Law prof to patent-holding companies: be like Al Capone?
Further to an earlier post on the use of shell companies to reduce tax payments on patent royalties (Merck quietly transferred patents underlying the blockbuster drugs to the new subsidiary), IPBiz notes the idea came from a legal academic.
From the Wall Street Journal
through the taxprof blog:
Many of the strategies like the ones used by Merck, Dow and GE were inspired by one man. In 1988, longtime tax attorney and New York University law school professor R. Donald Turlington published an influential article in the proceedings of a tax conference. Subtitled "The Art of Tax Avoidance," the article began with a 1931 quote from the late Chicago Mafia boss Al Capone: "A good lawyer with a briefcase can steal more than ten men with machine guns." In the article, Mr. Turlington laid out ways companies could lower their taxes by exploiting a loophole in the way income was allocated within partnerships for tax purposes.
He focused on the concept of depreciation, a key tool to lowering taxes. For example, in the U.S. a factory is considered to have a finite life of 39 1/2 years and loses its value gradually during that life. An owner is allowed to deduct a portion of its cost each year, so if the factory cost $39.5 million, the company can deduct $1 million a year from the plant's taxable income. But after that, a company can end up with considerable income from the asset and no offsetting deductions. In the case of pharmaceutical patents, tax write-offs generally are used up during research and development.
IPBiz is not sure which article has the Al Capone quote, but one might try:
R. Donald Turlington & Reba A. Beeson, Master Limited Partnerships Current Issues, Techniques and Strategies, in Partnership Taxation 1988: An Advanced Program, 211, 228-30 (1988).
R. Donald Turlington, Section 704(c) and Partnership Book-Tax Disparities, The Ceiling Rule and the Art of Tax Avoidance, 46 Inst. on Fed. Tax'n 26 (1988).
The taxprof blog also had:
* Sad story in today's Chronicle of Higher Education: Baked Professor Is Burned on Blog, Canned by College:
Until earlier today [Sept 29], viewers of BoingBoing, a popular blog, could watch a video clip of a giggling business-school lecturer acting goofy in class, under the heading “apparently-baked biz school prof who was soon fired.” The professor, Howard J. Hall, a lecturer at the University of Florida’s Warrington College of Business, appears in a video still on the site brandishing his middle finger. The video was available through links to the college’s Web site. Next to the photo, the poster wrote: “It appears from the content of this video that this University of Florida professor—whom everyone has to take in the business school—got REALLY REALLY REALLY HIGH before one of his classes.”
Will this show up on YouTube?
**UPDATE**
Med-chatter has the following text on a Sept. 29 post:
This story appeared in the Wall Street Journal yesterday. It is yet another tale of companies who publically take pride in their "civic commitments to improve society" privately ducking their civic commitments to pay taxes - leaving more of that burden to the ordinary worker (and patient).The Al Capone quote by the professor who "invented" these tax-avoidance strategies is particularly disturbing ("a good lawyer with a briefcase can steal more than ten men with machine guns"):Bermuda Triangle: How Merck Saved $1.5 Billion Paying Itself for Drug Patents; Partnership With British Bank Moved Liabilities Offshore; Alarmed U.S. Cracks Down; 'The Art of Tax Avoidance'Jesse Drucker, Sep 28, 2006. SOUTHAMPTON, Bermuda -- Merck & Co.'s medications Zocor and Mevacor have been used by millions of people to help lower their cholesterol. But Merck also used the drugs to lower something else: its U.S. tax bill.Thirteen years ago, Merck set up a subsidiary ...
Med-chatter also has some text about the cost of litigation in an Oct. 18 post:
A New Jersey judge yesterday ordered Merck to release records on how much it spent on a trial involving its Vioxx painkiller. The information would provide a window into how much Merck spends on its trials, and what its legal defense costs could be in the future. Nearly 30,000 suits have been filed against Merck, which has vowed to try each case involving Vioxx.So far, Merck has reserved $970 million for legal costs and spent $285 million of that last year. Judge Carol Higbee's order stems from a request from plaintiffs' lawyers that Merck pay their legal fees and expenses of roughly $5.6 million for a trial that combined the cases of two men who suffered heart attacks while taking Vioxx. The jury found Merck committed consumer fraud in its marketing of Vioxx, and that finding allows plaintiffs' firms to ask for legal fees. But Merck balked at the expense level, prompting plaintiffs' ...
Separately, one can find a different variant concerning taxes and patents at:
http://ipbiz.blogspot.com/2006/10/business-method-patents-in-tax-area.html
From the Wall Street Journal
through the taxprof blog:
Many of the strategies like the ones used by Merck, Dow and GE were inspired by one man. In 1988, longtime tax attorney and New York University law school professor R. Donald Turlington published an influential article in the proceedings of a tax conference. Subtitled "The Art of Tax Avoidance," the article began with a 1931 quote from the late Chicago Mafia boss Al Capone: "A good lawyer with a briefcase can steal more than ten men with machine guns." In the article, Mr. Turlington laid out ways companies could lower their taxes by exploiting a loophole in the way income was allocated within partnerships for tax purposes.
He focused on the concept of depreciation, a key tool to lowering taxes. For example, in the U.S. a factory is considered to have a finite life of 39 1/2 years and loses its value gradually during that life. An owner is allowed to deduct a portion of its cost each year, so if the factory cost $39.5 million, the company can deduct $1 million a year from the plant's taxable income. But after that, a company can end up with considerable income from the asset and no offsetting deductions. In the case of pharmaceutical patents, tax write-offs generally are used up during research and development.
IPBiz is not sure which article has the Al Capone quote, but one might try:
R. Donald Turlington & Reba A. Beeson, Master Limited Partnerships Current Issues, Techniques and Strategies, in Partnership Taxation 1988: An Advanced Program, 211, 228-30 (1988).
R. Donald Turlington, Section 704(c) and Partnership Book-Tax Disparities, The Ceiling Rule and the Art of Tax Avoidance, 46 Inst. on Fed. Tax'n 26 (1988).
The taxprof blog also had:
* Sad story in today's Chronicle of Higher Education: Baked Professor Is Burned on Blog, Canned by College:
Until earlier today [Sept 29], viewers of BoingBoing, a popular blog, could watch a video clip of a giggling business-school lecturer acting goofy in class, under the heading “apparently-baked biz school prof who was soon fired.” The professor, Howard J. Hall, a lecturer at the University of Florida’s Warrington College of Business, appears in a video still on the site brandishing his middle finger. The video was available through links to the college’s Web site. Next to the photo, the poster wrote: “It appears from the content of this video that this University of Florida professor—whom everyone has to take in the business school—got REALLY REALLY REALLY HIGH before one of his classes.”
Will this show up on YouTube?
**UPDATE**
Med-chatter has the following text on a Sept. 29 post:
This story appeared in the Wall Street Journal yesterday. It is yet another tale of companies who publically take pride in their "civic commitments to improve society" privately ducking their civic commitments to pay taxes - leaving more of that burden to the ordinary worker (and patient).The Al Capone quote by the professor who "invented" these tax-avoidance strategies is particularly disturbing ("a good lawyer with a briefcase can steal more than ten men with machine guns"):Bermuda Triangle: How Merck Saved $1.5 Billion Paying Itself for Drug Patents; Partnership With British Bank Moved Liabilities Offshore; Alarmed U.S. Cracks Down; 'The Art of Tax Avoidance'Jesse Drucker, Sep 28, 2006. SOUTHAMPTON, Bermuda -- Merck & Co.'s medications Zocor and Mevacor have been used by millions of people to help lower their cholesterol. But Merck also used the drugs to lower something else: its U.S. tax bill.Thirteen years ago, Merck set up a subsidiary ...
Med-chatter also has some text about the cost of litigation in an Oct. 18 post:
A New Jersey judge yesterday ordered Merck to release records on how much it spent on a trial involving its Vioxx painkiller. The information would provide a window into how much Merck spends on its trials, and what its legal defense costs could be in the future. Nearly 30,000 suits have been filed against Merck, which has vowed to try each case involving Vioxx.So far, Merck has reserved $970 million for legal costs and spent $285 million of that last year. Judge Carol Higbee's order stems from a request from plaintiffs' lawyers that Merck pay their legal fees and expenses of roughly $5.6 million for a trial that combined the cases of two men who suffered heart attacks while taking Vioxx. The jury found Merck committed consumer fraud in its marketing of Vioxx, and that finding allows plaintiffs' firms to ask for legal fees. But Merck balked at the expense level, prompting plaintiffs' ...
Separately, one can find a different variant concerning taxes and patents at:
http://ipbiz.blogspot.com/2006/10/business-method-patents-in-tax-area.html
posted by Lawrence B. Ebert at 5:45 AM
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