TAMPA — The late Ralph Hughes, a Republican businessman whose name was recently removed from Hillsborough County's Moral Courage Award, died owing almost $300 million in corporate and income taxes and penalties, the IRS said in a complaint filed Thursday.
The IRS also alleges that while his concrete firms were paying no income taxes, they distributed huge sums to shareholders "and/or their controlled companies.''
The concrete businesses transferred more than $61 million to Hughes, who was their director and majority shareholder, according to the suit.
The IRS says those transfers were "fraudulent'' under state law and designed "to hinder, delay or defraud creditors'' of Cast-Crete and Florida Engineered Construction Products Corp., like the IRS.
And the agency says Hughes tried to conceal them.
Hughes' estate has disputed the government's claim, which was filed against Wachovia Bank, which represents the estate.
"My dad paid taxes on every dime he took," Shea Hughes said Friday. "My dad's good name and reputation need to be restored. He never cheated the government, never cheated anybody." The family has tax returns to prove that, he added, noting that his father didn't do the bookkeeping.
Last May, the IRS put Hughes' tax debt at $69.3 million. But it raised the number based on more research, the suit says.
Hughes' construction product companies, Cast-Crete and FECP Corp., did not file federal corporate income tax returns or make any payments from 2003 to 2007, the government says.
For at least four years, the IRS says, it made repeated attempts to get the returns, determine the amount due and collect taxes. It has also requested information and communicated with the companies' president, employees and shareholders, it says.
Now, the IRS says further examination of records holds the companies liable for about $128 million in taxes, $117 million in penalties and $54 million in interest — for a grand total of more than $299 million.
The complaint also says that even though they weren't paying taxes, the companies were distributing essentially all their cash to shareholders and controlled companies. As of March 1, the complaint says, Hughes' companies had only $11 million to pay toward the tax debt.
The companies were rendered insolvent after those transfers, according to the complaint.
Of the $118 million in distributions, Hughes got more than $61 million. The complaint said that "in an apparent effort to conceal the nature and extent of the distributions," he failed to report $27.9 million on his personal income taxes and reported more than $16 million as interest payments by his companies where there was no underlying debt.
Because of the transfers, Hughes is liable for an additional $2.3 million in taxes, $464,000 in penalties and $792,000 in interest, the IRS says.
David H. Simmons, an attorney representing Hughes' beneficiaries, says the estate paid $17 million in taxes a few months ago. He says the numbers being cited by the IRS are incorrect.
"Wholly incorrect," Simmons said. "Completely incorrect. All the taxes have been paid."
Hughes was 77 when he died in June 2008. That fall, Hillsborough County Commissioner Jim Norman suggested honoring the lifelong advocate for development and smaller government by naming the Moral Courage Award for Hughes. Critics protested, saying Hughes bought government support for a pro-growth agenda.
In July, after news of Hughes' tax problems broke, his family asked the commission to remove his name from the award.
"My father would have been honored yet humbled to have his name associated with the Moral Courage Award," Shea Hughes wrote to Norman. "At the same time, he would not have wanted that association if it caused any dissension, controversy or embarrassment to his family."
Source
Monday, June 28, 2010
Tuesday, June 15, 2010
Obscure Tax Breaks Increase Cost of Financial Rescue
The $700 billion financial rescue package approved by Congress to shore up banks also carries a parallel bailout of the financial sector and other industries through a series of obscure tax breaks.
View Full Image
Tax Breaks
Associated Press
John Stumpf, center, is CEO of Wells Fargo, which is expected to save billions on its Wachovia purchase due to changes in treatment of losses.
Tax Breaks
Tax Breaks
Operating mostly under the radar screen, Congress, the Treasury Department and the Internal Revenue Service have been rolling back various provisions of the tax code to help out industries and investors caught up in the turmoil.
The most costly -- and most controversial -- of the moves provide billions in extra tax relief to big banks such as Wells Fargo & Co. and Spain's Banco Santander SA. Another change gives aid to investors stung by the auction-rate securities meltdown. Still another shift relaxes tax rules to help big multinationals bring back cash from overseas.
The total sums involved aren't clear, but the cost will easily amount to tens of billions of dollars, tax experts say.
The latest such move was unveiled on Tuesday, when the Treasury Department declared that the cash infusions for banks won't be considered "federal financial assistance." Normally, that type of funding would count as taxable income for the recipients, and could trigger other unfavorable tax consequences for banks receiving assistance that take part in mergers.
A Treasury Department spokesman said the agency is seeking to "provide clarity and certainty regarding tax issues that have come up during market turmoil."
Tax experts say some of the changes are justified, including a number of technical fixes to protect taxpayers from unintended consequences related to government actions, such as the takeovers of Fannie Mae and Freddie Mac, or the substantial investments in banks. Plus, the broader bailout legislation passed by Congress earlier this month shut some other tax loopholes, including one that permitted offshore hedge-fund managers to get favorable treatment for deferred compensation.
The most controversial move so far is an obscure IRS ruling that gives banks the unfettered ability to use the "tax losses" of banks they acquired.
Typically, companies are permitted to carry over tax benefits from years when they lose money to help offset taxes when they return to profitability. However, for decades, Congress has restricted the amount of those losses that can be used in a given year, to prevent companies from buying and selling other firms solely to benefit from the tax strategy.
In a one-sentence ruling issued on Sept. 30, the Treasury Department effectively lifted that restriction if the company being bought is a bank and the losses are attributable to a portfolio of loans.
Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, has complained about the sudden loosening of the rules. "Congress should have been informed and consulted before Treasury took such an extraordinary action that likely will add billions of dollars to the deficit," he said.
Some experts argue that the Treasury has effectively shifted from administering parts of the tax code to changing tax laws on its own. "It doesn't seem possible that they have this authority," said Robert Willens, an independent corporate tax analyst.
The biggest beneficiary so far is likely to be Wells Fargo. The big San Francisco-based bank recently agreed to buy Wachovia Corp. of Charlotte, N.C., which has been hammered by huge losses on mortgage-related securities and loans. Wells Fargo has said it expects to take $74 billion in write-downs on the Wachovia portfolio.
Under the old rules, Wells Fargo would have been limited to annual tax deductions stemming from the Wachovia losses of roughly $930 million over the next 20 years, or a total of $18.6 billion, estimates Mr. Willens. Wells Fargo will now be able to use all $74 billion in losses. That will likely mean additional tax savings to Wells Fargo of about $19.4 billion -- or more than the total purchase price for Wachovia's common stock, currently about $14.3 billion.
A Wells Fargo spokeswoman wouldn't comment on the role of the tax change in its decision to bid for Wachovia, which bested an earlier offer by Citigroup Inc. Wells Fargo's offer took place two days after Treasury's move.
The new tax benefit applies to already-completed bank deals done in the past three years, and possibly even older ones, according to the Treasury Department.
Another winner from the new rule is Banco Santander, which recently agreed to buy the rest of Sovereign Bancorp. The Spanish bank will be able to take advantage of Sovereign's $2 billion in tax losses more quickly than under the old regime, which would have required it to wait nearly two decades to use up the losses.
Because of the Sovereign purchase, Banco Santander also will be one of the many beneficiaries of a separate break, aimed at hundreds of banks that lost money on preferred stock in Fannie Mae and Freddie Mac. The shift allows the banks to count those losses as ordinary losses, rather than less-useful capital losses. The change is expected to cost the federal government $3 billion, according to the congressional Joint Committee on Taxation.
Source
View Full Image
Tax Breaks
Associated Press
John Stumpf, center, is CEO of Wells Fargo, which is expected to save billions on its Wachovia purchase due to changes in treatment of losses.
Tax Breaks
Tax Breaks
Operating mostly under the radar screen, Congress, the Treasury Department and the Internal Revenue Service have been rolling back various provisions of the tax code to help out industries and investors caught up in the turmoil.
The most costly -- and most controversial -- of the moves provide billions in extra tax relief to big banks such as Wells Fargo & Co. and Spain's Banco Santander SA. Another change gives aid to investors stung by the auction-rate securities meltdown. Still another shift relaxes tax rules to help big multinationals bring back cash from overseas.
The total sums involved aren't clear, but the cost will easily amount to tens of billions of dollars, tax experts say.
The latest such move was unveiled on Tuesday, when the Treasury Department declared that the cash infusions for banks won't be considered "federal financial assistance." Normally, that type of funding would count as taxable income for the recipients, and could trigger other unfavorable tax consequences for banks receiving assistance that take part in mergers.
A Treasury Department spokesman said the agency is seeking to "provide clarity and certainty regarding tax issues that have come up during market turmoil."
Tax experts say some of the changes are justified, including a number of technical fixes to protect taxpayers from unintended consequences related to government actions, such as the takeovers of Fannie Mae and Freddie Mac, or the substantial investments in banks. Plus, the broader bailout legislation passed by Congress earlier this month shut some other tax loopholes, including one that permitted offshore hedge-fund managers to get favorable treatment for deferred compensation.
The most controversial move so far is an obscure IRS ruling that gives banks the unfettered ability to use the "tax losses" of banks they acquired.
Typically, companies are permitted to carry over tax benefits from years when they lose money to help offset taxes when they return to profitability. However, for decades, Congress has restricted the amount of those losses that can be used in a given year, to prevent companies from buying and selling other firms solely to benefit from the tax strategy.
In a one-sentence ruling issued on Sept. 30, the Treasury Department effectively lifted that restriction if the company being bought is a bank and the losses are attributable to a portfolio of loans.
Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, has complained about the sudden loosening of the rules. "Congress should have been informed and consulted before Treasury took such an extraordinary action that likely will add billions of dollars to the deficit," he said.
Some experts argue that the Treasury has effectively shifted from administering parts of the tax code to changing tax laws on its own. "It doesn't seem possible that they have this authority," said Robert Willens, an independent corporate tax analyst.
The biggest beneficiary so far is likely to be Wells Fargo. The big San Francisco-based bank recently agreed to buy Wachovia Corp. of Charlotte, N.C., which has been hammered by huge losses on mortgage-related securities and loans. Wells Fargo has said it expects to take $74 billion in write-downs on the Wachovia portfolio.
Under the old rules, Wells Fargo would have been limited to annual tax deductions stemming from the Wachovia losses of roughly $930 million over the next 20 years, or a total of $18.6 billion, estimates Mr. Willens. Wells Fargo will now be able to use all $74 billion in losses. That will likely mean additional tax savings to Wells Fargo of about $19.4 billion -- or more than the total purchase price for Wachovia's common stock, currently about $14.3 billion.
A Wells Fargo spokeswoman wouldn't comment on the role of the tax change in its decision to bid for Wachovia, which bested an earlier offer by Citigroup Inc. Wells Fargo's offer took place two days after Treasury's move.
The new tax benefit applies to already-completed bank deals done in the past three years, and possibly even older ones, according to the Treasury Department.
Another winner from the new rule is Banco Santander, which recently agreed to buy the rest of Sovereign Bancorp. The Spanish bank will be able to take advantage of Sovereign's $2 billion in tax losses more quickly than under the old regime, which would have required it to wait nearly two decades to use up the losses.
Because of the Sovereign purchase, Banco Santander also will be one of the many beneficiaries of a separate break, aimed at hundreds of banks that lost money on preferred stock in Fannie Mae and Freddie Mac. The shift allows the banks to count those losses as ordinary losses, rather than less-useful capital losses. The change is expected to cost the federal government $3 billion, according to the congressional Joint Committee on Taxation.
Source
Subscribe to:
Posts (Atom)