How Billionaire Robert Smith Avoided Indictment in Multimillion-Dollar Tax Case
bloomberg.com
bloomberg.com
I don't see how this is evidence of special treatment for billionaires. The guy paid way more in penalties than he saved on taxes and also had to help prosecute his friend, who evaded way more tax than he did. It doesn't seem to me like he came out on top.
By that logic, if they just pay their taxes it won't affect their lifestyle either, so their incentive to cheat is also lower.
> the payoff for a billionaire successfully cheating on their taxes is much higher than for a non-billionaire
In absolute terms, sure. And in absolute terms the penalties are much bigger too.
> the IRS prosecutes a lot more low-income people than high-income people (by percentage as well as by absolute numbers) so a billionaire has much better odds of not getting caught
Your conclusion doesn't follow from your evidence. It's possible that low income people are cheating taxes at a higher rate than billionaires. I really don't have a lot of trouble believing this; small tax fraud is widespread, even accepted by a lot of people.
> billionaires have access to better layers, accountants, publicists and politicians to give them negotiating leverage if they do get caught
I don't see any evidence that this guy got a better deal than he should have.
The point of tax enforcement is not to punish billionaires for being billionaires. The point of tax enforcement is to ensure taxes are collected. If you think taxes are too low, or just want to punish billionaires more harshly because they're billionaires, then Congress is the place that has to be changed.
Source: https://www.propublica.org/article/irs-sorry-but-its-just-ea...
There is evidence he worked out a deal with the removal of deductions regarding his charity... why did they remove those deductions? If he’s entitled to them... clearly it was done as a negotiating piece.
How many average Joe’s have 180 million in deductions to negotiate with?
yes, it is 3-pronged
a) easy to identify
b) liquidity, easy to use for payment
c) kickback and relax, emphasis on kickback
c might sound annoying, but the revenue service has the primary goal of revenue. replenishing the treasury so it can make its own interest payments. you might say, "well take that and still jail the people". okay, I guess. it could have happened here.
all parties in this case acknowledge that a court case would not have any guaranteed results, specifically because of your second sentence:
> Not only is the magnitude of their crime bigger, but their is less justification for it.
The justification is actually broader. Like, sure if the billionaire lacks a justification for paying yes, but the reality is that the government doesn't know WHICH justification the billionaire is using. That's the game. They can be totally blindsided. And then there's the jury, yeah sure a jury with populist sentiment against billionaires combined with a jury judging a black man, doesn't sound great for the defendant but that overlooks everything that was attempted. The man tried to use the amnesty program that the US government set up, and the government denied him! The man already snitched for the government on his first investor who set him up for life! The man tried filing amended tax returns. The jury might actually take a dim view on the state for that, I could totally see a hung jury. And then his lawyers can totally drop some legal opinions they made years ago that showed a justification the government didn't expect at all, shifting liability away from the defendant.
Not quite.
You need to think about when they have the money. It is “capitalism” after all, not “moneyism.” If you build/invest-in something using $10mil that should have been tax, with a decent ROI you might make that money back in 5-10 years. Now you have the original money, plus own something that continues to make money. Income++, but your “back taxes” are still the same for the earlier fraudulent period.
(assuming the IRS doesn’t take stuff like this into account when dealing with collecting “back taxes”)
This is the weird part to me. I don't think the marginal payoff is higher for a billionaire, other than in ego or ideological or other less-rational terms.
Someone making 50K who scams an extra 2K out of their taxes has gotten themselves a pretty big boost to their disposable income. While a billionaire already has millions to play with...
I would support higher and harsher penalties for larger absolute amounts of tax fraud, though, because you're depriving your fellow citizens of more if you're keeping larger $$ amounts.
For a poor person, the same situation is likely life-altering in either case.
Either a billion dollars is a lot, or it is not.
But using in the same sentence as both, depending on the point you're trying to prove, is a little dishonest.
As MrPatan pointed out in a sibling comment, the sentence is about the same person.
1 billion dollars to someone who has 0 dollars is a lot.
So if expected value of tax cheating in vacuum is - lets imagine - 20% of the amount of taxes cheated, billionaire should cheat on taxes in every situation, as they simply gain 20% on average. Smaller player shouldn't, as even though their expected value is the same, their utility value can be completely different as they might take a risk of ruining their business and losing future income and hugely lowering their quality of life.
edit: and also for small amounts the way down is much harsher on the utility value, so being a favorite to gain 10k might not be worth it, if the possible -15k means your lifestyle suffers.
If you're little and scamming a few $k here and there, the ROI (Return on Investigation) for the IRS to go after you is tiny. It's probably not worth assigning an investigator.
If you're HUGE and scamming billions, the ROI is there but you also have the capabilities to defend yourself, obfuscate things, etc so it's unlikely they can destroy you. Therefore, it's not one investigator but a team with forensic accountants, potentially informants, etc.
For everyone else, the danger is in the middle. Where you have enough that you can lose a life-destroying amount but you don't have the means to protect yourself. That is a great target for investigators.
In short, as you gain more, be careful and have a good accountant who follows the rules to the best of their ability.. until you can make the rules.
Oh crap.
another way to think of this is in the difference of relationship to money between a billionaire and a in comparison poor person. give 2K to the avg Joe/Jane they'll circulate it back into the market by purchasing while the billionaire sees themself as a "steward of their fortune" and who would keep in their accounts. (also the reason why trickle-down Reaganomics doesn't work).
Also to a billionaire there is a high chance justifying tax-avoidance (and evasion) is easier since they anyway do it using multinational corporations. And obvs. it's more work to go after big cases where the fight is about proofing overstepping the line between avoidance/evasion while with poor people the case is usually about just evasion.
I'll continue to recommend this here whenever the topic comes up: https://en.wikipedia.org/wiki/Treasure_Islands:_Tax_Havens_a...
It is higher in a very real and measurable way: it's way more money.
Doesn't have to higher as a "marginal payoff". (Besides that would imply that if the billionaire didn't get any real benefit or pleasure from the non-taxed money, they should face no penalty).
I'm not sure how this is relevant. As of October 2020, there were 614 billionaires in the US[1]. Of those 614 people, only a few of them are likely breaking any sort of tax law (billionaires have a lot of money to make sure they take advantage of loopholes, without breaking the law). So there isn't some big list of billionaires that the IRS could be going after but is choosing not to.
So the question is, are there known billionaire tax evaders that aren't getting prosecuted? That should be the only question that matters. Using statistics in this case would likely lead to more injustice than less, as the only way you could get billionaire vs non-billionaire prosecutions rates to align is by prosecuting billionaires that aren't breaking the law. (edit: unless there are many billionaire tax evaders that are just getting away with it, of course. I don't know if that's the case or not)
[1]: https://en.wikipedia.org/wiki/List_of_Americans_by_net_worth
[1] the US today is one of the biggest tax-havens in the world (source: "Treasure Island") and the OECD crackdown on the usual suspects (Cayman, Channel Islands, ...) never hurt anyone since the US really just wanted a slice of the off-shore pie (which anyway exists whether with or without the US as a tax-haven).
That assumes they cheat at the same rate.
That's a common perception, but is not based on reality. May I suggest:
Most of my perception is based on billionaires I know in real life. It's anecdata but it's enough to persuade me. I choose not to talk to one after he became rich because he became such a horrible human being. The others roughly follow the same trend. All of them are rich or became rich by shitty means.
As it was written, though, no basis was provided. The opinion was congruent with that of people who believe economics is zero-sum, which is what I inferred you meant from "shitty means".
As for me, although I've personally met Steve Ballmer, Bill Gates, and Paul Allen, I hardly know them. I have read their biographies, and the biographies of many American billionaires, and would not agree that any of them came by their wealth through "shitty means".
The term "shitty means" isn't exactly an economic term, and I'd be curious what you mean more specifically. I'll start by saying an ethical way to become a billionaire is by providing a product or service that people are happy to pay for. Gates, Ballmer, Allen, Jobs, Bezos, Musk, etc., all fit into that category.
I'll close by apologizing to you.
I've been having a bad day and you caught me at a bad time. That's my fault and I need to take a break from the internet. Have a good night.
'IRS estimates that between 21 percent to 26 percent of EITC claims are paid in error. Some of the errors are unintentional caused by the complexity of the law, but some of the claims are intentional disregard of the law'
Income Range/Percent Examined 2015
1-$25,0000/.66
…
$10,000,000+/8.16
"The typical audits for higher-income taxpayers involve at least three different tax years, often include related entities, and routinely take years to resolve. The highest income taxpayers face the most significant chance of an examination, and they face the most highly trained and experienced IRS agents and teams utilizing our most sophisticated tools and techniques."
https://www.irs.gov/about-irs/irs-audit-rates-significantly-...
I'm significantly poorer than the billionaires, but the only thing I know about taxes is what forms I need to gather and mail to my tax guy.
Maybe, but that's sort of like how a person who slaps somebody usually doesn't get jail time compared to the person who beats somebody to a pulp.
The billionaire tax cheat has much larger impact on society. And the billionaire has much less justification for doing so (if they pay their taxes properly they're still a billionaire).
The obvious, trivial answer of course is that in tax law, how much you evaded determines the severity of the crime.
Where in the world did you get this idea? If you don't pay fully or on time, but don't lie, they just make you pay, because that's not "evasion."
Elaborate premeditated lying using fake books or shell corporations to deliberately hide assets is a serious crime, which the rest of us can't get out of with our armies of lawyers and well placed phone calls to politicians.
This is how it more or less works in my country but you do have to file a "active repentance" form and spill out of your misdeeds. Otherwise, anything you tried to hide, will work even harder against you.
Is this a fact?
Why should Bernie Madoff gone to jail then?! if some guy can steal a car then?
The scale matters.
I suspect, if the victims of his schemes had just been a bunch of plebes like us, then he would be sunning on the Riviera, right now.
It just takes one...
Have a great day!
Fraud and tax fraud are different crimes, and even if they were the same the number of counts in Madoff's case would be vastly different.
In other words, you're much better off committing tax fraud than running a Ponzi scheme targeting rich people. Plus, I suspect that if Madoff had walked he would have died shortly thereafter in some freak accident or an apparent suicide .
Prosecutorial discretion is a tricky thing to judge. On one hand, it's a black box. On the other hand, it has to be. It's a human judgement around which investigations are worth pursuing given the facts and circumstances, the law and the will of the polity.
Within the confines of the rules, this looks...fine? It sounds like Smith was fined more than he aimed to save. And if it bags a bigger fish, particularly if with jail time, it seems like the trade would be worth it. At the very least it makes tax evasion riskier going forward--your billionaire co-conspirator is now a real liability.
Without knowing the odds around that case, it's difficult to judge this decision.
This person admitted guilt, he also admitted that at the time he made the deal with Brockman he knew it was sketchy. He only tried to course correct when he knew he was being investigated.
If this individual makes a mistake, I can understand the leniency but essentially he made a deal that he knew at the time to be wrong and knowingly kept defrauding the government till he couldn't anymore due to discovery, and essentially came out of it with not so much as a scratch, maybe some stress from all this. And he's continued to whitewash the narrative around this with 'philanthropy'.
In my opinion it shouldn't be about him being fined more than he aimed to save. That essentially encourages others to strike similar bargains with other bad actors as the net result is the consequences are relatively small compared to the upside.
That might be true in absolute terms, but saving the money at the time likely enabled him to grow his wealth faster, putting him in a better position now, even accounting for repayment, than he otherwise would have been.
Companies do this all the time when they take on debt. Having the money now, even if you need to repay it layer, lets you grow fast, and the longer you can put off repayment, the more you can compound your gains.
Ergo there’s no chance of prosecution, he’s given more than he owes to charity, and has still agreed to pay back most of what he owes. It’s not perfect, but the system is working.
Here's another article that highlights how he became a major, high profile philanthropist only after it became clear the feds were on his case:
https://www.washingtonpost.com/business/2020/11/09/smith-bro...
The charitable giving seems to clearly be part of an aggressive, multi-pronged, and ultimately successful strategy to avoid prosecution.
This is not evidence "the system is working", this is evidence that you can buy your way out of trouble.
It should be the voters‘ decision where the money goes to. Charities can also be a place to store money. If you control them you can also decide where the money is invested in. You just need to put a bit each year into some charitable cause where again you can spend that money buying products from wherever you want.
Meanwhile, a 20-something engineer at a six-figure salary can tell you how much of that they get to keep. (hint about half here in California)
This is patently false. Before even counting any deductions a married couple with a joint income of $300k in CA pays an effective income tax rate (Fed,State,Local) of 29%. Single at the same income pay 38%.
Once you add 401k contributions and the variety of pretax spending benefits, it goes even lower.
Go ahead and model it:
https://smartasset.com/taxes/california-tax-calculator
You have to be earning $3 million a year before you hit an effective tax rate of 50%.
People making that kind of money and more in SV aren't usually making it via regular income but rather via tax minimizing deferred compensation plans taxed at much lower rates.
Also, about half of your medical plan (which is compensation), is a hidden tax (e.g. cross subsidy).
When I was an engineer in NYC my taxable income was about the following: 1. ~35% federal 2. ~8% state 3. ~3% city
Don't forget sales tax!
https://smartasset.com/taxes/income-taxes
EDIT: Aren't state and local taxes also deductible from federal income taxes? I'm certainly not a tax expert, so correct me if I'm wrong.
That's not a quibble at all, it's a very important point. The number of people who confuse "tax bracket" with "effective tax rate" is regrettably quite large.
Yes, but the Trump tax changes put a $10,000 cap on this deduction, which is significantly lower than the standard deduction. Combined with low mortgage interest and the lower cap for new mortgage balances whose interest is deductable, a lot of people went to the standard deduction.
In order to hit 8% (8.82%) in NYS in 2015, you needed to make a little over a million dollars a year (single) or 2 million (joint).
The next lowest is 6.85%, for 212k single, 318k joint.
For federal to hit 35%, you need to make 411k (single or joint.. which makes no sense).
So your numbers more or less stand up to scrutiny for marginal income, but I would guess not even close to that for effective tax rate. I don't think it's fair to present your marginal tax rate as "your tax rate" in a discussion about how much of your income you get to keep. That's even more so when it's before you account for deductions.
Sales tax, gas tax, land tax, etc all come later. They can be significant, but aren't part of the discussion of take home salary.
To look at it from another point of view... If _all_ the money you made came from long term capital gains, the taxes you pay on it would be based on totally different tax rules. Capital gains taxes are certainly impacting how much you "spend" on taxes, but they don't impact how much of your "salary" goes to taxes.... because you don't have a salary.
Therefore, when thinking about increasing/decreasing my earnings at that margin (raises, changing pre-tax contributions like 401k or FSA, etc), it would be correct to use that 50% number.
This is obviously incorrect if you wanted to talk about effective tax rate. But using effective tax rate is also incorrect when changing marginal income. So it depends on context.
The GP said "a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.", which can only mean "effective tax rate".
Although it's a common and dishonest rhetorical tactic of those who oppose taxation to conflate the two when advocating for lower taxation. There's nothing wrong with arguing for lower taxation, but it's wrong to misrepresent the rates you use to argue that.
The number that does matter to me is my marginal tax rate. That is the number that I have to use when thinking about how my everyday decisions impact how much money I am bringing home. How do I consider 401k? FSA/HSA? Tax-deferred instruments? Charity donations? Additional income (second jobs,etc)? Time to hold stocks (capital gains vs income)? Tax deductions?
All of those are based on marginal tax rate. I understand your desire to call out conflation, but I specifically differentiated the two in my comment. I am not misleading anyone
Please tell me when you care day-to-day about effective tax rate (other than tax return time and arguing on the internet). Why would you? You can't change it. Marginal tax rate actually impacts your decisions.
I didn't suggest that you should pay attention to effective tax rate, nor give any guidance about personal finance. You're arguing a totally different subject (personal tax optimization strategies) than the one I addressed (misrepresentation of the effective tax rates in CA).
The GP's post I replied to was specifically political in its misrepresentation of marginal tax rates as the effective tax rates, which is why I wrote:
> The GP said "a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.", which can only mean "effective tax rate".
I was not responding to GP - only the parent who asked: > I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny
Elsewhere on HN, many people do use their marginal tax rate (and do so correctly). I was only explaining how that 50% is a good benchmark to use and why so many use it.
You are correct that if I was responding to GP, my comment would be misleading. Unfortunately, I think my brain short-circuited when I saw "Clinton" in GP's post and I skipped by it :)
> Meanwhile, a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.
Isn't this actually a good situation, from the point of view of the tax collector? Corporations can afford to spend a lot of money figuring out tax loopholes and financing schemes so they can avoid paying taxes. But your average high-income individual can't. You might as well let the large corporations have lower taxes, pass on the extra revenue to shareholders and employees, and then tax the shareholders and employees.
In my experience (misreported some accounts due to a misunderstanding, which had a ~25% impact on what taxes I paid) the IRS sends you what you owe with a nominal penalty. I believe I paid ~5% extra. I paid it, and life went on.
I think there's a huge misunderstanding around the IRS "going after the little guy." For you to actually be convicted of tax fraud, the IRS would have to take you to court (expensive) and prove you set out commit fraud (hard to do in most cases).
At the point where this is worth it for the IRS to do, are you really 'the little guy' any more?
>According to data released by the IRS last week, millionaires in 2018 were about 80% less likely to be audited than they were in 2011.
Audits of the rich continue to plunge while those of the poor hold steady, and the two audit rates are converging. Last year, the top 1% of taxpayers by income were audited at a rate of 1.56%. EITC recipients, who typically have annual income under $20,000, were audited at 1.41%. [1]
[1] https://www.propublica.org/article/irs-now-audits-poor-ameri...
Do you think the typical construction contractor or engineer has anything near that? They'd be prosecuted, found guilty, and offered some sort of reduced or delayed sentencing.
The DOJ has nothing to do with IRS budget cuts.
I’m not responding to what you are saying, I am responding to which agencies and budgets are being referred to.
There are plenty of other comments in this thread for you to make your particular point on.
At the start of his career as a private equity investor, he got one of those offers he couldn't refuse, a billion dollar investment from a single source that came with some strings. When the strings came undone in the form of govt. investigation into the tax obfuscation, he tried to fix it by applying for a IRS program which was rejected. He then went 0 -> 100% on headline making philanthropy.
Essentially he made a deal with the devil and came out of it without a scratch, relatively speaking. Perhaps came out ahead would be a better way of phrasing that. Obviously none of this takes away from the work/drive that went into making Vista successful, but it's still an interesting story of how he got his start.
> Brockman’s offer set Smith up with his own private equity firm, Vista Equity Partners, and more than $1 billion in capital to invest, according to Smith’s statement to prosecutors. That arrangement eventually allowed Smith to become a billionaire himself.
Both aspects stem from a deal Smith and Brockman made 20 years ago, one that joined the unlikely pair in a venture with vast ambitions. Smith, the determined son of Denver schoolteachers, was then an aspiring financier; Brockman was older and far wealthier, a man who had already made a fortune with a company that sold software for the automotive industry.
These two sides of Smith — the impressive generosity on one and the admitted tax evasion on the other — may be hard to reconcile. But they are inextricable, according to documents reviewed by The Washington Post, including charity filings with tax authorities and Justice Department court filings.
Smith applied for the IRS program in March 2014 but was quickly rejected. This is typically a sign the agency already is scrutinizing the applicant’s tax filings, former federal prosecutors said.
It is about this time that Smith became a major philanthropist, frequently making headlines with his generosity.
[1] https://www.washingtonpost.com/business/2020/11/09/smith-bro...
Divorce laws are far too simplistic and rely on the concept of a “unit” with both spouses being equal partners by mere nature of showing up. This seems to be a stretch of the imagination with a reality having diminishing returns. For example, even with a spouse providing some form of unpaid labor, the level of utility in how that helps the other spouse is not unlimited, it would be closer to (O)logn. It should have a specific value that is quantifiable. This does not seem to be part of discussions and in most places seems to be the most egregious thing one could suggest! In any other form of financial partnership, this is easy to quantify or at least there is greater flexibility in setting it up. One example - which I am not suggesting is applicable to marriage - is how vesting agreements really help give the (O)logn compensation path.
I have seen some divorce laws that seem holistic, specifically Monaco’s. Which provides a limitation on alimony as well.
For people that actually own assets outright (not mortgages but the whole asset) There is also fairly easy estate planning possibly even in “community property” states to separate assets from before a marriage. So thats another wealthy privilege.
Fixing all of that would fix what would even be attempted to be listed in a divorce court proceeding.
I'd be hesitant to view marriage as a financial partnership though. To me, marriage is more of a life partnership where both parties are "all in". A lot of the benefits of having a "life partner" stem from having someone who unconditionally watches your back and keeps your needs in mind. You can't put a price on that type of a partnership by definition (you introduce a monetary condition).
I agree that someone with real wealth could hire folks to manage their assets, administrate, listen to their thoughts/concerns, provide intimacy, etc, at the cost of a fraction of their net worth well below 50%.
Maybe people worried about protecting their wealth should just hire out those roles instead of getting married. I wonder why they don't. :)
Acknowledging the problems with the contract requires looking at the realities of the contract.
The reality of that contract is that it has financial components and financial consequences, which are assumed to scale linearly, when that’s not true. Someone “having your back” could just as arbitrarily be worth 10% of assets or a retainer or a monthly rate. The point being that starting at 50% and working down is just as arbitrary. I would say it would not actually scale infinitely, just as much as a key salaried employee does not have compensation that scales proportionately to the earnings of that corporation.
I absolutely do not care about how these comparisons make you feel as that is completely a product of conditioning. This is still a flawed contract, lets acknowledge that it is a flawed contract whether your line in the sand is “cant put a price on” or something else.
I don't expect it to change your view, but here it is for what it's worth:
https://www.theatlantic.com/sexes/archive/2013/03/spouses-pr...
It isn't about the shitty contract itself. You extrapolated it to be about something the article is not by seeing "marriage + transaction" as the similarity.
Divorce is a probability in a marriage, this article isn't about that.
Whether divorce is a 50% probability or a 10% probability (which it is miraculously now close to, for the new class of wealthy spouses marrying economic equals for the first time in history), these are still non-negligible odds. These are horrible odds of adversity in any other kind of agreement that “coincidentally but ah I want to ignore it” have explosive financial consequences.
I'm not so interested in your complaints about divorce (though I don't think you have a good understanding of laws surrounding prenups and how they function in the American legal system and you should learn more ) but I mainly responded because I felt your attempt to apply the economic model of "utility" to a human relationship was a pretty bad idea.
I can see how in a vacuum here that one would see my thoughts as bad, but they are reactions to other ideas which seem to have more consensus that are based on valuing specifically women’s unpaid labor in the home. There is a finite value to how much that contributed to an aspirational and successful man (or more generally spouse / breadwinner’s) success regarding earnings. Courts should have the marriage contract based on that maxim, as it is not linearly, and rely on couples to do separate business arrangements if they are so inclined to be business partners. Some couples do this and pride themselves in this. Lets decouple it from the marriage contract.
I personally love the “idea” or concept of a marriage (the understanding and commitment of two humans to each other for pure love, devotion, or spiritual/religious reasons), but in practice, at least from what I’ve seen in the US, it’s very much about the legal aspects of the “marriage contract”, the financial and legal impacts, as well as to continue to promote the US agenda of the nuclear family unit.
This goes in reverse as well. The only significant reason to get married is social conditioning/pressure. Like I implied above, you can just hire those roles out and not enter the contract. Marriage is absolutely about feelings or else no one would agree to it.
Marriage is not an employment contract, the comparison is fallacious. The conditions for breaking the contract are much more severe because you're not "supposed to" switch partners like you switch jobs.
If you don't believe in marriage more power to you, don't enter into one.
The venn diagram overlaps. If you don't want it to overlap, fix the contract instead of invalidating everyone that dares to acknowledge it.
A lot of people do. What point were you trying to make by assuming its not happening a lot?
Monegasque divorce laws are not gendered and there are plenty of wealthy women in Monaco.
Alimony also has a fixed time period of 5 years.
What part of that do you find controversial as opposed to practical? Its more like generous severance as opposed to a perhaps merely more familiar concept of alimony.
This would give the liberty for MacKenzie, for example, to be sure that she got her own vesting agreements and her own shares in the organization they founded together. It moves the agency back to the individuals as opposed to assuming they are going to be starry eyed infants that are going to get screwed over. If people want to decouple marriage from any financial considerations, this is the way to do it, focus on the love. If they want to be business partners then write them into the separate business. If they want to have their supporting unpaid labor valued, then their moonlighting as a personal assistant is valued in the six figure ranges just like professionals.
I presume the laws also equally help a rich woman, and are “biased” against a toyboy husband?
He tried amending his tax returns to correct the reporting issues.
He tried to use amnesty program on undeclared Swiss banking back in the early 2010s when the US was piercing the Swiss Constitution, and was denied!
And this all started because divorce proceedings listed many assets. Eventually ensnaring a completely unrelated person in actual jail.
Wow.
For all intents and purposes it seems like they were overly focused on Smith, until some of the hobnobbing with the administration started to pay off.
Its interesting to me that they went after some of those things too: the prosecution agreement required Smith to not claim the deduction on $182 million donated to charity.
That’s a crafty way of getting money back. Kind of like a ballast system to provide balance.
The British Virgin Islands company can exist and its earnings can grow tax free. The same for the Caymans one. The nature of what those organizations do determines what taxes a US citizen owner has to pay, in many cases it would still be substantially lower than “ordinary income”. The key issues would be aiming to avoid passive foreign investment company and controlled foreign company regulations.
The second issue is neglecting the FBAR reporting. Which is another way of telling the US government about bank accounts and companies. Neglecting FBAR alone has criminal penalties.
Merely telling them does not create a tax liability.
But perhaps telling them would reveal other non-compliance or undermine other asset protection plans by the mere nature of someone knowing. Could trigger pursuits by creditors or prior relationships. Not everyone has these problems and as you see they are not necessarily tax problems.
The third issue was using the funds domestically. They bought a house on US soil, strike one, and lived in it, strike two, and not paying taxes on the amount repatriated, strike three. They could have posted collateral with a third party lender and borrowed against it, to get liquid. Paper borrowing without a third party lender (ie. Just writing a contract on behalf of the offshore company you own, and saying you are borrowing) would not be compliant. Collateralized third party lending has stood the test of time. If your collateral gets liquidated you have to pay taxes then, so overcollateralize and pay your interest.
A year in the US Virgin Islands or Peurto Rico could have been used to convert those taxable earnings into post-tax at 0-4% tax rate.
They just didn't and stuck with non-compliant avenues.
They are using non-profits onshore, they could have done a lot more with that to reduce their taxable earnings while retaining control of the funds for the most part.
There are so many ways.
It is a very powerful and opaque defence. Companies use it all the time too to avoid anti-trust action (AT&T did so for decades). Using it in the case of a private equity fund manager seems a stretch..
Yet you still do it.
I know a guy who is quite rich off of Bitcoin (bought thousands when it was $2 and has held most of it). Refuses to pay taxes unless the IRS actually comes after him. So maybe these billionaires are similar. They’ll only pay if the IRS makes them and they’ll drag their feet in whatever way they can.
Remember, bitcoin is art, not money. Or is the same money just like art is.
"Its a big club and you ain't in it" - George Carlin
Criminal prosecution is rare and reserved for the egregious and uncooperative. It's something like 2,000 cases per year total.
This needs to be fixed ASAP or the US won't be any different than any corrupt banana republic.
This isn’t an issue of the rich getting special treatment. It’s an issue of IRS enforcement having highly constrained resources, and preferring to recover penalties, rather than spend resources on expensive criminal cases.
Putting people behind bars doesn’t generate revenue, and revenue is literally the IRS’ middle name.
As rich people never need an employer in the future, a felony and prison time isn't as consequential as it is for others. Many times their white collar crimes are able to be negotiated to just under a year in prison, to avoid felony status. Felonies can limit what kinds of financial services they can offer or be a part of, and can limit which countries they can get into. But it still is not the same consequence as the general population.
Also if this is in relation to net worth only, that's kinda small. I reckon both Bezos and Musk are worth net a couple of billions only. They are 100+ B only on paper.
Coming back to the 23M net one, if that's his net, imagine his stocks. To pay for the ticket he simple does 2 things:
- sells some actions
- declare the ticket as tax deductible on next fiscal year. Guess he won't care anyway
Part of checks and balances I guess?
It sounds like everybody wins. IRS gets revenue in the form of fines that exceeded the avoided taxes. AG's office gets a snitch, which should enable them to fry bigger fish. The criminal pays a large fine, gets his name in the paper for bad reasons, but avoids jail.
Really, what does jail get us in this case? It's a non-violent crime.
There are at least two related principles behind prosecutorial discretion. One is that the system should be biased against prosecuting people because putting people in jail shouldn't be our goal. Another principle is that law enforcement, from the local cop all the way to the US Attorney General, has to have some discretion in how they do their job - e.g. do we really want cops pulling everyone over who is 1 mph over the speed limit?
That's one way to phrase it. Another would be that a highly visible, influential politician used that influence to attempt to destroy a multi-billion dollar company; specifically by using what may well be lies and slander, presenting it as truth.
If corporations can decide which politicians to platform, count the votes, and can sue into bankruptcy politicians that question the results, than clearly power rests with the corporations and the oligarchs. Politicians are just for show.
As a cynical citizen, I'm going to assume that if it wasn't possible to adjust the vote totals, their machines wouldn't have been picked. Responsibility for transparency is on them. Full third party audit, random vote sample statical analysis, and so on. Would be much more preferable to instil confidence in their corporation than suing a disgruntled politician.
It doesn't make sense for Billionaires to be taxed as it would lead to poor capital distribution in the economy.
I'm all for philanthropy but there is also no law that says Billionaires should give just because they are a Billionaire.
It turns out maybe we can work to make change while not also becoming billionaires. Most people don't need to be billionaires. But everybody needs Food/Housing/Healthcare.
`There is no law`. Well, there are laws. And they do require them to be taxed. And historically their taxes were much higher. But Reagan sold the Trickle Down economics story to the nation, and now they pay dramatically less.
Nobody thinks its easy to become a billionaire but they shouldn't be treated like everybody else. The wealth they command is wll beyond what most private citizens have at their disposal.
We are also missing out the mid to high 9-digit millionaires who also should be exempt from the asinine taxation policy that is meant to enforce serfdom.
The law is not for the hyper rich ($600MM in assets), they operate under a completely different law that our system is designed to protect.
This is good for efficient capital trickle down effect. We simply cannot be putting ceilings on incentives. It needs to be unlimited and it won't even register in the global economy.
Just because you can't tax billionaires don't mean citizens and the government is getting stiffed. This is exactly what the poor man thinks they think that because they are poor everybody else should be poor and taxed too.
Or did you think USSR had a good trickle down effect? Venezuela? France?
I don’t understand why people feel such a need to defend and worship those who have the most in our society while there are people who die from starvation/exposure/lack of healthcare in what is allegedly the greatest country on earth.
Just because someone has more money than me doesn't mean they are deserving less or more than you and me.
It certainly doesn't read to me like you think everyone is equally deserving when you're venerating those who have obscene wealth. It especially doesn't read that way when you're being intellectually dishonest by tacitly suggesting that providing the basic necessities to continue to exist is implicitly tied to failed/failing nation-states.
If there's one thing China got right, it's that they'll throw your ass in jail, whether you're worth a dollar, or hundreds of millions of dollar - if you can't do the time, don't do the crime. Easy as that.
"Media Due Process"
For lack of a better term...
It doesn't seem to exist in this day and age.
I'd like to hear the other side of the story before I make up my mind, thank you very much!
Until I do, from the accused own's mouth, I might add, I'm going to presume innocent until proven guilty.
I will not be "the court of public opinion" in response to the media, any media, slighted one way or slighted the other.
I simply refuse.
I don't know the accused, I don't know what happened, and until all of the facts are on the table -- pro and con -- I refuse to make up my mind on the subject.
A single set of facts from a single media outlet, or even several -- are not all of the facts, because they could have been cherry-picked, one way or the other...
I take this approach; this mindset; with all media in this day and age -- not just the media outlet that broke this story...
OK, those are my thoughts.
Go ahead and lambaste me if you disagree...
There was a WSJ article about him last year which went into detail that he agreed to obfuscate income for this former business associate in return for the funding he initially got to get Vista off the ground.
Additionally, that WSJ article detailed that Robert Smith became aware of an investigation into him through back channels and that's the point when he started making a splash with public giving. I'll see if I dig up that article in case anyone's interested.
"The other side" as you put it is him literally admitting guilt. He could have used his massive fortune to fight it, but he'd probably lose control of the firm + other consequences resulting from that.
Edit: It was a Washington Post article, not WSJ (https://www.washingtonpost.com/business/2020/11/09/smith-bro...)
It doesn't matter what you think on the case. Presumed innocent until proven guilty is a good paradigm for courts, but you're just some guy, who is not obligated to hold an opinion on this case at all. It's perfectly fine to say "I don't know and I don't think I've heard enough to judge one way or the other", or, if that's your take, not say anything at all.
Supporting an opinion of innocence without evidence of innocence is equally as dumb as supporting a side of guilt without evidence of guilt.
In fact, this article is mostly focused on how the optics -a high profile (in fact, the wealthiest) African-American man, donates large sums of money to charity, etc.- seem to have concerned the prosecutors enough to accept a non-pros rather than risking trial, if they could get another billionaire's scalp in the bargain as well (said other billionaire did essentially the same thing- Smith claims it was all Brockman's idea, no doubt Brockman will claim it was all Smith's idea).
The thing that worries me is that he was able to use money to avoid prison. This is an example of a different law for the rich and everyone else — paying a fine (not a big deal for a billionaire) to avoid prison (a very big deal for a billionaire) substantially reduces incentives to actually pay your taxes.
its clear you are reacting to the headline and were searching for a place to put that copypasta before this article even existed
(How many of you post with your real names on HN, by the way? I post with mine...)
But, you basically said the same thing, over and over (much like our news media does), which can be summarized as:
"Robert Smith is guilty because he admitted guilt"
And (by implication) that all that follows, including this magazine article, are perfectly OK and socially permissible by virtue of that fact...
To recap, you said:
o "This person admitted guilt and entered a non-prosecution agreement in which he agreed" (sgpl),
o "Smith acknowledged evading more than $43 million in taxes over a decade and repeatedly filing false tax forms." (1986)
o "he actually agreed that he did in fact commit crimes" (aioprisan)
o "Mr. Smith admitted he was guilty in legal documents under penalty of perjury" (mandevil)
o "he has admitted guilt as a part of the deferred prosecution agreement" (ddulaney)
o "He admitted guilt" (spamizbad)
o "He admitted committed crimes as part of the agreement" (liaukovv)
Well, I'm not contesting that "fact" in any way shape or form.
In fact, we all agree on it!
But, before we all have a moment of collective victory, before we put on our hats and start celebrating that yes, you can really get agreement from other posters on the Internet, let's pause for a moment, and think about this for awhile...
Let's put this "fact" (that we all agree on!) -- in proper perspective...
You see, "agreements" aka, "the admission of guilt", "the agreement that a crime was committed" -- can be coerced.
A simple example of this would be if you were in another country, and you committed no crime -- but were unlawfully placed in jail under the pretense of having committed a crime...
Now the people running that prison, in that other country, come up to you with an ultimatum... They say that you're going to have to spend 20 (or more) years there(!) -- that is, unless you sign a document (giving the apparency of a legal "agreement" to other people and the public at large -- yet having been made under coercion!) which says, which is an admission that YOU COMMITTED A CRIME... in exchange for a lesser (or no) sentence!
Now what happens when that signed statement -- reaches the media?
Under such circumstances, WHAT WOULD YOU DO?
You see, it's easy to rationalize things, and say (without having been in similar circumstances) what a person should do, what you would do -- under those circumstances.
But it's not equally as easy -- to face those circumstances should you ever be put in them...
You see, that's the larger story -- the set of circumstances under which Robert Smith "agreed" (Prosecutor said, hey Robert, "agree to this or we'll prosecute you, and you'll probably go to jail for 20+ years").
None of you have ever been in a situation, a circumstance -- were all of the Federal Government's Lawyers -- all of them -- have been after you, all at the same time, for whatever reason, real or imagined...
If it were ever you, and they had a case against you (legitimate or not), and you had a deal on the table where you could avoid a 20+ year prison sentence, and all you had to do was rat on your billionaire friend (well, that and subsequently get tarred and feathered in the media!) to "make all of this go away" -- how many of you wouldn't take the easier deal, to "make it all go away"?
Let's start with most of you don't have the ethical character to post with your real names on HN...
I'd not want to be in a position where you had to make a high-level ethical decision -- where my future would be determined as a result of that decision...
Oh, and if the underlying argument is "He didn't pay his taxes" -- then my counter argument is "Paying taxes = Paying one's debt to society = Helping other people" -- but if that's the case, then
WHY ARE THERE SO MANY HOMELESS PEOPLE IN CITIES???
What is the Government (Federal, State, City, Local) -- doing to help them? Why do they continue to exist? Surely with the amount of taxes we Americans pay, you would think that Government (any tier of government) could help?
What is Government doing -- to pay it's fair share -- to society, to those people?
?
Help me to understand, please!
I claim Socratic Ignorance!
Rich people don't get that way by following the rules and we're right to be suspicious of them. They don't deserve the benefit of the doubt, because they haven't earned it.