We’re reprinting a relatively recent column because the Treasury Department hastily proposed several rules in April that were specifically designed to stop the $160 billion merger of Allergan and Pfizer. Curiously, the media reported politicians’ hysterical claims that the companies’ actions were “un-American” because they would move taxable income into another country while the companies’ management simultaneously charged that the administration was “un-American” for secretively trying to amend the tax rules without Congress’s knowledge or approval.

Because the rhetoric and the media coverage appealed to emotions and naiveté instead of the law, we’re republishing our slightly edited October 2014 analysis.

We admit to being bemused, astonished and frustrated at the ongoing controversy about “tax inversions” that move a corporate or individual taxpayer’s domicile outside the United States. The amount of public comment, much of it obvious political posturing, has been extraordinary, even to the point that President Obama spoke out.

Consider these examples:

  • In a Senate hearing about Apple’s tax practices, CEO Tim Cook testified that its non-U.S. earnings have not been taxed here, but that it did pay $6 billion in local and federal income taxes in 2013. Afterwards, Sen. John McCain was quoted as saying, “What [Cook and other executives] often leave out is the second part of the story, that Apple is one of the largest tax avoiders.” He also called the company the “most egregious offender.”
  • In “Positively Un-American,” a cover story for Fortune, Allen Sloan rails against corporate inversions, claiming they’ll cost the Treasury $19.5 billion over the next 10 years without acknowledging that that amount is not even a rounding error on the Congressional Budget Office’s prediction of $4.5 trillion of corporate tax collections in the same period. Throughout, he complains that these taxpayers aren’t paying their “fair share.” We note that his description of the U.S. tax structure fails to acknowledge that double taxation of dividends greatly increases the effective rate on corporate income. Strangely, he also avoided pointing out that management would be negligent if it didn’t pursue a strategy that would increase shareholders’ returns.
  • Also in July 2014, President Obama said that, “[Inversion] sticks you with the tab to make up for what they’re stashing offshore through their evasive tax policies.” The following month, he said, “You have accountants going to some big corporations … [who say], you know what, we found a great loophole — if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes. Well, it’s not fair. It’s not right.”

Frankly, we’re dumbfounded by these critics’ complete lack of knowledge of and respect for the long-established legal doctrine that has guided tax policy, enforcement and compliance for at least 80 years. Specifically, we refer to the distinction between tax avoidance and evasion. Avoidance is perfectly legal income management to pay less tax while complying with the law. Evasion is illegally misreporting taxable income to escape paying the required amount.
Ironically, Senator McCain’s criticism of Apple for being a “tax avoider” could easily be interpreted as praise for legally reducing its taxes. In contrast, President Obama mischaracterized moving offshore as “evasive,” using that word’s vernacular definition instead of its legal meaning. We find both speakers’ mistakes to be lamentable.

All these critics maligned managers and accountants who, as far as we know, abided by the law. We noted that the president of the New York State Society of CPAs responded to President Obama’s criticism by saying, “I believe [he] should be aware that U.S. corporations hire accountants for their distinct ability and expertise in seeing that clients fulfill their tax obligations as required by the laws adopted by Congress.”



Two quotations attributed to Judge Learned Hand are fundamental to the body of tax law as practiced by both the legal and accounting professions. This first one dates back 82 years: “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” (Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934))

He also wrote: “Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.” (Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) — dissenting opinion.)

(So you don’t need to look up the definition like we had to, “cant” means “hypocritical and sanctimonious talk, typically of a moral, religious or political nature.”)

At their core, Hand’s statements establish that taxpayers’ wealth and income are theirs to do with as they wish, as long as they pay at least the absolute minimum tax required by the law. They cannot be condemned for doing so and they should not be cajoled or harassed into paying more.

Note that we’re not saying it would be wrong if someone chose to respond to these criticisms by voluntarily paying more taxes than the law requires. However, we would consider it irrational and bizarre.



The words “fair” and “fair share” often come up in these hyper-critical diatribes. Of course, the critics ought to comprehend that no one really knows what share is fair, although we suspect that most people think the tax system would be more fair if they paid less while others paid more.

Simply put, there’s no way to build a clear consensus on what is indeed fair. Instead, we have to rely on a legislative process to establish the amount that must be paid. Of course, the present laws are not evenhanded because they reflect innumerable political compromises maintained over decades. For better or worse, those laws provide the only workable and enforceable definition of “fairness.”

In our eyes, those who legitimately avoid taxes simply want to pay no more than their mandated minimum. Therefore, all the whining that someone isn’t paying their fair share is, well, “mere cant.”

The plain truth is the only legitimate recourse for those who find the tax law to be inequitable is campaigning and voting for new legislators who might change the laws.

In our mind, the critics’ worst tactic is using the press or their positions of authority to browbeat a small group of taxpayers into paying more than the very least they’re required to pay. This ill-conceived approach bypasses legislative processes.

What’s fair is what’s in the law, period.



We cringe when critics propose denying people (including corporations) their fundamental right to move from place to place whenever and wherever they’d like. In 1972, Paul Miller had the gut-wrenching experience of going through the Berlin Wall that kept people in East Germany from leaving for elsewhere. Everyone should despise what that wall stood for while grieving those who died trying to escape.

In that vein, it’s totally clear that there must be no effort to prevent anyone from leaving the U.S. to find another home they will find more favorable in terms of its economic, climatic, cultural, religious, professional, political or tax environment. Restricting their freedom to relocate is not merely unconstitutional but violates their basic human rights.



Our plea to complainers about inversion is to cool their rhetorical attacks on those who are exercising their freedom to do as they wish within the law. Instead, they should take their opinions to appropriate legislative bodies to encourage changing tax laws to reflect their own peculiar idea of fairness. Of course, they will encounter differing opinions and resistance and will more than likely have to cope with getting nowhere.

With regard to those who believe it’s suitable for the Treasury to discourage inverting through its regulatory scheme without actually changing the code, we think that approach crosses lines that must not be crossed.

For those who embrace this non-legislative initiative, look out. If you think it’s OK to have one set of government bureaucrats circumvent laws to impose your preferred view on others, think again! That discretion can just as easily be turned against you by others who come to power later. It’s a losing game.

In other words, either stifle your cant or put up the effort to legitimately change the laws.



As a solution, we propose an option that could avoid drastically rewriting the law while satisfying those who think today’s tax structure is unfair.

Specifically, Congress could vote to add a “fair share self-adjustment” line to tax returns right below the line for the year’s calculated tax. Taxpayers could reduce their own liabilities to their perceived “fair” level by simply subtracting whatever amount they’d rather not pay. On the other hand, taxpayers who believed they had legally reduced their tax obligation by too much could use the same line to add any additional amount they want to pay.

Obviously, this idea is satirical hyperbole. Nonetheless, it is just as logical as criticizing those who move to less taxing jurisdictions to avoid, not evade, higher taxes. 



On April 20, a date we’re certain was chosen to ensure that most American Institute of CPAs members would be zombie-like after the busy season, the institute’s elite directed the so-called “independent tabulator” to send out an e-mail with two radically different instructions on how to vote on the merger with CIMA.

The first provides a code for logging in, which only makes sense.

The other outrageously instructs them to vote “Yes” by claiming: “The Proposal, which was endorsed by the AICPA’s governing Council 222-0, is also supported by the AICPA Board of Directors, 52 state CPA societies and committees representing members in firms, business, government and education.”

In our opinion, this advocacy for the proposal makes the tabulator no more independent than a corrupt election judge who hands out ballots and says, “Be sure to vote for Jones.” This blunder is more than enough to taint the entire balloting process, even to the point of nullifying it if the proposal passes.

Further, we call attention (again) to the fact that something is terribly wrong with the institute’s Governing Council, its board of directors, the state societies and committees if not one single soul voted against this controversial proposal.

All responsible institute members should vote “no” because this whole affair completely fails the ethical sniff test.

Paul B. W. Miller is an emeritus professor at the University of Colorado at Colorado Springs and Paul R. Bahnson is a professor at Boise State University. The authors’ views are not necessarily those of their institutions or Accounting Today. Reach them at paulandpaul@qfr.biz.

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