Tax Lawyer's Blog

The Wall Street Journal reports in an article titled AIG’s Tax Dispute With U.S. has Twist of Irony that,

American International Group Inc. is in a battle with the Internal Revenue Service over $329 million in back taxes and penalties in part stemming from the company’s use of a type of transaction the IRS has called “abusive,” securities filings show. The tax dispute puts AIG — recipient of a $150 billion federal bailout — in the peculiar position of effectively using government funding to fight the U.S. government.

The dispute began with AIG’s filing of Form 843, Claim for Refund, before the U.S. government’s bailout.

Kay Bell of Don’t Mess With Taxes takes up the issue in a post titled AIG Using Federal Funds to Sue IRS. Kay says,

[We] taxpayers are helping pay for AIG’s efforts against the IRS. The tax bill comes, in part, from IRS “disallowance of foreign tax credits associated with cross-border financing transactions.” Those maneuvers by AIG, says the IRS, were an abusive tax scheme. A huge international company using questionable tactics to avoid taxes is not a surprise. Neither is its use of every available avenue to argue for the validity of its tax techniques.

Tax Girl, Kelly Phillips Erb, jumps on the bandwagon and says,

Hmm, I wonder if [AIG will] return some of that bailout money if they win?

Oh wait. They won’t win.

We’re handing AIG more money so that they can pay off debts that they owe… to us.

I left the following comment on the Tax Girl’s blog. It serves also as a reply to Kay Bell, the Wall Street Journal and everyone else who is making the premature (and absurd) claim that AIG is somehow defrauding taxpayers by pursuing an IRS claim it obviously believes it will win:

Hold on there TaxGirl!

How do you know the IRS is right on this issue and AIG is wrong? As a tax lawyer do you often make the assumption that the government is infallible? I don’t.

Your claim that AIG schemed to use the government’s money to fund an IRS lawsuit ignores the fact that AIG filed it’s claim for refund before it was awarded the bailout funds.

AIG got the bailout money in order to keep it’s business afloat. It gets to decide how to use those funds, not the government. After all, do you really want government staffers making the business decisions of our corporate conglomerates?

By the way, what condition would you have put on AIG’s receipt of the bailout funds? Would you have required AIG to abandon it’s 329 million dollar refund claim?

As a taxpayer I, too, want to see the bailout funds put to good use, but if the IRS is wrong on the foreign tax credits and AIG is right, the use of AIG corporate funds (from whatever source) to pursue the IRS claim is not only a business but a moral imperative. The failure of AIG’s Board to approve the use of funds for this purpose would constitute a breach of it’s fiduciary duty to AIG shareholders.

Suing the IRS to get a refund of taxes AIG believes it should not have paid is the right thing to do. If the suit is frivolous as you suggest, AIG and its attorneys should be sanctioned and required to pay the government’s costs of its defense of the suit.

Finally, I don’t have anything remotely approaching your level of certainty about the outcome of AIG’s claim. Apparently, AIG’s tax attorneys disagree with you that AIG “won’t win.”  I think it’s safe to assume that they are infinitely more informed than either you or I about the facts and law involved in the case.

Why don’t we just wait to see the outcome of the AIG claim? The IRS has been wrong before and it’s a good bet they’ll be wrong again in the future. It’s one of the reasons you and I have jobs.

We are inching every day towards the nationalization of our industries.

It is one thing to provide funds to corporations in order to keep them afloat so that American jobs won’t be lost and the economy won’t plummet into the abyss. It is quite another to require those corporations to ignore their own business judgment and defer to government employees who themselves have an abysmal record of using the taxpayers’ money wisely.

If the government were a publicly held corporation and the taxpayers were its shareholders, we’d be perp-walking half of Washington down the capitol steps every day.

Bookmark & Share: