every "uncertain tax position" they are taking and say how much it would cost the company if the IRS successfully challenged the claim. That way, they would be telling the government whether it is worth the effort to open up the lid or better to some other company's pot of jewels.
The rule is probably constitutional, Fifth Amendment right against self-incrimination notwithstanding. The rule wouldn't require a company to testify against itself in a criminal sense (although it's possible to imagine a string of events where that might occur).
But it sure sounds un-American. Or, at least un- sportsmanlike.
What is the point of hiring all those tax lawyers if not to find little hiding places for big money? And what is the point of the little hiding places if you then must erect a big, flashing sign adorned with huge dollar signs pointing the IRS to them?
There are those who claim that paying taxes isn't a game. The Second U.S. Circuit Court of Appeals in Boston said so last August when it ordered Textron Inc. to turn over tax documents previously considered protected by attorney-client privilege.
As for the new rule, IRS Commissioner Doug Shulman says all the agency wants to do is collect taxes with "certainty, consistency and efficiency."
He called it "a major step towards transparency."
As a journalist, I think of transparency as a good thing, especially when I want it from the government. As a citizen, I don't think the government should get so much of it from me.
Not that I'm some sort of tax cheat, mind you. I don't even take questionable tax positions.
Just to make myself clear, let me add that any audit of my returns would probably hurt Uncle Sam, who would have to give me money back.
Anyway, the IRS conducts an annual survey that says most Americans oppose tax cheating. And yet, about 9 percent say it's OK to cheat "a little here or there," and 4 percent consider it fine to do it "as much as possible," according to the just-released 2009 survey.
I'm all for everyone paying all their taxes and for the IRS collecting them fairly and efficiently.
Tens of billions of dollars in business taxes go uncollected every year, which adds to the tax burden of those who pay every dime they owe. (Like me.)
Surely the IRS is understaffed for the task, especially considering the high-paid expertise that companies employ. So it's hard to argue against something that would let agents cover more ground more quickly and to richer result.
It is also true that companies already must disclose to investors some of those tax positions under a 2006 accounting rule known as Fin 48.
So why does it seem like the IRS would be somehow cheating if it forced businesses to flush dubious tax breaks out into the open?
It's because many of us think of complex tax collection as a hide-and-seek game. It's because the game is adversarial. A whole industry of lawyers, accountants and advisers lives on that assumption.
Besides, where's the fun in giving up the goods?
Ann Woolner is a Bloomberg News columnist.
