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Tax Reduction Journal

T A X R E D U C T I O N J O U R N A L

TTax Reduction is Legal, Ethical, and Patriotic
By Patrick M. Brody

People wonder whether it's legal or ethical
to reduce their taxes.
    They should take comfort from the long
line of court cases that have squarely
addressed the issue. The seminal authority
on the subject is the U.S. Supreme Court
case of Gregory v. Helvering. Gregory
state that:
    "The legal right of a taxpayer to decrease
the amount of what otherwise would be his
taxes, or altogether avoid them, by means
which the law permits, cannot be doubted."
In the more recent case of United States v.
Carlton, the Supreme Court stated that,
"like all taxpayers, Carlton was entitled to
structure the estate's affairs to comply with
the tax laws while minimizing the tax
liability" (emphasis added). Likewise, in
Commissioner v. Nat. Alfalfa Dehydrating,
the Supreme Court stated that "...a taxpayer
is free to organize his affairs as he
chooses..." Other federal courts have
echoed the Supreme Court's position. For
example, in True v. United States, the 10th
Circuit stated that "[a] tax-avoidance
motive for structuring a transaction in a
particular way is not inherently fatal, and
nothing in this opinion is intended to
invalidate otherwise legitimate tax planning
strategies." A judge of the 3rd Circuit
stated, in a dissenting opinion in ACM
Partnership v. Commissioner IRS, that
"ACM, like all taxpayers, has the absolute
right to decrease or to avoid the payment of
taxes so long as that goal is achieved
legally" (emphasis added).
   Although the Service has perpetrated a
misconception over the years that there is
something unpatriotic about reducing your
taxes, the truth of the matter is that every
citizen has the right to organize his or her
business or life in such a way that his or her
tax liabilities are reduced to the lowest
amount possible.
Corporate America figured this out long
ago. They've directed millions of dollars
in resources to armies of lawyers and tax
planners who have helped them legally
minimize their taxes. Consequently, the
Treasury has increased its scrutiny to the
point where the cost of the Service for
administering compliance with the
increasingly complex corporate tax code
has now grown almost as large as the
amount of revenue they collect. The
revenue generated from corporate income
tax now accounts for about 10% of the
federal budget, down from a peak of about
33% in the mid - '50's'. The push for the
abolition of estate taxes was motivated by a
similar trend...compliance costs on the part
of the Treasury department ate up a
substantial portion of taxes received.
   The requirement that law firms and
accounting firms register corporate tax
shelters has delighted the law of of
unintended consequences...the Service is
being deluged with thousands of "tax
shelter" registrations as firms - in a
defensive posture - simply file ALL of the
transactions that they complete on behalf of
their corporate clients. The Service now has
to sort through thousands of registrations to
determine which ones actually fit their
intended definition. At this point, like a lot
of other required forms (such as form 8300
used to report cash payments of over
$10,000 received in a trade or business, and
form 4789 required for financial
institutions to report cash transactions in
excess of $10,000) the sheer volume of
information creates an environment where a
regulator gets 99% chaff and 1% wheat to
sift through.
   There is general consensus that the U.S.
tax system must be entirely revamped to
relieve taxpayers of the burden of filing tax
returns. Accordingly, several congressmen
are considering legislation aimed at
overhauling the entire Tax Code.
   Of course, where all of this is headed is a
potential future where all taxes collected are
"personal." This being the case, it becomes
more and more critical to understand your
rights as a taxpayer. Which brings us back to
the fundamental tenet reiterated in court
case after court case: that paying taxes is not
a patriotic prerequisite.
As the Managing Director of a firm that
has a primary focus of reducing personal
income taxes for individuals, I have found
that the greatest obstacle many of our
prospective clients face when they begin
exploring tax reduction is a fundamental
misunderstanding of their right to do just
that. They have either a conscious or
subconscious aversion to lowering their
taxes that competes with the financial pain
of paying them. Consequently, a lot of the
people we talk to every day are “conflicted”
(to borrow an en vogue psychological buzz
word).
   The more people understand their rights,
coupled with descriptions of different ways
that they can exercise those rights in legal
and ethical ways, the more likely they are to
act in their own financial best interest.
   In summary, every taxpayer has the right
to reduce their taxes through any legal
means available. To the degree that you can
get “unconflicted” about this issue, you’ll
be on the right track toward improving your
net worth in every way the law allow.

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