Tougher Times For Stock Buybacks ? / IRS Shutting Down Tax Loophole

i´m shocked. really shocked! how could it be that thousands of lobbyist were not able to prevent this IRS action.... :-)!

this could have a big impact on the buyback activity. and with only 3 or 4 big auditors left i´m pretty sure that this "technique" is very widespread. time for them to create new ways of avoiding taxes...... if the NYT has it right the same amount would buy companies 33 percent less shares....not insignificant....this may simplify the math but gives you an indication.

ich bin geschockt. wirklich geschockt! nie im leben hätte ich mir träumen lassen das es die tausenden von lobbyisten nicht verhindern können das eine so vorteilhafte regelung für die großen us konzerne gekippt wird... :-)!

das ganze könnte einen erheblichen einfluss auf die rückkauftätigkeit der firmen haben. und da fast alle firmen nur noch von 3-4 buchprufungsfirmen betreut werden kann man davon ausgehen das diese methode der steueroptimierung sehr weit verbreitet ist. wird also zeit für die schlauen köpfe neue wege zu finden..... wenn man das beispiel der NYT zugrunde legt würden künftig 33% weniger aktien für den gleichen betrag erworben werden können. die rechnung ist sicher ziemlich grob gibt aber in etwa eine vorstellung....

I.R.S. Moves to Close Tax Shelter Shortly After I.B.M. Uses It to Save $1.6 Billion

For the second time in 12 months, the government has moved to block a tax shelter that had been aimed at converting billions of dollars of corporate profits, on which taxes have yet to be paid, into profits that will never be taxed.

The move by the Internal Revenue Service came two days after International Business Machines said that it used the technique to avoid paying $1.6 billion in income taxes.

As part of a $12.5 billion stock repurchase, I.B.M. used a foreign subsidiary to buy back shares through foreign exchanges. The subsidiary then used the shares to pay its corporate parent in America for goods and services.

“It’s just a way to bring the profits into the United States without paying taxes by using the stock as currency,” said H. David Rosenbloom...

On May 31, the Internal Revenue Service issued a notice declaring that the technique could not be used to eliminate taxes. The notice said it would disallow any transactions beginning on that day.The technique “raises significant policy concerns,” the I.R.S. said. The I.R.S. shut down a simpler version of the same shelter in September.

Under a 1962 law, corporations can defer paying taxes on most profits earned abroad as long as the money remains outside the country. The taxes come due, however, if the money is returned to the United States.


The technique was believed to be in wide use by corporations that have substantial profits offshore and are also buying back large amounts of their own shares to return value to investors. I.B.M. appears to be the only company that publicly disclosed its use of the tax shelter....

By avoiding the 35 percent federal tax on profit, a company can buy three shares for every two it would be able to acquire with profits that had been taxed.


Over the last 45 years, a variety of techniques to get around the rule have been put forth by accounting firms, but the shelters are typically demolished by the I.R.S. once it learns about them.

The notice effectively kills any further use of the device, Mr. Rosenbloom said, because independent auditors will not issue an unqualified opinion on the books of any company that tries to use the technique.

I.B.M.’s transaction, and any others, would be vulnerable in an audit because of a principle known as economic substance. Transactions that do nothing but eliminate taxes are disregarded if tax auditors discover them....