The Clinton Legal Defense Fund: Better Than a Corporate Tax Shelter
Kip Dellinger, Duitch, Franklin & Co., LLP, argues that the Clinton Legal Defense Fund should be subject to the alternative minimum tax and questions why it hasn't been scrutinized more closely.
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Kip Dellinger, Duitch, Franklin & Co., LLP, argues that the Clinton Legal Defense Fund should be subject to the alternative minimum tax and questions why it hasn't been scrutinized more closely.
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The Clinton Legal Defense Fund: Better Than a Corporate Tax
Shelter
By Kip Dellinger, CPA
[1] Lee Sheppard's analysis of the Clinton's 1999 federal income tax return and its glaring omission of income and deductions derived from the Clinton Legal Defense Fund /1/ that should give rise to an alternative minimum tax liability is, of course, right on. (See Tax Notes, Apr. 24, 2000, p. 472.)
[2] Ms. Sheppard and this writer have -- along separate but nearly simultaneous paths in Tax Notes during the past five years -- provided the IRS a road map concerning the appropriate income tax treatment of the Legal Defense Fund monies on the Clintons' income tax returns.
[3] Ms. Sheppard's Tax Notes articles include:
o "The Tax Treatment of the Clinton Legal Defense Fund," July
4, 1994, p. 12
o "The Treatment of the Clinton Legal Defense Fund, Continued,"
May 22, 1995, p. 1008
o "Clinton Legal Defense Fund II: What Was The Bill From the
Lawyers?," March 9, 1998, p. 1226
o "A Look at the Clinton and Gore Tax Returns," April 24, 2000,
p. 472
[4] This writer's Tax Notes articles include:
o "The Clintons' Legal Defense Fund: Don't Ignore the Tax
Issue," June 26, 1995, p. 1821
o "The Clinton Legal Defense Fund: The Tax Issue Remains
Unanswered," August 18, 1997, p. 985
o "The Income Tax Aspects of the Clinton's 'New' Legal Defense
Fund," March 9, 1998, p. 1325
o "The Clinton Legal Defense Funds: Tax Return Compliance
Issues," March 30, 1998, p. 1719
[5] Strangely, despite strong assertions that the president of the United States is substantially underpaying his federal income taxes by failing to properly recognize the taxable aspects of the Clinton Legal Defense Fund(s), not one member of the tax bar has stepped forward to challenge those positions. That is true despite this writer's invitation to tax professionals or any member of the myriad law firms employed by Clinton and the Legal Defense Fund(s), or the law firms with which many of the Legal Defense Fund(s) Trustees are affiliated, to take a contrary position to that offered by Ms. Sheppard or myself. /2/
[6] What has prevented an IRS that initiates examinations of nonprofit organizations on the basis of "newspaper articles" (or letters from disgruntled congresspersons) from undertaking an examination of the Clinton tax returns and the ramifications of the LDF? Oh gosh, is it possible that no one from the IRS reads Tax Notes -- the "Bible for Tax Policy Wonks," according to the National Journal?
[7] Or is it that the IRS -- in its infinite wisdom -- has determined that William Jefferson Clinton, as president of the United States, is above the "rule of law" that he and members of his White House and administration so often refer to in their public utterances? Alternatively, the IRS is a bureaucratic institution dominated by a public employees union beholden to the Democrat Party. Can that be the reason that the Clinton tax return position apparently goes unchallenged (despite the failure of anyone -- even his most staunch political supporters in the tax bar -- to offer up a rebuttal to the analysis of Ms. Sheppard and this author)? Then again, the IRS is answerable in part to Treasury officials. What impact does that have on this situation?
[8] As a self-proclaimed, ardent proponent for the rule of law and advocate for "folks who just want to play by the rules" /3/ why hasn't the president of the United States directed his tax advisers to seek a ruling from the IRS on this issue? Doing so would provide the public an example of his desire to play fair with our tax laws. It would also let the IRS off the hook for that organization's inability to state its own reasons for ignoring his efforts to avoid taxes on the Legal Defense Fund(s) because of the privacy restrictions of section 6103.
[9] The mainstream media, having made passing reference to the potential tax impact to the Clintons of the Legal Defense Fund(s) income and expenditures, has largely dismissed the issue. /4/ The tax issue is modestly complex and general business newswriters probably doubt it would capture much public attention. But strangely, that same media covers the corporations that allegedly flaunt the law in the tax shelter arena based on far more complex issues.
[10] The simple fact is that many salaried professionals can end up in the same situation as President Clinton if they incur sizable business related expenses -- for example, unreimbursed legal fees. And one can rest assured that the IRS would assert alternative minimum tax liability against those taxpayers in a heartbeat. In fact, it has.
[11] The bigger issue here though is not the reaction or opinion of the public, it is the sheer, unmitigated hypocrisy displayed by the president of the United States and the chief executive of an administration that has been on a rant for the past few years about the abuses of the tax law by virtue of the aforementioned corporate tax shelter business.
[12] How can any corporate tax director or professional tax practitioner dealing in the tax shelter arena keep a straight face when someone from Treasury talks about the abuse of the tax laws? After all, the president himself has all but ignored the tax law and his own IRS has evidently chosen to let his abuse go unanswered. If nothing else, a forthright public discussion of the issue has been stymied. And by failing to request a ruling or state his case he behaved as if there were something to "get away with."
[13] Of course, inquiring minds will be met with a White House response on the issue of the tax treatment of the Legal Defense Fund(s) with the usual "oh, that's old news. It's 'resolved,' the IRS hasn't proposed any changes to the Clintons' returns." That's not the case. As best as can be determined, the IRS has simply looked the other way and ignored the issue, turning a new cheek with each subsequent filing of federal income tax returns by the Legal Defense Fund and the president and first lady. Arguably, by appearance, this can be interpreted as demonstrating that the IRS is a politicized organization that allows the president to flaunt the tax law. One can also question whether the IRS has been intimidated into inaction because of the power of the chief executive and its desire to perhaps curry favor in the budgetary requests. /5/
[14] Are the Clintons worried that the IRS will ever do anything? Doesn't look like it. The lack of any rebuttal by a Friend of Bill (and/or Hillary) in the tax bar to the assertion that they have "a tax problem" associated with the Legal Defense Fund(s) is indicative of their smug conclusion that the IRS will never make the call to question their returns. /6/
[15] Certainly the notorious and carefully orchestrated character assassination by Clinton operatives of those critics that represent a legal threat or serious public relations threat to the Clintons is, so far, absent. Heck, here's betting that neither the names Lee Sheppard or Kip Dellinger can be found in James Carville's rolodex of Enemies of Bill or members of the Vast Right-Wing Conspiracy. /7/
[16]So, it seems that, among other things, the president will remain above the law when it comes to income taxes |
