Tax Litigation Law Office of Scott Kauffman
(949) 474-1820

Hackney Literary Award
Mighty River Short Story Contest Winner

IRS sounds intent to probe tax evasion through "stateless income"

Edward Kleinbard likely feels some pride in being credited several years back with authorship of the term “stateless income,” especially now that the Internal Revenue Service is beginning to use it in terms that are undoubtedly garnering the attention of multinational companies with offshore profits.

Kleinbard, ex-chief of staff to a congressional committee on taxation and currently a college professor, says that, until last month, he had “not heard the IRS use the term before.”

Now that it is, companies like Google and Apple are likely paying closest attention, because their names are being prominently mentioned when the subject of stateless income and tax evasion comes up.

The IRS readily distinguishes stateless income from the common practice of multinational business conglomerates and wealthy individuals harboring wealth in one or more offshore bank accounts in order to avoid paying taxes on it in the United States. Business executives often make no attempt to hide that practice at all, noting, rather, that by doing so they are merely availing themselves of lucrative -- and legal -- opportunities offered by governments. Tax avoidance in this matter, they state, actually helps to grow jobs and business ventures.

Stateless income on the other hand applies to cases where, as described by a recent Reuters article, companies such as Apple and Google use multiple offshore units “with no discernible tax home” to hide wealth and avoid lawful tax duties. A recent Senate subcommittee report contends that Apple has avoided about $9 billion in taxes owed to the United States government by manipulating the loopholes offered via stateless income strategies.

The language now being employed by IRS and other federal officials renders it quite evident that the American government is determined to find and close those loopholes, with U.S. Treasury Secretary Jack Lew stating that stateless income “undermines confidence in our tax system at all levels.”

One estimate posits that American companies presently have in excess of $1.5 trillion in offshore accounts.

Source: Reuters, ""IRS pursuing 'stateless income' tax enforcement: official," Patrick Temple-West., July 24, 2013