Abusive Tax Avoidance and Institutional Corruption:: The Responsibilities of Tax Professionals

Abusive Tax Avoidance
and Institutional
Corruption: The Responsibilities
of Tax Professionals
Gillian Brock
Network Fellow, Edmond J. Safra Center for Ethics
Professor of Philosophy, University of Auckland
Hamish Russell
PhD Student, University of Toronto
Edmond J. Safra Working Papers, No. 56

http://www.ethics.harvard.edu/lab
February 17, 2015

Edmond J. Safra Working Papers, No. 56
About this Working Paper Series: In 2010, Lawrence Lessig launched the Edmond J. Safra
Research Lab, a major initiative designed to address fundamental problems of ethics in a way
that is of practical benefit to institutions of government and society around the world. As its
first undertaking, The Edmond J. Safra Research Lab is tackling the problem of
Institutional Corruption. On March 15, 2013, this Working Paper series was created to
foster critical resistance and reflection on the subject of Institutional Corruption.
http://www.ethics.harvard.edu/lab
Abusive Tax Avoidance and Institutional Corruption:

The Responsibilities of Tax Professionals
by Gillian Brock and Hamish Russell
Edmond J. Safra Research Lab Working Papers, No. 57
Harvard University
124 Mount Auburn Street, Suite 520N, Cambridge, MA 02138
This work is licensed under a Creative Commons Attribution 3.0 Unported License.
http://creativecommons.org/licenses/by/3.0/deed.en_US
EDMOND J. SAFRA RESEARCH LAB, HARVARD UNIVERSITY • ABUSIVE TAX AVOIDANCE AND INSTITUTIONAL 2
CORRUPTION: THE RESPONSIBILITIES OF TAX PROFESSIONALS • BROCK & RUSSELL • FEBRUARY 17, 2015
Abstract
Professionals and professional firms provide a range of taxation-related services,
from advising clients on their tax obligations to designing and implementing tax-
reduction strategies. Provided that tax professionals respect the letter of the law,
are all such tax services morally permissible? We answer this question in the
negative by distinguishing between institutional integrity and institutional
corruption in fiscal arrangements; tax services that promote a situation of fiscal
institutional corruption are impermissible, given that they severely inhibit the
ability of taxation institutions to collect revenue efficiently and equitably. The
professional facilitation of abusive tax avoidance—explicit tax reduction that is
contrary to the spirit or intent of the law—is a particularly prominent aspect of
fiscal institutional corruption. We illustrate the role of professionals in designing,
promoting and implementing abusive tax avoidance strategies through several case
studies, including the Wyly offshore network and the KPMG tax shelter scandal. In
addition, we claim that tax professionals have specific responsibilities to help
remedy institutional corruption associated with abusive tax avoidance. To argue
this thesis, we present general principles for assigning remedial responsibilities to
particular agents. We then apply those principles to determine what three major
groups of tax professionals—accountants, lawyers, and financial experts—ought to
do about abusive tax avoidance.
Keywords:
Institutional corruption, institutional integrity, tax abuse, tax professionals and

responsibilities, remedial responsibilities, abusive tax avoidance, fiscal corruption
1. Introduction
Estimates of the degree and impact of abusive tax avoidance are staggering. The
charity Christian Aid believes that developing countries lose $160 billion each year
from tax evasion and avoidance.1 In contrast, the combined annual international
aid from developed countries to the developing world totals to only $100 billion.2
Tax avoidance is also a serious problem for developed countries. The U.S. Internal
Revenue Service estimates that about one million tax returns involved abusive tax
avoidance in 2004.3 The IRS’s most recent estimates of the “tax gap”—the
difference between the total tax amount that should have been voluntarily paid and
the amount that was actually paid—are $290 billion for the 2001 tax year and
$385 billion for 2006.4 These figures are likely to significantly underestimate the
amount of U.S. tax that is lost from taxpayers exploiting technical loopholes in the
tax code in ways that lawmakers never intended.
Tax avoidance on this scale has serious consequences and real victims.
Governments tax their populations in order to finance public projects such as
infrastructure, healthcare and education; provide support to vulnerable groups in
the form of transfer payments; and perform a range of other functions in the public
interest. Taxpayers who engage in extensive tax avoidance deprive governments of
revenue that is needed to fund these public projects and transfer payments. Often
this means services must be cut back; other times it forces governments to
increase taxes on labor or sales of goods and services in order to meet their fiscal
obligations, resulting in tax systems that are generally more regressive.5 Both of
these outcomes tend to have the greatest negative effect on the most
disadvantaged members of society, who typically have the least ability to arrange
1
Christian Aid, “Death and Taxes: The True Cost of Tax Dodging,” May 2008, 2,
http://www.christianaid.org.uk/images/deathandtaxes.pdf.
2
More precisely, the total combined aid from rich countries was $103.7 billion in 2007. See id.
3
U.S. Government Accountability Office (GAO), “Abusive Tax Avoidance Transactions: IRS Needs Better Data
to Inform Decisions About Transactions,” GAO-11-493, May 2011, 1
4
Internal Revenue Service, “IRS Releases New Tax Gap Estimates; Compliance Rates Remain Statistically
Unchanged from Previous Study,” IR-2012-4, January 6, 2012, http://www.irs.gov/uac/IRS-Releases-New-
Tax-Gap-Estimates;-Compliance-Rates-Remain-Statistically-Unchanged-From-Previous-Study.
5
John Christensen and Sony Kapoor, “Tax Avoidance, Tax Competition and Globalisation: Making Tax Justice
a Focus for Global Activism,” Accountancy Business and the Public Interest 3.2 (2004): 1-13,
http://visar.csustan.edu/aaba/Christensen&Kapoor2004.pdf.
their financial affairs so as to reduce their effective tax burdens.6 Multinational
corporations and wealthy individuals—who are the best positioned to contribute
revenue to public coffers and who consequently should bear the greatest
responsibilities to contribute—are able to avoid an alarming proportion of their tax
obligations through complex and contrived arrangements.
Why is abusive tax avoidance the prerogative of wealthy individuals and large
corporations? Primarily because a very high level of technical expertise is required
to establish and manage an effective tax avoidance strategy, and that expertise
does not come cheap. A large and multifaceted industry of professionals—including
lawyers, accountants, finance specialists, bankers and offshore service experts—
thrives on creating “tax benefits” for those who can afford their services. The IRS
estimates that in 2004, alongside the one million tax returns that purportedly
involved abusive tax avoidance, there were between 11,000 and 15,000 promoters
of such schemes.7 Some of these promoters are small, secretive establishments,
but large and reputable professional firms are also major facilitators of abusive tax
avoidance. As a U.S. Senate report observes, “dubious tax shelter sales are no
longer the province of shady, fly-by-night companies with limited resources. They
are now big business, assigned to talented professionals at the top of their fields
and able to draw upon the vast resources and reputations of the country’s largest
accounting firms, law firms, investment advisory firms, and banks.”8 In this paper
we document the various ways in which professionals assist in, and benefit from,
promoting, designing and implementing abusive tax shelters. We also explain how
tax professionals are well positioned to help reduce the scale of abusive tax
avoidance. Our primary aim is to argue that tax professionals, in virtue of these
connections, have specific responsibilities to help reduce the incidence of abusive
tax avoidance and remedy its negative consequences. Professionals are not the
only actors with such responsibilities: governments and taxpayers also have
important roles to play. But the fact that other actors must share the remedial
6
The consequences of tax avoidance for the disadvantaged are especially great in developing countries, where
well-meaning governments cannot always meet the basic needs of their residents. Christian Aid estimates
that, without any change in the proportion of government revenues spent on healthcare in developing
countries, the lives of an additional 350,000 children under the age of five would be saved each year if the
$160 billion lost to tax avoidance and evasion were recouped. See Christian Aid, “Death and Taxes,” 2.
7
GAO, “Abusive Tax Avoidance Transactions,” 9.
8
Permanent Subcommittee on Investigations of the Committee on Governmental Affairs, United States
Senate, “U.S. Tax Shelter Industry: The Role of Accountants, Lawyers and Financial Professionals,” 91-043
PDF, November 18 and 20, 2003, 149.
burden does not detract from the legitimate and significant duties that attach to
tax professionals and the organizations that represent them.9
That is our main thesis, but there are additional reasons for readers to be
interested in this paper. In the first half, we contribute to the growing literature on
institutional corruption by applying the concept to taxation institutions. In
particular, we explain how tax professionals contribute to fiscal institutional
corruption by facilitating abusive tax avoidance. We also illustrate how the
conceptual connection between institutional integrity and corruption is useful in
identifying ways that professionals can contribute positively to fiscal efficiency and
equity. In the second half of the paper, we develop a strategy for assigning specific
remedial duties to particular agents in situations where several different parties
seem to be in some way responsible. Our focus is on the application of this
framework to the problem of abusive tax avoidance, but readers with an interest in
the assignment of remedial responsibilities more generally should read these
sections as an example of how this assignment can be done in practice.
The paper is organized as follows. In Section 2, we define the parallel concepts of

institutional corruption and institutional integrity. In Sections 3 and 4, we clarify
the notion of abusive tax avoidance, discuss its relation to tax enforcement policies
in the U.S. and other countries, and introduce a case study that illustrates the role
of tax professionals in facilitating abusive tax avoidance. In Section 5 we bring
together the preceding sections by arguing that, in promoting abusive tax
avoidance, tax professionals contribute significantly to institutional corruption in
fiscal institutions. The second half of the paper focuses on the assignment of
remedial responsibilities for abusive tax avoidance. In Section 6, we argue that
such responsibilities are strongest when three salient connective grounds can be
established: causal contribution, benefit, and capacity to assist. Then in Sections
7-9 we apply this framework to three of the most important groups of tax
professionals: accountants, lawyers, and financial advisors. Along the way, we
discuss specific proposals to address abusive tax avoidance and explain how
professionals can be important parts of these solutions. Section 10 concludes with
9
Our focus here is on abusive tax avoidance in developed countries, particularly the United States; for
discussion of the impact of fiscal institutional corruption on developing countries, see Brock’s earlier
contribution to this working paper series. Gillian Brock, “Institutional Integrity, Corruption, and Taxation,”
Edmond J. Safra Research Lab Working Papers, No. 39, March 13, 2014, http://ssrn.com/abstract=2408183.
an argument that many of the duties that we establish are already implied by
accepted standards of professional integrity.
2. Fiscal Institutional Integrity and Corruption

In contrast with Lawrence Lessig’s widely cited account of institutional corruption,
we believe that an adequate definition of institutional corruption needs to start
from the converse notion of institutional integrity.10 There is a state of institutional
integrity when all four of the following conditions are met:11
1) An institution achieves its purposes effectively and equitably.
2) Insofar as an institution is properly dependent on P (or parties P1, P2, …,

Pn), is required to promote the interests of P (or parties P1-Pn), or is
required to be accountable to P (or parties P1-Pn), it does so and does
not improperly depend on or promote the interests of other parties.
3) Because 1) and 2) are the case, public confidence in the institution is

appropriate. This confidence may assist the effectiveness of the
institution.
4) Public confidence in the institution’s practices, operations, and policies

can also survive appropriate transparency and accountability tests.
By contrast, institutional corruption is a situation in which institutional integrity is

lacking in the four ways outlined above; that is, all four of the above conditions fail
to be the case, or when:
1*) Institutions do not achieve their purposes effectively and equitably. These
failures are a result of 2*).
2*) Some parties have improper influence over the institution’s operations,
practices, or policies resulting in important losses to effectiveness or
equity.
10
Lawrence Lessig, “Institutional Corruption,” Lessig Wiki, http://wiki.lessig.org/InstitutionalCorruption,
accessed February 26, 2014.
11
These definitions of institutional corruption and institutional integrity were first presented in Brock,
“Institutional Integrity, Corruption, and Taxation,” 5-6.
3*) Because of 1*) and 2*) public confidence in the institution is inappropriate
and this loss of trust can undermine the institution’s ability to achieve its
proper purposes effectively and equitably.
4*) Public confidence in the institution’s practices, operations, and policies

cannot survive appropriate transparency and accountability tests.12
Institutional integrity and corruption take on different characters depending on the

nature and function of a particular institution. With regard to taxation institutions,
we have a state of institutional integrity when the following four conditions are
met:13
1) A tax institution achieves its main purpose when it raises revenues

effectively and equitably for the state’s necessary or legitimate activities
and functions. Tax institutions have one “obligatory purpose” and that is
to raise revenue effectively and equitably.
2) State tax institutions are properly dependent on citizens. Though state tax
institutions may collect revenue from a number of sources (through
royalties, licenses, fees, taxes, and so on), tax institutions should also
promote relevant interests of citizens, help citizens discharge their duties,
and must always be accountable to citizens. Tax institutions may derive
revenue from other parties, but any dependence that arises therefrom
must be mediated through full accountability to citizens.
3) Because taxes are raised effectively and equitably, in ways that promote
citizens’ relevant interests, help citizens discharge their tax duties, and
are fully accountable to those citizens, public confidence in institutions
that collect tax is appropriate. This confidence often assists the
effectiveness of the institution, especially when high tax morale leads to
high levels of tax compliance.
4) Public confidence in the institution’s practices, policies, and operations

can survive appropriate transparency and accountability tests.
12
While there may be interesting cases of partial institutional corruption, where only some of the conditions of
institutional integrity have been eroded, we do not consider such cases here.
13
Brock, “Institutional Integrity, Corruption, and Taxation,” 7-8.
By contrast, fiscal institutional corruption occurs when all four of the above
conditions fail to be the case:
1*) Fiscal institutions do not raise revenue effectively and equitably, because
of 2*).
2*) Because of improper dependencies, some parties have improper influence

over the institutional practices, operations, or policies. These improper
dependencies and influences have resulted in important losses to
effectiveness and equity.
3*) Because of 1*) and 2*) public confidence in the practices, policies and
operations of a tax institution is inappropriate and this loss of trust can
further undermine the institution’s ability to achieve its proper purposes
effectively and equitably.
4*) Public confidence in the practices, policies, and operations of tax

institutions cannot survive appropriate transparency and accountability
tests.
In an earlier contribution to this working paper series, Brock discusses a number of

particularly worrisome behaviors that lead to improper dependencies (or improper
independencies) in fiscal arrangements.14 Multinational corporations, which should
on principles of efficiency and equity pay a large proportion of tax, are able to
avoid most of their tax obligations by using profit-shifting techniques to record the
majority of their profits in low tax jurisdictions, rather than in the countries where
economic activity actually takes place. Corporations are also able to lobby
governments for special tax treatment as a condition for foreign direct investment,
despite the questionable benefits of these deals. The sale of natural resources,
which ought to provide much needed revenues to many developing countries, is
frequently non-transparent, leading to the flight of billions of untaxed dollars into
private accounts. Furthermore, the existence of offshore tax havens, characterized
by low or no tax on most asset types and strict banking secrecy laws, allows
wealthy taxpayers to circumvent the tax laws of the jurisdictions where they reside
or operate. The overall effect of these improper dependencies is to severely erode
14
Id.
the ability of fiscal institutions to raise revenue efficiently and equitably, reducing
public confidence in fiscal institutions to the point where this confidence cannot
survive appropriate transparency and accountability tests.
In this paper, our focus is on the category of “abusive tax avoidance.” A tax
avoidance strategy is abusive when the tax benefits obtained are not in keeping
with the spirit or intent of the legal provisions that the strategy relies upon. (We
elaborate on this definition in the next section.) There are overlaps between abusive
tax avoidance and the aspects of fiscal institutional corruption mentioned above;
for example, many instances of transfer pricing will count as abusive tax avoidance,
and the majority of abusive tax avoidance strategies make use of offshore
jurisdictions. Over the next three sections, we outline the reasons for our focus on
abusive tax avoidance, discuss an important case study that illustrates the role of
tax professionals in facilitating abusive avoidance, and explain why this facilitative
role amounts to institutional corruption. Along the way, we strengthen the case for
defining institutional corruption in terms of institutional integrity, observing that
the taxation services provided by professionals are morally problematic insofar as
they contribute to institutional corruption rather than integrity.
3. Abusive Tax Avoidance

We use the term “tax avoidance” broadly in this paper, taking it to include any
activity, arrangement or transaction that reduces the total amount of explicit taxes
paid by an individual or organization.15 According to this definition, a wide range of
activities count as tax avoidance. On one end of the scale are forms of fraud, such
as deliberately concealing taxable assets or falsifying a tax return. On the other end
of the scale are clearly unobjectionable decisions to take advantage of tax savings,
such as purchasing products from duty free stores or investing in municipal bonds
that have lower tax rates. The terms “tax evasion” and “tax planning” are often
used, respectively, to indicate each of these extremes: tax evasion is clearly illegal,
while tax planning is straightforwardly permissible.
15
A similar approach is adopted by Michelle Hanlon and Shane Heitzman, “A Review of Tax Research,” Journal
of Accounting and Economics 50.2 (2010): 127-178, 137.
However, in this paper we do not restrict our focus to cases of tax evasion. In our
view, the subset of tax avoidance practices that are problematic from a normative
perspective is best captured by the broader category “abusive tax avoidance.” A tax
avoidance arrangement is abusive when it reduces explicit taxes in a manner not
intended by lawmakers.16 A company that uses complex profit-shifting techniques
to reduce its apparent tax obligations might fall shy of tax evasion, but could
nonetheless be engaged in abusive tax avoidance. Abusive tax avoiders often rely
on creative accounting techniques to make their activities appear legal, and in
practice it can be very difficult to determine whether a complex strategy is in fact
abusive. For this reason, potentially abusive tax avoidance strategies, which push
the boundaries of the law’s intent without obviously crossing those boundaries, are
also within the scope of this paper. Furthermore, we are particularly concerned
with highly sophisticated and technical abusive (or potentially abusive) tax
avoidance schemes, which are sometimes called “tax shelters.” To utilize a tax
shelter is to engage in tax sheltering.17
A focus on abusive tax avoidance, rather than the narrower category of tax evasion,
reflects the choice of a purposive reading of tax law over a literalist reading. Roughly
speaking, a literalist interpretation of tax law regards a tax avoidance strategy
(arrangement, transaction, etc.) as legally enforceable and punishable just in case
it is contrary to the letter of a particular provision in the relevant tax code. In
contrast, a purposive interpretation extends the legitimate scope of enforcement to
tax avoidance strategies that are contrary to the spirit of the law, or the intent of
lawmakers in writing the law. In light of globalization and technological
developments, governments have very good, pragmatic reasons for favoring the
purposive approach. Tax shelters have become immensely complex and creative,
involving esoteric financial instruments and multiple layers of trusts, corporations
and special purpose entities. In many cases, transactions are conducted within and
between offshore secrecy jurisdictions and staggered across several years. The
number of professionals employed at developing and implementing novel tax
16
This definition of abusive tax avoidance is employed by the United States Internal Revenue Service; see,
e.g., GAO, “Abusive Tax Avoidance Transactions,” 3. Similar terminology has been adopted by tax authorities
in the United Kingdom, Canada and several other countries.
17
See, id., 1; and H.M. Revenue and Customs, “HMRC’s GAAR Guidance,” HMRC, 2013,
http://www.hmrc.gov.uk/avoidance/gaar-part-abc.pdf. Note that we do not restrict our definition to explicit
tax-reductions within a given tax year, as many abusive tax avoidance arrangements spread tax benefits
across multiple tax years in an attempt to escape detection by authorities.
avoidance strategies vastly outweighs the number of government workers tasked
with uncovering those strategies and adapting the tax code to exclude them. In the
U.K., for instance, the Big Four accountancy firms employ around 250 transfer
pricing specialists, whereas Her Majesty’s Revenue and Customs (HMRC) has only
65 transfer pricing specialists.18 An upshot of the technical sophistication and
extensive resources of the tax avoidance industry is that it has become practically
infeasible, on a literalist interpretation of the law, for tax authorities to stem the
enormous loss of revenue brought about by highly contrived tax avoidance
arrangements. It is now effectively impossible to design a tax code in such a way as
to close off all potential loopholes,19 meaning that by taking a literalist approach
tax authorities can at best hope to quickly identify and adapt the tax code to
exclude each new tax avoidance innovation. This leaves open a window for millions
or billions of dollars to “legally” avoid taxation before the necessary legal changes
are made. A purposive approach allows tax authorities to regain some of the upper
hand, since it empowers courts to prosecute tax avoidance strategies that
contradict the law’s spirit, without having to first adapt the tax code for each new
strategy. Practically speaking, this is a great advantage to tax authorities.
In moving to a purposive reading of tax law, some countries have adopted a general
anti-avoidance rule (GAAR).20 The Canadian Supreme Court applies the following three-
part test to determine whether a particular transaction violates Canada’s GAAR:
1. Was there a tax benefit?
2. Was the transaction arranged for any bona fide purpose other than to avoid
tax?
3. Was the tax benefit obtained consistent with the object, spirit or purpose of
the provisions relied upon?21
18
British House of Commons Committee of Public Accounts, “Tax Avoidance: The Role of Large Accountancy
Firms,” Forty-Fourth Report of Session 2012-13, HC 870, April 26, 2013, 8. Transfer pricing involves the
manipulation of prices in international trading of assets between related entities, sometimes in order to
secure an abusive tax benefit.
19
Excluding, perhaps, a radical simplification of the tax law.
20
Brian Arnold, “A Comparison of Statutory General Anti-Avoidance Laws and Judicial General Anti-Avoidance
Doctrines as a Means of Controlling Tax Avoidance: Which is Better? (What Would John Tiley Think?),” in John
Avery Jones, Peter Harris and David Oliver, eds., Comparative Perspectives on Revenue Law: Essays in Honour of
John Tiley, (Cambridge University Press, 2008).
If, and only if, the respective answers to these questions are “yes,” “no” and “no,”
the Supreme Court of Canada deems the transaction to be abusive tax avoidance
and hence subject to law enforcement. It is easy to see how this test can provide
useful guidance in particular cases. If part of the reason for transferring assets into
an offshore tax haven is so that one can genuinely do business in that tax haven,
that could justify treating the transfer as non-abusive. Alternatively, if an individual
decides to invest in municipal bonds rather than other assets, solely because of the
lower tax rate on municipal bonds, that would also be a non-abusive transaction
since encouraging individuals to invest in municipal bonds was precisely the intent
of lawmakers in introducing lower tax rates on that asset. However, when a
transaction (or arrangement, activity, etc.) has no bona fide purpose other than to
gain a tax benefit, and when that tax benefit is obtained in a way that is
inconsistent with the spirit of the provisions relied upon, then Canada’s GAAR will
rightly classify the transaction as abusive.
General anti-avoidance standards do not eliminate all grey areas and ambiguities.
In difficult cases it will not always be clear whether the proclaimed purpose of a
transaction was in fact a bona fide purpose, and experts may reasonably disagree
about the spirit or intent of a particular provision.22 Such grey areas do not,
however, mean that the distinction between abusive and non-abusive tax avoidance
is intrinsically flawed or overly subjective. Many other legal distinctions, such as
“murder” and “manslaughter,” can be difficult to apply in practice, but this is not
adequate grounds for abandoning those distinctions. On the contrary, such
ambiguities provide a strong incentive to improve the quality of information
available to courts so that the relevant distinctions may be more reliably applied.
Similarly with tax avoidance: difficulties in deciding between abusive and non-
abusive cases should not lead us to abandon the distinction, but encourage us to
equip the relevant courts with better information.
One of our main reasons for focusing on abusive tax avoidance in this paper is to
align our discussion of institutional corruption and remedial responsibilities with
the categories actually used to enforce tax compliance in countries like the U.S.
21
Jeffrey Simser, “Tax Evasion and Avoidance Typologies,” Journal of Money Laundering Control 11.2 (2008):
123-134, 124.
22
Simser helpfully illustrates this potential for disagreement in discussing two recent Canadian cases. See
“Tax Evasion and Avoidance Typologies,” 124-125.
and Canada. However, there is another, equally important reason why we are
focusing on abusive tax avoidance rather than the narrower category of tax evasion.
In terms of their consequences for fiscal institutions, tax evasion and abusive tax
avoidance are practically indistinguishable: both significantly impede the ability of
fiscal institutions to collect revenue equitably and efficiently, and both weaken
public confidence in the practices, policies and operations of those institutions.
Non-abusive tax avoidance does not have these corrupting consequences; in
permitting or even encouraging non-abusive tax avoidance, and hence by providing
fair and effective terms on which taxpayers can reduce their explicit tax payments,
governments can potentially increase public confidence in the equity and efficiency
of the tax system.23 Given our concern with institutional corruption, it is
appropriate to emphasize the line between abusive and non-abusive avoidance,
rather than between evasion and non-evasion.
There are aspects of fiscal institutional corruption that do not fit within the
category of abusive tax avoidance. Corporate lobbying for favorable tax treatment,
for example, may be done entirely within the spirit of the relevant laws, but
nevertheless damage the institutional integrity of taxation systems. A third reason
for our focus on abusive tax avoidance is that it provides an especially clear
illustration of the connections between tax professionals and fiscal institutional
corruption. We begin to outline those connections next.
4. Case Study: The Wyly Offshore Network

In 2005, Dallas-based billionaires Sam and Charles Wyly became the subject of an
inquiry by the U.S. Senate Permanent Subcommittee of Investigations. The Wyly
brothers allegedly used an elaborate offshore network to avoid tax on hundreds of
millions of dollars that was earned and traded in the U.S.24 In this section we
introduce the Wylys’ offshore network as a case study that illustrates many of the
issues we are addressing in this paper.
23
This assumes that the available tax deductions are based on principles of efficiency and equity, such as
encouraging productive investments and avoiding double taxation, and are not themselves distorted by
subversive political factors—that is, by political institutional corruption.
24
United States Senate Permanent Subcommittee on Investigations, “Tax Haven Abuses: The Enablers, the
Tools, and Secrecy,” Senate Hearing 109-797, August 1, 2006, 113.
The Wyly Offshore Network. Between 1992 and 2005, the Wyly brothers set up 58
different entities in offshore tax havens such as the Cayman Islands and the Isle of
Man. These offshore entities included 39 “shell” corporations, none of which had
any employees or offices, which were in turn owned by 19 offshore trusts.25 The
Wylys moved approximately $190 million into these entities by way of a “stock
option-annuity swap”: Wyly-owned stock options, an asset that is taxable only once
exercised, were sold to Wyly-related offshore corporations in exchange for annuity
promises that would not register as taxable income until many years later.26
Meanwhile, the stock options were exercised offshore (and hence untaxed) and
used as base funds for generating hundreds of millions of dollars through a variety
of complex securities transactions in U.S. markets. These trades were conducted
by accounts opened by Wyly-related offshore entities in major U.S. securities firms,
but no U.S. tax was paid on any of the trading gains because these profits allegedly
belonged to independent offshore trusts.27 The offshore trusts invested over $500
million of these profits in Wyly-related business ventures, mainly in the U.S., and
also purchased tens of millions in U.S. real estate, artwork, and jewelry.28 A further
$140 million was “loaned” by the shell companies to another offshore entity, which
in turn “loaned” this money to the Wylys and their close associates. These “loans”
were then claimed to be issued by an independent foreign lender and hence not
subject to U.S. income taxation.29
This brief outline ignores many details and complexities of the Wylys’ tax avoidance
strategies, but it is enough to illustrate some salient features. First, the Wylys
exploited technicalities in the U.S. tax code surrounding various types of assets
and transactions. Stock options in U.S. corporations were traded for annuity
promises from offshore shell entities because the former would not be taxable if
exercised offshore and the latter would not register as taxable income until years
later when annuity payments are actually made.30 Analogously, asset transfers out
of the offshore entities and into the Wylys’ personal accounts were recorded as
25
Id., 135.
26
Id., 163-168.
27
Id., 201-210.
28
Id., 249-250, 283, 307.
29
Id., 236-238.
30
As of 2004, the Wylys’ annuity promises from their offshore corporations had a combined value of $483
million, but only $66 million in taxable annuity payments had been made. Id. 192-195.
loans, since this made these transfers technically exempt from U.S. income
taxation. Devising and managing these tax avoidance transactions evidently
required a sophisticated level of financial and legal expertise.
Second, the Wylys obscured the true source of funds in their network by directing
transactions through a variety of offshore intermediaries. Rather than trade their
offshore assets under their own names, the Wylys had offshore trusts open U.S.
accounts that then engaged in domestic purchases and securities trades. And
rather than take loans directly from the offshore corporations that were associated
with those U.S. accounts, the Wylys arranged for funds to first pass through a
separate offshore entity. These intermediate transactions—often staggered over
several years—have made it exceptionally difficult for Senate investigators to trace
the Wylys’ offshore assets from their original source through to their ultimate
destination. Again, the level of specialist knowledge involved in coordinating these
transactions was significant.
Furthermore, the Wylys created the appearance of being technically independent

from their offshore network for taxation purposes. The Wylys did not establish or
manage any of their offshore entities directly; instead they enlisted specialist
offshore service providers to establish the offshore trusts and corporations, serve
as their trustees and directors, and handle all related paperwork.31 The Wylys and
their representatives were careful to only make “recommendations” to the
registered trustees and directors regarding the operations of their offshore entities.
In reality, these “recommendations” served as detailed instructions that were
invariably carried out, but by phrasing their correspondences as mere suggestions
the Wylys could claim to be technically unrelated to the offshore network.32 On
paper and throughout the Senate investigations, the Wylys have maintained a
position of total independence, for taxation purposes, from the offshore entities
that acted in their interests.
Based on these features of the Wylys’ offshore network, it is clear that the Wylys
were engaged in abusive tax avoidance. The Wylys’ stock option-annuities swap
could have no genuine purpose other than the reduction of tax; they were
31
Id., 127.
32
Id., 135-136.
exchanging valuable stock options in successful U.S. companies for unsecured
annuity promises from entirely unproductive shell corporations. More generally, it
would have made no sense for the Wylys to shift hundreds of millions of dollars into
an elaborate structure of offshore entities were it not for the tax benefits of doing
so. These strategies created tax benefits that lawmakers evidently did not intend.
The reason that the IRS does not tax stock options until they are exercised, or
annuities until payments are made, is so that these assets are taxed only once they
become real income for the asset holder; it was not the intent of lawmakers that
taxpayers should be able to avoid tax on stock options indefinitely by swapping
them for offshore annuities. By only offering “recommendations” to the
administrators of their offshore entities, the Wylys might have a technical claim to
independence from those entities, but this highly contrived arrangement
undeniably distorts the definition of a trustee. Moreover, it is apparent that the
Wylys’ aim in establishing such a complex offshore network was to make it
exceptionally difficult for U.S. authorities to determine that the transactions
involved were indeed contrary to the spirit of U.S. tax law. In short, the Wylys’ tax
avoidance strategies fail the GAAR test discussed in the previous section.
To this date, none of the Wylys’ avoided tax has been reclaimed by U.S. tax
authorities, and no tax avoidance-related charges have been laid against any of the
Wylys or their associates.33 In our view, this is a gross injustice. Governments
require tax revenues to perform important functions that promote public welfare
and protect human rights. Individuals have reasonable obligations to contribute a
certain proportion of their income towards taxation revenues, and the ability to
take unintended advantage of loopholes in the tax code or conceal one’s assets
offshore is not adequate grounds for exemption from those obligations. Given this,
individuals or organizations that, like the Wylys, avoid paying tax through such
complex strategies and offshore networks have particular responsibilities to help
remedy the negative consequences of lost tax revenue.
33
The Wyly brothers have been convicted on related charges of fraud. In addition to facilitating tax avoidance,
the Wylys’ offshore network was used to trade in companies on whose boards the Wylys sat. The Wylys have
denied wrongdoing, contending that the offshore trusts involved were legally independent entities, but a New
York jury has recently found them guilty on insider trading charges. See Nate Raymond, “Texas’ Wyly Brothers
Committed Fraud with Offshore Trusts: Jury,” Reuters, May 12, 2014,
http://www.reuters.com/article/2014/05/12/us-sec-wyly-verdict-idUSBREA4B0LJ20140512.
However, it is not our aim in this paper to make a case for the remedial
responsibilities of taxpayers who abusively avoid tax.34 Instead, we argue that
important responsibilities attach to the various professionals who promote and
facilitate abusive tax avoidance transactions and shelters. While the factors
discussed above make clear that the Wylys’ tax avoidance schemes were abusive,
the same factors make it equally clear that those schemes would not have been
possible without the willing assistance of a large number of legal, financial and
taxation professionals. As Senate investigators have observed, “In all of [their tax
avoidance] activities, the Wylys were aided by an armada of lawyers, brokers,
financial professionals and offshore service providers. These facilitators set up the
offshore entities, provided advice and guidance on how to best structure, operate,
and coordinate them, and provided legal, transactional, and administrative services
that purportedly enabled the Wylys to maintain direction over the offshore assets
without negating the offshore entities’ status as allegedly independent actors for
U.S. tax and securities purposes.”35
Aside from the offshore service providers that established and managed the Wylys’
offshore entities, the Wylys were assisted by dozens of domestic and offshore law
firms, financial institutions and tax professionals. U.S.-based legal counsel
corresponded with offshore service providers on the Wylys’ behalf, designed
mechanisms for leveraging assets and provided routine advice on how to operate
the offshore entities without breaking U.S. law.36 Legal and tax professionals hired
to administer the Wyly family accounts played similar roles in managing and
advising on the Wylys’ offshore network.37 Furthermore, major U.S. financial
institutions, including Lehman Brothers and Bank of America, held domestic
accounts for the Wylys’ offshore trusts that were used to trade securities in U.S.
markets, invest in U.S. assets, and send multi-million-dollar wire transfers. These
financial institutions knew that the Wylys were associated with the offshore trusts
that owned these domestic accounts, but turned a blind eye, never requiring the
trusts to reveal their beneficial owners or document the nature of the Wyly
34
That is, taxpayers who avoid tax through abusive arrangements.
35
Subcommittee on Investigations, “Tax Haven Abuses,” 115.
36
Id., 123-125.
37
Id., 126.
connection.38 Offshore financial institutions also assisted the Wylys by opening
accounts and transferring funds across international lines, and offshore law firms
provided legal advice to the Wylys and other facilitators of the network.39
Without the help of these various professionals and professional firms (which we
refer to collectively as “tax professionals”), the Wylys simply could not have
established or maintained such a complex tax sheltering network. In the next
section, we demonstrate that the facilitative role of tax professionals in the Wyly
network, as well as in connection to abusive tax avoidance more generally, is an
important aspect of fiscal institutional corruption.
5. Tax Professionals and Institutional Corruption

The influence of tax professionals over fiscal arrangements need not be improper
or corrupt. On the contrary, tax professionals have a legitimate and efficient
function as intermediaries or “knowledge brokers” between taxpayers and
government tax institutions.40 Tax codes are complex, and taxpayers often lack the
expertise required to determine the true extent of their tax obligations and to avoid
unnecessary costs in filing tax returns. It is completely legitimate for corporations,
individuals and other taxpayers to solicit advice from professionals on tax-related
issues. It is equally unproblematic for professional firms to market their expert
knowledge of taxation procedures, documentation and legislation, insofar as this is
to acquire clients who want assistance in determining their genuine tax obligations,
filing related paperwork, and identifying tax benefits that clients legitimately qualify
for. Many taxpayers find it worthwhile to pay an external advisor to assist with their
tax matters, and there is nothing wrong with qualified professionals meeting this
demand. Furthermore, there is an important role for tax professionals in helping
ensure that tax authorities do not try to extort more from taxpayers than is legally
owing (on a purposive reading of the law); in other words, tax professionals can
provide a valuable check-and-balance function that helps safeguard the equity of a
tax system.
38
Id., 316.
39
Id., 128-130.
40
John Hasseldine, Kevin Holland, and Pernill van der Rijt, “The Market for Corporate Tax Knowledge,” Critical
Perspectives on Accounting 22.1 (2011): 39-52.
Tax professionals also provide several valuable services to tax authorities. Since
elected officials are rarely tax experts and governments have limited resources for
hiring permanent tax advisors, the technical knowledge of private-sector
professionals can greatly assist in the writing of new tax law. Staff at professional
firms are routinely asked to participate in advisory committees on taxation
legislation, and these arrangements can enhance the quality of the legislation
produced.41 Private-sector tax professionals are not only well qualified to advise on
tax legislation, but can also provide reliable insights into how changes to the law
will actually affect taxpayers—insights which can help ensure changes have the
desired effects and do not unintentionally punish certain groups. Furthermore, tax
professionals can provide a useful line of communication between tax authorities
and taxpayers. When there is a change in tax legislation, private-sector tax
professionals can often communicate this change to affected taxpayers more
efficiently than authorities could on their own, particularly when the legislative
changes are complex and affect businesses rather than households. Professional
firms, for their part, are generally willing to disseminate such information for free
as it helps the firms market themselves as tax experts.42
In these ways, tax professionals can help promote a situation of institutional

integrity in taxation institutions, by helping tax institutions achieve their core
purpose, which is to raise revenue effectively and equitably. Professionals can play
a positive and functional role in fiscal arrangements by assisting in the
development of effective tax legislation, helping communicate information about
tax legislation to taxpayers, and enabling taxpayers to take advantage of tax
benefits that they are entitled to. Accordingly, in these ways tax institutions will be
properly dependent on tax professionals, and public confidence in the ability of tax
institutions to raise revenue effectively and equitably is enhanced.
Unfortunately, the reality falls troublingly short of this ideal. Rather than restricting
their tax services to helping clients complete tax returns and secure tax benefits
within the spirit of the law, a worrying number of tax professionals have expanded
their operations into facilitating abusive varieties of tax avoidance. As we saw in the
Wyly case, the same specialized knowledge that allows professionals to legitimately
41
Committee of Public Accounts, “Tax Avoidance,” 9.
42
Hasseldine et al., “The Market for Corporate Tax Knowledge,” 45.
market themselves as tax experts also makes them adept at identifying loopholes
in tax legislation and helping taxpayers to utilize provisions of the tax code in ways
that lawmakers never intended. Professionals also have the legal, financial and/or
administrative knowledge required to set up and manage networks of offshore
entities and manipulate arcane financial instruments in order to secure unintended
tax benefits. Additionally, tax professionals sometimes have the skills and
connections to set up these tax shelters discreetly, with minimal risk of detection
or enforcement by tax authorities. Attorney-client privilege, banking secrecy laws,
and other forms of professional confidentiality can protect both the client and
promoter of a tax shelter from disciplinary action. In short, professionals are well
positioned to be effective facilitators of abusive tax avoidance, and wealthy
individuals and corporations create a lucrative market for these services.
Furthermore, the fact that professionals serve as technical advisors to tax

authorities can exacerbate the above trends and lead to problematic conflicts of
interest. This is especially so with senior professionals at the Big Four accountancy
firms, who are regularly called in to serve on government advisory panels and help
craft new tax legislation. Because these tax professionals often have significant
influence over the writing of legislation and gain detailed insider knowledge about
upcoming changes, they have an incentive to identify and potentially even create
loopholes in legislation so that they may sell this knowledge to clients.43 The British
Committee of Public Accounts is especially worried about “what look like cases of
poacher, turned gamekeeper, turned poacher again, whereby individuals who
advise government go back to their firms and advise their clients on how they can
use those laws to reduce the amount of tax they pay.”44 As Hasseldine and
colleagues put the point, from the perspective of tax authorities, “tax accountants
are analogous to a bee; they provide a useful knowledge transfer function
(pollination) but simultaneously facilitate higher levels of tax planning (the
sting!).”45 Similar comments can be made about other professionals that advise or
assist abusive tax avoidance, such as lawyers, bankers and finance experts.
43
44
Id., 4.
45
Hasseldine et al., "The Market for Corporate Tax Knowledge,” 49. It’s also worth noting that the major
professional firms well outmatch tax authorities in terms of staff numbers and resources, even in developed
countries. The British tax collecting authority, HMRC, has only 65 transfer pricing specialists, whereas the Big
We are now in a position to see how the role of tax professionals in facilitating
abusive tax avoidance can be analyzed in terms of institutional corruption. Tax
professionals possess expert and sometimes exclusive knowledge of taxation
legislation that enables them to have an improper influence over the operations,
practices and policies of tax institutions, reducing their efficiency and equity. Tax
institutions often must spend valuable resources discovering and deciphering
extremely complex avoidance schemes (over 1.5 million documents were reviewed
in connection with the Wyly investigation46), and fighting expensive legal battles
with suspected tax avoiders. The strain on fiscal resources caused by professional-
facilitated tax avoidance can lead tax institutions to adopt more regressive tax
policies, increasing taxes on the sale of goods and services, labor, and other assets
that are less often the target of tax shelters—in part because the people most
affected by such taxes cannot afford professional tax services. Most importantly, by
facilitating abusive tax avoidance, professionals contribute to the loss of hundreds
of billions of dollars in lost tax revenue each year. All of this undermines public
confidence in the tax system, making ordinary taxpayers cynical about its equity
and more inclined to reduce their own tax payments given the opportunity. Public
outcry after revelations that large, profitable corporations—such as Starbucks,
Amazon and Google—pay exceptionally low levels of tax indicates that the kind of
tax avoidance that professionals help implement cannot survive appropriate
accountability or transparency tests.47
Note that the improper influence that tax professionals have over tax institutions
can be viewed as an extension of their legitimate influence. As we discussed above,
professionals can have a positive and productive impact on fiscal arrangements, so
long as that influence is of an appropriate form and degree. The issue is that
Four accounting firms employ about 250 transfer pricing specialists in Britain alone. See Committee of Public
Accounts, “Tax Avoidance,” 8.
46
47
For example, in a 2013 survey of U.S. voters, 79 percent of respondents supported closing tax loopholes to
ensure corporations pay equally on foreign profits. Allen Freyer, “Big Public Support for Closing Corporate Tax
Havens,” NC Policy Watch, the Progressive Pulse blog, November 22, 2013,
http://pulse.ncpolicywatch.org/2013/11/22/big-public-support-for-closing-corporate-tax-havens/. Similarly,
a 2013 survey by the Institute of Business Ethics reports that British residents ranked “corporate tax
avoidance” as the second most urgent business ethics problem in both 2012 and the most important in 2013.
Institute of Business Ethics, “Attitudes of the British Public to Business Ethics: 10 Year Trends and 2013
Findings,” Business Ethics Briefing 35 (2013): 7,
http://www.ibe.org.uk/userfiles/surveys/attitudes10yr2013.pdf). For further discussion of accountability and
transparency tests, as well as additional statistics, see Brock, “Institutional Integrity, Corruption and
Taxation,” 40-46.
professionals utilize their knowledge of and influence over tax policy to help their
clients manipulate that policy in ways that lawmakers never intended. This
indicates that effective solutions to abusive tax avoidance will not attempt to
reduce the influence of tax professionals outright, but will instead concentrate on
directing and incentivizing professionals to contribute towards institutional
integrity.
Note also that tax professionals face incentives that, in part at least, explain why
many decide to violate their professional integrity and promote abusive tax
avoidance. As outside consultants to corporations and wealthy individuals,
professionals are under continuous pressure to contribute added value to their
clients—to prove that they offer valuable knowledge or expertise that clients cannot
efficiently acquire on their own.48 This translates into a need to produce cost-
savings for clients, and reducing explicit tax payments is one way to do this. The
pressure to deliver results helps to rationalize the role of tax professionals in
abusive tax avoidance—and some will argue that it also excuses that role.
Professionals are, it is sometimes suggested, merely responding to market
pressures in promoting abusive schemes. Hence, some will conclude,
responsibilities for remedying abusive tax avoidance are not rightly assigned to
professionals, but belong to other agents—for instance, the taxpayers who actually
avoid tax, or governments who fail to produce sufficiently robust tax legislation.
While we acknowledge that governments and taxpayers have significant remedial

duties to discharge in relation to abusive tax avoidance, we do not believe that tax
professionals are absolved of similar responsibilities so easily. Tax professionals
also have specific and significant duties to help implement reforms and alleviate
the problem. To argue for this thesis, in the next section we present a method for
assigning remedial responsibilities to particular actors in cases of deprivation
where multiple parties are implicated in different ways. In the following sections we
apply this method in assigning remedial responsibilities to three of the most
important categories of tax professionals.
48
Robin Fincham, “The Agent's Agent: Power, Knowledge, and Uncertainty in Management Consultancy,”
International Studies of Management and Organization 32.4 (2002): 67-86, 80; and Olatunde Julius Otusanya,
"The Role of Multinational Companies in Tax Evasion and Tax Avoidance: The Case of Nigeria," Critical
Perspectives on Accounting 22.3 (2011): 316-332.
6. Assigning Remedial Responsibilities
While there are several kinds of normative approaches that could be deployed in
arguing for various remedial responsibilities, here we focus on one under-explored
and promising strategy that can make an important contribution to understanding
our normative duties. Roughly speaking, on this strategy we have especially strong
obligations to remedy instances of deprivation that we have caused, benefited
from, and have capacity to fix. In this section we explain this approach in more
detail.
On this strategy particular individuals have special responsibilities to remedy

particular sources of deprivation, when particular conditions are the case. For an
agent (or group of agents) to have special responsibilities concerning deprivation, it
is necessary that this agent be connected in some important way to the deprivation
in question. That is, if an agent A is specially obligated to remedy a source of
deprivation D, this must be because some special relation obtains between A and D
that need not obtain for other agents.
Three distinct types of connection are especially salient here. First, if someone
causes or significantly contributes to an instance of wrongdoing or injustice, that
person can be expected to do more than others in correcting the injustice. (A large
part of the law is concerned with assigning remedial responsibilities on this causal
basis.) Second, an individual who benefits from a situation or process that causes
deprivation for others can have special responsibilities to alleviate the deprivation.
Third, if a person possesses resources or abilities that enable her to address a
problem effectively and at low cost, that person can have special responsibilities to
assist.
We can state each of these connections more precisely as follows. Given a set of
agents A and a source of deprivation D, consider three possible grounds for
generating special responsibilities for A to help in remedying D:
• Causal contribution: A causes or significantly contributes to D.
• Benefit: A benefits from the situation or process that leads to D.
• Capacity: A is capable of remedying D effectively and at relatively low cost

to A.
In the normative literature, these three connections are widely discussed as the
dominant ones generating special remedial responsibilities.49 Note that all three
admit of degrees: one can contribute, benefit, or be capable of assisting to varying
extents. Differences between the degrees to which agents satisfy these connective
criteria provide an approximate basis for comparing the strengths of agents’
responsibilities.
Are causal contribution, benefit and capacity individually sufficient conditions for the
existence of special duties? In many cases, the presence of just one of the relevant
connections can indeed be enough to generate such responsibilities. However, each
of the principles may face some difficult counterexamples. As just one example,
consider this problem for benefit: If medical knowledge was improved by the
heinous experiments conducted in Nazi prison camps, does this mean that the
beneficiaries of that medical knowledge have special responsibilities to make
amends for the Holocaust? A different issue is that causal contribution, benefit and
capacity can pull in different directions for the same case. If, for instance, someone
contributes significantly to a case of deprivation but has almost no capacity to
alleviate it, causal contribution may not be enough to establish a special
responsibility in this case.
An attempt to refine the above principles in light of these problems is beyond the
scope of this paper. Instead, we adopt a strategy that, in the cases that concern us,
allows us to circumvent most of these difficulties. When all three of our connective
criteria converge, we can say that there are very strong and not easily defeasible
grounds for establishing remedial responsibilities. That is, when a particular set of
agents A relates to deprivation D by way of causal contribution, benefit, and
capacity to assist, then we can confidently establish that A has special and
significant obligations to remedy D.
We are now in a position to see how this convergence strategy can be applied to
abusive tax avoidance. A number of different stakeholders are implicated in the
deprivation caused by tax avoidance, including governments, corporations, high net
worth individuals, and tax professionals. Of these stakeholders, it is not obvious
who should be considered especially responsible for remedying the deprivation.
49
See, for instance, David Miller, National Responsibility and Global Justice (Oxford University Press, 2007) and
Iris Marion Young, Responsibility for Justice (Oxford University Press, 2011).
The convergence strategy we have described provides a tractable way to proceed in
our normative inquiry. If it turns out that a particular group of agents contributes
to, benefits from, and has the capacity to reduce the deprivation caused by abusive
tax avoidance, then we can say with confidence that this group of agents does in
fact have a significant and specific duty to assist in solutions to the problem.
Ideally, the convergence test would be applied to each of the relevant stakeholders
in abusive tax avoidance, and some effort would be put into assessing the relative
strengths of responsibilities in the manner suggested above. Because of space
constraints, in the remainder of the paper we focus on three main groups of tax
professionals—accountants, lawyers and financial advisors. These tax professionals
are, it will be shown, closely connected to tax avoidance on all three of our criteria;
hence, tax professionals have strong remedial responsibilities with respect to
abusive tax avoidance. Our discussion of tax professionals in the next sections can
serve as an example of how this normative inquiry can proceed for other relevant
sets of agents, as well as for issues other than abusive tax avoidance.
7. Remedial Responsibilities: Accountants

We begin by discussing the Big Four multi-national accountancy firms: Deloitte,
PricewaterhouseCoopers (PwC), Ernst & Young (E & Y), and KPMG. Although the
Big Four are normally associated with accountancy and auditing, since the late
1960s these firms have diversified into other areas, including financial, legal,
consultancy and tax services. The latter has become a significant component of the
Big Four’s operations; in 2012, the Big Four’s combined annual revenues from tax
services was approximately $25 billion, or roughly one fifth of their total global
revenues.50 Of this $25 billion, the majority comes from tax advice, and much of
that advice is aimed at helping wealthy individuals and corporations minimize the
tax they pay.51
As we discussed in Section 5, professional firms like the Big Four have legitimate
and productive roles to play as intermediaries between taxpayers and tax
collectors. Our concern here is with the ways in which these multi-national giants
50
Committee of Public Accounts, “Tax Avoidance,” 7-8.
51
Id.
are connected to abusive tax avoidance. The Big Four have and continue to use
their broad professional expertise, transnational connections and close
relationships with tax authorities to promote and manage aggressive tax shelters
for wealthy clients. In this section we document the Big Four’s causal contributions
to abusive tax avoidance arrangements, the benefits they have received from
facilitating those arrangements, and the ways in which these firms are powerfully
positioned to help reduce the prevalence of those arrangements.
Causal Contribution
It is useful to divide the Big Four’s causal contributions to abusive tax avoidance
into two time periods: the late 1990s and early 2000s, and the years since then.
The former period witnessed a “boom” in mass-marketed, generic tax shelters, and
the large accountancy firms were among the most aggressive designers and
promoters of these products. The U.S. Government Accountability Office believes
that 61 percent of U.S. corporations and 71 percent of foreign-owned corporations
operating in the U.S. managed to avoid paying any U.S. income tax between 1996
and 2000, often using generic tax shelters that were engineered and sold by Big
Four firms.52 After the Big Four—especially KPMG—became embroiled in high
profile scandals in the mid-2000s, they ceased developing and promoting generic
tax shelters. However, the firms do not appear to have exited the tax avoidance
industry, but have instead focused on offering more individualized—and more
discreet—tax strategies for particular clients.
The “Boom Period” and the KPMG Tax Shelter Scandal

In the 1990s and early 2000s, the Big Four invested millions of dollars in designing
novel tax avoidance schemes. These “tax products” (as the firms preferred to call
them) were not developed in response to specific client requests, but were
engineered to be generic and mass-marketable. The Big Four targeted large
corporations and wealthy individuals, approaching these taxpayers with tax shelter
proposals rather than waiting for their services to be solicited. The Big Four offered
high salaries to attract some of the most qualified accountants, lawyers and other
professionals to join their tax divisions. New internal infrastructure was introduced
52
“Boom Years for Tax Avoidance,” Telegraph, April 7, 2004,
http://www.telegraph.co.uk/finance/2882443/Boom-years-for-tax-avoidance.html.
to encourage the development of novel tax products and to market those products
to potential buyers. Altogether, the Big Four’s highly aggressive promotion of tax
avoidance during this period cost the U.S. government billions of dollars in lost tax
revenue.
KPMG, the smallest of the Big Four, was probably the most aggressive tax
avoidance promoter during the boom period.53 In 1997, KPMG opened a Tax
Innovation Center that was tasked with developing new tax products. Ambitious
targets were set—the goal in 2001 was to come up with 150 new tax product
proposals—and teams within the KPMG tax staff were ranked according to the
number of proposals they had made.54 Rather than wait for clients to solicit tax
advice, KPMG’s professional staff were expected to seek out and approach
corporations and wealthy individuals with offers to reduce their tax liabilities.55
KPMG often enticed hesitant clients by offering to supply independent legal
opinions and insurance.56 In addition, KPMG staff were actively involved in the
implementation of its tax shelters, coordinating offshore entities and transactions,
enlisting participation from financial institutions, and preparing tax returns and
transactional documents for clients.57
One of the tax shelters developed and marketed by KPMG was known as an
Offshore Portfolio Investment Strategy (OPIS); this shelter is a good example of the
creative accounting used by KPMG in designing its tax products. For a fee, KPMG
would use OPIS to generate artificial tax losses for a client of as much as three
times the value of the fee. The client could then use the tax losses to offset his real
capital gains.58 With some simplification, the scheme worked like this: KMPG’s
client (A) buys a small number of shares in a chartered bank (B) and is given stock
options in a Cayman Islands-based shell corporation (C). There are then a series of
transactions between B and C: C takes out a loan from B; C uses that loan to buy
53
For a detailed account of KPMG’s tax shelter activities, see Subcommittee on Investigations, “U.S. Tax
Shelter Industry.” A summary can also be found in Prem Sikka and Mark P. Hampton, “The Role of
Accountancy Firms in Tax Avoidance: Some Evidence and Issues,” Accounting Forum 29.3 (2005): 325-343,
332-335.
54
Subcommittee on Investigations, “U.S. Tax Shelter Industry,” 173.
55
Id., 152; Sikka and Hampton, “The Role of Accountancy Firms in Tax Avoidance,” 333.
56
Id., 200-201.
57
Id., 148.
58
Simser, “Tax Evasion and Avoidance Typologies,” 127.
shares in B; those shares are sold and used to pay off C’s loan to B. These
transactions are of no net economic consequence, yet they allow A to claim a U.S.
tax deduction. To offset the income tax that would normally apply on C’s purchase
of stocks in B, C is permitted to “shift” the basis value of its stocks in B to its own
stockholder, A. C does not actually pay any income tax on its stocks in B, since
such transactions are not taxed in the Cayman Islands. But when A sells his shares
in B, A can now use a U.S. equitable relief provision to deduct the basis of C’s
stock in B from his own tax return. As a result, A registers a tax loss.59
Notice that there are several resemblances between KPMG’s OPIS shelter and the
Wylys’ tax avoidance strategies that we discussed in Section 4. In both cases,
professionals identified and exploited artificial ways to utilize tax relief provisions in
U.S. law. And in both cases, professionals helped coordinate multiple transactions
between various offshore and domestic entities in order to secure tax benefits.
KPMG’s tax shelter products required, to quote a U.S. Senate report, “layers of
corporations, trusts, and special purpose entities; complex financial and securities
transactions using arcane financial instruments; and multimillion-dollar lending
transactions, all of which necessitate expert guidance, detailed paperwork, and
logistical support.”60 Like the team of professionals behind the Wyly offshore
network, KPMG used the expertise of its specialist staff and its international
influence to manipulate the rules surrounding particular relief provisions and
thereby generate tax savings where there ought to have been none. Yet whereas the
Wylys’ professional team developed tax avoidance strategies for the specific and
exclusive use of the Wyly family, KPMG’s intent in designing OPIS was to market it
to a large number of wealthy clients. OPIS was eventually sold to 111 different U.S.
taxpayers.61
KPMG did not disclose OPIS to the IRS. Internal correspondence between KPMG
tax staff indicate that KPMG made this decision despite believing that OPIS fell
squarely within the IRS’s disclosure requirements for potentially abusive tax
shelters. KPMG appears to have decided that the likelihood of the IRS enforcing its
disclosure requirements and the costs of potential penalties were not high enough
59
Id., 127-128.
60
61
Id., 172.
to outweigh the benefits of selling OPIS without disclosing it.62 The company took
precautions to prevent information on its tax products from reaching tax
authorities: presentations were made on chalkboards or erasable whiteboards, and
clients were also asked to sign non-disclosure agreements whenever they attended
an information session on one of KPMG’s generic tax products.63
Despite these clandestine precautions, the IRS eventually became suspicious of

KPMG’s tax services, and in 2003 KPMG became the subject of a Senate
investigation for allegedly marketing abusive tax shelters. The investigation focused
on just four shelters, including OPIS, but in questioning KPMG admitted to having
as many as 500 active, non-disclosed tax products.64 KPMG officials initially denied
marketing abusive tax shelters, insisting that the company only ever promoted tax
products that were believed to have a greater than 50 percent probability of
withstanding a challenge by the IRS. (This was claimed to be a comparatively strict
criterion, since at the time the American Institute of Charted Public Accountants
(AICPA) only required tax products to have a one-in-three chance of withstanding
an IRS challenge.65) However, the Subcommittee was unconvinced by this defense,
concluding that KPMG had helped wealthy clients dodge at least $7.2 billion in
taxes through “potentially abusive and illegal tax shelters that U.S. taxpayers might
otherwise have been unable, unlikely, or unwilling to employ.”66 KPMG eventually
accepted a deferred prosecution agreement, admitting criminal wrongdoing and
agreeing to pay $456 million to the U.S. Government. As part of the agreement,
KPMG was also required to terminate various practice areas, including the sale of
generic tax products.67 Upon fulfillment of these conditions the criminal charges
against KPMG were dropped.68
62
Id., 170-171.
63
Sikka and Hampton, “The Role of Accountancy Firms in Tax Avoidance,” 160.
64
65
Id., 168.
66
Id., 147-148.
67
IRS, “KPMG to Pay $456 Million for Criminal Violations,” IR-2005-83, August 29, 2005,
http://www.irs.gov/uac/KPMG-to-Pay-$456-Million-for-Criminal-Violations.
68
Nine individuals, including six former KPMG partners, were also charged with conspiring to defraud the U.S.
The charges concerned opinion letters that had been produced in support of KPMG’s tax shelters. These
letters were presented to the IRS as independent opinions, but were allegedly prepared by entities involved in
the design, marketing and implementation of the shelters. Id.
Although the Subcommittee investigations put the spotlight on KPMG, the other
Big Four firms were also heavily engaged in the development and marketing of
generic tax avoidance strategies throughout the so-called “boom years” of tax
avoidance. Between 1997 and 1999 PwC sold or was in the process of selling
almost 200 tax products that the IRS later identified as abusive tax shelters.69 E &
Y developed aggressive strategies to market generic tax products; in 2000 an
internal email to E & Y tax professionals set a nationwide goal of generating $1
billion of tax losses through the sale of just one tax product, called a “Contingent
Deferred Swap” (CDS).70 E & Y sold CDS to a total of 132 taxpayers over a two year
period, despite having reason to believe that the product was abusive.71 Alongside
the sale of generic tax shelters, the big accountancy firms also devised customized
tax avoidance strategies for large multinational corporations, some of which were
subsequently involved in their own scandals. KPMG approached WorldCom with the
offer to provide tax consultancy services, eventually helping WorldCom avoid
paying hundreds of millions in tax.72 Deloitte worked with Enron to develop tax
minimization strategies before Enron’s collapse.73 E & Y devised tax avoidance
strategies for Wal-Mart, recommending in private correspondence to Wal-Mart that
those strategies should be kept “quiet” so that tax authorities do not catch on.74
Current Practices of the Big Four Firms

The Big Four now admit to developing, marketing and implementing highly
aggressive tax strategies during the late 1990s and early 2000s. They insist,
however, that times have changed. KPMG, for instance, claims to have introduced
stricter internal due diligence policies, including a requirement that tax advice be
69
United States Senate Permanent Subcommittee on Investigations, “The Role of Professional Firms in the
U.S. Tax Shelter Industry,” Senate Report 109-54, April 13, 2005, 93.
70
Id., 83.
71
Id., 87.
72
The main scheme involved questionably defining the “foresight of top management” as an intangible asset
and then registering that asset with a WorldCom subsidiary in a tax haven. Other companies in the WorldCom
network would then pay royalty fees for the use of this “intangible asset” and use those fees to offset their
income for tax purposes. See Sikka and Hampton, “The Role of Accountancy Firms in Tax Avoidance,” 331-
332; Prem Sikka, “Smoke and Mirrors: Corporate Social Responsibility and Tax Avoidance,” Accounting Forum
34.3 (2010): 153-168, 159.
73
Sikka and Hampton, “The Role of Accountancy Firms in Tax Avoidance,” 331.
74
In private correspondence to Wal-Mart, an Ernst & Young representative wrote: “We see only potential
downside[s] from any external publicity from these changes . . . the project’s long-term success will be
enhanced by being discreet in how and where we discuss the project.” Eventually, Wal-Mart’s tax avoidance
strategy was successfully challenged by North Carolinian tax authorities and a $33.5 million tax return was
blocked. See Sikka, “Smoke and Mirrors,” 162-163.
supportable in law.75 However, even if these changes claimed are indeed genuine,
the Big Four should still be accountable for the large-scale tax avoidance that they
facilitated in the boom period of mass-marketed tax shelters. Each of these
enormous, professional firms directly and aggressively helped wealthy individuals
and corporations generate billions in tax savings over these years, which on its own
is enough to attach specific responsibilities to the firms for helping to remedy the
resultant damage. Furthermore, some of the tax avoidance strategies that the Big
Four designed and implemented in the boom period are still in use today: U.S.
industrial manufacturer Caterpillar continues to use a strategy devised by PwC in
1999, enabling Caterpillar to log the majority of its profits in Switzerland where the
company pays an effective tax rate of only 4 percent.76 The innovations that the Big
Four made in developing new tax products are also likely to have helped smaller
promoters design their own tax avoidance strategies.
There is also reason to doubt whether the Big Four have, in fact, completely exited
the tax sheltering industry. Although they claim that all of their tax advice is
supportable in law, the Big Four are at least sometimes willing to promote tax
reduction strategies that have as little as a one-in-two chance of surviving a
challenge by tax authorities.77 Such standards would be clearly unacceptable in an
investment setting: one can hardly defend a dubious business venture by insisting
it is only 50 percent likely to be deemed illegal. Relatedly, the Big Four do not in
any way reprimand or sanction tax staff responsible for designing or
recommending a strategy that is later overturned by revenue authorities.78 The Big
Four may have officially committed to respecting the letter and spirit of the law,
but they do not seem to provide their tax professionals with strong incentives to
adhere to those principles in practice.
Furthermore, there are also worries that Big Four tax professionals, who often serve
as consultants to government revenue departments, use their inside knowledge
about upcoming tax legislation to promote loopholes to clients. As one example of
75
Committee of Public Accounts, “Tax Avoidance,” 8-9.
76
Danielle Douglas, “Caterpillar Skirted $2.4 Billion in Taxes, Senate Report Says,” Washington Post, March
31, 2014, http://www.washingtonpost.com/business/economy/caterpillar-skirted-24-billion-in-taxes-senate-
report-says/2014/03/31/36d2bc3a-b8ee-11e3-899e-bb708e3539dd_story.html.
77
78
Id.
this scenario, a KPMG senior corporate tax advisor was called in by the U.K.
government to help develop a tax relief on patents, called “Patent Box.” The relief
was meant to encourage R&D, but actually opened up some significant corporate
tax loopholes.79 After the Patent Box was finalized, KPMG produced marketing
brochures explaining how to make use of those loopholes and emphasizing the role
that KPMG staff played in developing the legislation.80
Benefit
The Big Four accountancy firms have benefited in numerous ways from facilitating
abusive tax avoidance. Most obviously, the Big Four have each earned tens or
hundreds of millions in fees for designing, implementing or advising on abusive tax
avoidance arrangements for clients. A list of just some of the relevant transactions
is enough to illustrate this beneficiary connection. KPMG is estimated to have
netted $180 million in fees from just four of its generic tax products, as well as
between $6 million and $10 million for devising and implementing WorldCom’s tax
avoidance strategy.81 E & Y received about $250,000 from a typical transaction
through its CDS shelter, netting a total of $27.8 million from its 132 CDS sales.82
PwC was paid more than $55 million for designing Caterpillar’s Swiss-based
shelter.83
Aside from fees for services, the Big Four are likely to have gained a number of
other benefits from promoting and facilitating abusive tax avoidance. The value of
return clients and referrals must not be overlooked: a client who went to Deloitte
for tax savings and was pleased with the outcome would be more likely to solicit
Deloitte’s services in the future or recommend Deloitte to others. Note that these
referral and return clients need not be solely interested in tax services; gaining a
reputation for delivering tax savings could have flow on effects in terms of
79
The Patent Box lets any device with a patent be taxed at only 10 percent. The problem is that this applies
even if only one small component of the device is patented, meaning that one need only innovate on a small
part of, say, a dishwasher, in order to make the whole product eligible under the scheme. Moreover, old
patents are retrospectively eligible. The U.K. Treasury estimates the scheme to cost £1.1 billion a year in lost
corporation tax. See Polly Toynbee, “Accountancy’s Big Four are Laughing All the Way to the Tax Office,”
Guardian, February 1, 2013, http://www.theguardian.com/commentisfree/2013/feb/01/accountancy-big-
four-laugh-tax-office.
80
81
Sikka, “Smoke and Mirrors,” 159.
82
Subcommittee on Investigations, “The Role of Professional Firms in the U.S. Tax Shelter Industry,” 84.
83
Douglas, “Caterpillar Skirted $2.4 Billion in Taxes.”
increasing interest in the accounting, auditing, business consulting and other
services offered by the Big Four.
Capacity
The Big Four accountancy firms are some of the world’s largest companies and
operate in almost every nation. Together they dominate the accountancy industry,
are large players in the financial, consultancy, legal and tax professions, and
employ many of the most knowledgeable and talented individuals in these areas.
Any effective strategy for reducing abusive tax avoidance will require the
cooperation of these powerful and well-connected corporations.
To begin with, the Big Four could reduce the extent to which they themselves
facilitate abusive avoidance. Although the Big Four have stopped promoting generic
and mass-marketed tax products, there is reason to suspect that these companies
have simply changed their tactics to focus on less conspicuous, client-specific tax
avoidance advice. Their rhetoric about respecting tax law is difficult to swallow
given that the Big Four firms are willing to provide tax advice that has only a one-in-
two likelihood of surviving a challenge by tax officials.84 Moreover, there are
currently no repercussions for employees who promote strategies that are later
declared abusive. If the Big Four are indeed serious about wanting to help reduce
tax avoidance, changes to their corporate culture are needed. Introducing higher
minimum “riskiness thresholds” (closer to an 80 or 90 percent likelihood of
surviving a challenge would be appropriate) and internal sanctions (such as
commission cuts) for individual tax professionals who advise a strategy that is
ultimately deemed abusive. As things stand, the corporate culture at the Big Four
firms seems to incentivize tax professionals to provide advice of tenuous legal
standing when doing so delivers greater tax savings to clients.
The Big Four firms also have the capacity to play a constructive role in the
development of better tax legislation. Since elected officials are rarely tax experts,
tax professionals from the Big Four firms are frequently asked to participate in
84
government advisory committees on taxation legislation.85 As we have seen, there
is the potential for serious conflict of interest issues to arise out of this
arrangement, as appointed private sector professionals often have an incentive to
find (or worse, create) loopholes in the legislation they are advising on so that
these professionals can generate additional tax savings for their clients once they
return to the private sector. But since these private sector tax practitioners have a
wealth of knowledge on taxation matters, particularly their technical details,
governments nevertheless have very good reason to include these practitioners in
policy discussions and committees. The Big Four accountancy firms can help
prevent “poacher, turned gamekeeper, turned poacher”86 situations from arising by
making it a company policy not to encourage loopholes on legislation that
representatives of the company helped to write. The AICPA’s Code of Professional
Ethics includes an obligation to remain free of conflicts of interest;87 the Big Four
could do better at upholding this obligation with respect to their relations with
government. There are a number of ways in which these can be managed, such as
governments employing their own independent accountancy staff who are legally
obligated not to work for private industry during their government employment or
for quite a large number of years should such employment cease.
But in this paper, it is not our primary purpose to suggest that what would solve
these problems is more ethically conscientious efforts from individual actors.
Rather, trying to change the context, culture and environment to one that is more
supportive of ethically-oriented actions (that is, ones that promote institutional
integrity), is an important focus for the duties we wish to highlight. Effective
solutions require important changes to practice and legislation, and tax
practitioners have important obligations to assist in bringing about such changes.
The basic argument will apply to all three sets of tax professionals we discuss in
this paper and we introduce it here. We can summarize the argument structure as
follows:
85
For some government advisory positions, private-sector tax professionals must temporarily leave their
firms, but they are able to return to their firm once the term of the government appointment has ended.
Committee of Public Accounts, “Tax Avoidance: The Role of Large Accountancy Firms," 9.
86
Committee of Public Accounts, “Tax Avoidance: The Role of Large Accountancy Firms," 4.
87
American Institute of Certified Public Accountants, “Code of Professional Conduct,” December 15, 2014,
Section 0.300.050, http://pub.aicpa.org/codeofconduct/resourceseamlesslogin.aspx?prod=ethics&tdoc=et-
cod&tptr=et-cod0.300.050.
1. We have defective tax practices that allow large-scale tax abuse.
2. If particular tax practitioners refrain from engaging in or facilitating such

practices, they put themselves at a disadvantage relative to their
competitors, so it may not be fair to expect individual tax professionals to
so refrain.
3. But it is not unfair to expect tax professionals to engage in collective action

to support necessary changes to practices, norms or legislation governing
their professions. So they can reasonably be expected to join with others in
mobilizing for more appropriate best practice norms and legislation to
govern the tax industry. And they can be expected to support such efforts
and cooperate with efforts to bring them about. This notably means they
should refrain from lobbying against such reforms.
4. The more tax professionals have benefited from, been complicit in, or have
capacity to bring about changes, the stronger their obligations to show
moral leadership in initiating or bringing about necessary changes.
5. So some of the biggest players (such as the Big Four) have especially
strong obligations to mobilize for important changes, to lead by setting
good examples, and (where appropriate) to help draft documents, codes,
legislation (etc.) that could help set new industry standards for best
practice.
As we have been discussing, accountants have the sophisticated knowledge needed

to identify reforms that are likely to prove robust and resilient to further creative
thinking about loopholes. Accountants have an obligation, along with the other tax
professionals we discuss, to take a leading role in these reform efforts. We continue
by showing how other tax professionals have similarly important obligations.
8. Remedial Responsibilities: Lawyers
Causal Contribution
Legal professionals are also important facilitators of abusive tax avoidance. A large
number of U.S. and offshore law firms have helped wealthy individuals and large
corporations to avoid paying taxes in the U.S. We identify three main ways in which
lawyers act as essential facilitators of abusive tax avoidance: (1) assisting in the
design and implementation of abusive shelters; (2) providing legal opinions in
support of abusive transactions; and (3) representing tax shelter clients. In many
cases, a single law firm—and even the same individual—assists a particular tax
avoider in two or three of these capacities.
Designing and Implementing Shelters

The particular tax shelters we have discussed so far illustrate the very high level of
legal expertise involved in the tax avoidance industry. Among the legal knowledge
required is a sophisticated understanding of tax law as it applies to a wide variety
of assets and financial instruments, and specialist knowledge regarding the
management of offshore entities and transactions with those entities. Some
particular instances of lawyers playing a lead role in the design and
implementation of abusive tax shelters have already been mentioned. U.S.-based
lawyers were the central orchestrators of the Wylys’ tax shelter network, devising
and overseeing the strategies that the Wylys used and in some cases serving as
“trust protectors” of Wyly-affiliated offshore trusts.88 Maples & Calder, one of the
largest law firms in the Cayman Islands, helped to draft paper work and provided
legal advice to other actors involved in the Wyly network.89 Legal professionals were
also directly involved in designing, implementing and selling tax avoidance
products for the Big Four accountancy firms in the 1990s. During this period, the
Big Four began offering high salaries to attract the best tax lawyers, including
experienced partners from corporate firms.90 Lawyers continue to be important
members of the tax divisions of these large companies.
88
Subcommittee on Investigations, “Tax Haven Abuses,” 123-126.
89
Id., 130.
90
Tanina Rostain, "Sheltering Lawyers: The Organized Tax Bar and the Tax Shelter Industry," Yale Journal on
Regulation 23.1 (2006): 77-120, at 91.
In some tax avoidance cases we have not yet discussed, individual attorneys have
been the central orchestrators. In 2013 Donna Guerin, a former Jenkins & Gilchrist
lawyer, was found guilty of running a ten year scheme that created $7 billion in
fraudulent tax deductions and cost the U.S. Treasury $92 million in actual losses.
Judge William Pauley commented that “Ms. Guerin played a central role [in
creating the tax deductions], she was not a mindless automaton.”91 Guerin was
also a certified public accountant, indicating that individuals with a range of
professional skills can be especially adept at designing and managing abusive tax
avoidance schemes.
Providing Legal Opinions

U.S. law firms routinely write opinions on the legality of tax avoidance strategies.
For the clients and promoters of abusive tax shelters, a positive legal opinion can
serve as a form of insurance, deterring the IRS from challenging the legality of the
shelter or, if an IRS challenge does occur, shielding the client or promoter from tax
avoidance penalties. In many cases of abusive avoidance, the soundness or
legitimacy of these legal opinions is highly dubious. To serve its intended function,
a legal opinion needs to argue only that the transaction in question has a greater
than 50 percent chance of being upheld if challenged by the IRS.92 Given the
complexities and ambiguities of tax law, many lawyers have felt comfortable
providing positive opinions even on highly questionable shelters. (Tax shelter
promoters, for their part, have been willing to pay sizeable fees for favorable
opinions and to shop around for law firms willing to defend the legality of a
shelter.93) In many cases, lawyers have written opinions based on a limited and
distorting set of facts; up until the early 2000s it was standard practice for
opinions on tax shelters to be based solely on information provided to the lawyer
by the party seeking an opinion.94 Worse, in several documented cases law firms
have supplied positive opinions for shelters that the firm was itself involved in
designing or implementing. For example, Brown & Wood provided approximately
91
Guerin was sentenced to eight years in prison and ordered to pay $190 million. See Patricia Hurtado, “Ex-
Jenkins & Gilchrist Lawyer Gets 8 Years in Tax Case,” Bloomberg, March 2, 2013,
http://www.bloomberg.com/news/2013-03-01/ex-lawyer-donna-guerin-gets-8-year-sentence-in-tax-shelter-
case.html.
92
Rostain, “Sheltering Lawyers,” 93.
93
Id., 93-94.
94
For an example, see Subcommittee on Investigations, “Tax Haven Abuses,” 389.
600 opinions in support of tax shelters promoted by KPMG, despite collaborating
closely with KPMG in the design and implementation of the very same shelters.95
The 2005 American Jobs Creation Act (AJCA) went some way towards ensuring that
tax shelter opinions are free from bias and based on reliable information. The AJCA
introduced stricter due diligence requirements on legal opinions for transactions
that the IRS has listed as potentially abusive. These requirements mean that
lawyers writing opinions must take reasonable efforts to ascertain the relevant facts
of the situation; they cannot rely on information supplied by the client or simply
assume that the transaction has a legitimate business purpose.96 The AJCA also
introduced additional mandatory disclosure requirements, requiring both parties—
lawyer and taxpayer—to promptly disclose any relationship between one another.97
While these provisions certainly represent progress, they have clear limits and
there is reason to suspect that lawyers endorsing tax avoidance schemes exploit
those limits. The stricter disclosure and due diligence requirements apply only to
“listed” transactions that the IRS has identified as potentially abusive. Although the
IRS does not believe that the volume of abusive tax avoidance has significantly
decreased, the number of disclosed listed transactions reduced by about 80
percent from 2007 to 2008, suggesting either that non-listed transactions are
becoming more wide-spread or that many listed transactions are simply not being
disclosed. The IRS cannot confirm that it receives all required disclosure forms.98
Representing Tax Shelter Clients

Some law firms specialize in defending clients and promoters of tax shelters
against the IRS and other tax authorities. The Wylys acted through legal counsel in
almost all of their dealings with tax authorities as well as other facilitators of their
offshore network. The U.S. firm Sutherland Askill & Brennan represented multiple
individuals who purchased KPMG tax products and attempted to negotiate “global
settlement agreements” for whole groups of these clients. This well-financed legal
support creates a significant obstacle for authorities seeking to police abusive tax
95
Subcommittee on Investigations, “The Role of Professional Firms in the U.S. Tax Shelter Industry,” 102-
105.
96
Steven M. Weiser, “Circular 230 Compliance: A Guide for the Non-Tax Attorney,” The Colorado Lawyer 34.11
(2005): 29-37.
97
Id.
98
GAO, “Abusive Tax Avoidance Transactions,” 10.
avoidance. Tax enforcement authorities must make decisions about how to spend
limited resources, and the anticipated cost of a protracted legal battle can often be
a reason for not taking legal action against an apparently abusive shelter. This is
especially true given that, even if the IRS successfully challenges an abusive tax
avoidance scheme, the amount of money recouped in fines and penalties may still
fall well short of the tax revenue that was lost.
Benefit
Lawyers can earn substantial fees for their assistance in tax shelter arrangements.
During the “boom years” of the 1990s and early 2000s, fees for opinion letters
were sometimes as high as hundreds of thousands of dollars per shelter, and even
over one million.99 Opinion letters are neither difficult nor time consuming to write,
so these fees are incommensurate with the amount of work required by the lawyer;
instead they reflect the insurance value of a legal opinion to a tax shelter user or
promoter. Law firms have also obtained handsome fees for designing and
implementing shelters; Brown & Wood earned more than $23 million from
collaborating with KPMG, and Donna Guerin allegedly earned $11.5 million in the
year 2000 while running her large-scale tax avoidance scheme.100 Law firms that
represent tax shelter clients in IRS challenges, or in the client’s dealings with other
institutions, will likewise be generously compensated for their services. In addition,
the value of referrals, return business, and reputational benefits must not be
overlooked.
Capacity
With enormous financial and other resources at their disposal, as well as a ready
stream of clients who trust their lawyers to make good judgments on their behalf,
law firms can help reduce the scale of abusive tax avoidance in a number of ways.
Most obviously, legal professionals are the best equipped to identify the line
between abusive and non-abusive tax avoidance, and to determine whether a
particular tax strategy makes legitimate use of tax relief provisions or goes against
their spirit. Tax lawyers’ specialist knowledge of current law makes them especially
99
Rostain, “Sheltering Lawyers,” 94.
100
Hurtado, “Ex-Jenkins & Gilchrist Lawyer Gets 8 Years in Tax Case.”
well positioned to identify areas where there is potential for abuse. Instead of using
this knowledge to help clients avoid tax and assist other promoters in devising
novel shelters, law firms could advise clients against using abusive tax avoidance
schemes, or develop more constructive relationships with tax authorities to help
improve the quality of tax legislation.
Following the strategy introduced under Capacity in the previous section, we also
see that a significant duty here is to support, and sometimes to initiate, action to
improve best practice norms of professional conduct with corresponding necessary
changes to professional codes and legislation. In coordinating these necessary
collective actions, there is an important role for bar associations in the
development of effective tax law. Many of the tax compliance reforms introduced in
the 2005 AJCA were originally campaigned for by the tax sections of the American
Bar Association (ABA) and New York State Bar Association (NYSBA), including
stricter due diligence requirements, increased penalties for abusive tax avoiders,
and sanctions for lawyers who write legal opinions that are designed to provide
penalty protection for tax shelter users and promoters.101 These bar associations
constructively advised the U.S. Treasury on how to introduce these reforms with
lowest administrative and compliance costs. (In contrast, the leading
representative of accountants in the U.S., the AICPA, fought the introduction of
these reforms.102) In supporting the AJCA tax reforms, the ABA and NYSBA most
likely acted on a concern that the growth of the abusive tax shelter market was
eroding the professional credibility of U.S. tax lawyers.103 The case demonstrates
the influence of bar associations over government tax authorities, as well as the
capacity of these associations to align the interests of tax lawyers with those of tax
enforcers.104
101
See Rostain, “Sheltering Lawyers,” 97-104.
102
Id., 99, 103.
103
Id.
104
There are a number of objections that could be made to the arguments we make in this section. There is a
view (with a fairly long history) that lawyers are independent from their clients and so are not morally
responsible for their clients’ behavior. Lawyers can, for instance, represent criminals without being criminals
themselves. In fact, the practice of offering legal representation relies on just such a distinction for the legal
system’s being able to protect people’s rights robustly. Moreover, lawyers have duties to represent their
clients’ interests and these fiduciary duties might well extend to advising their clients about loopholes in the
law, including loopholes in tax law. Far from advice about making use of tax loopholes being morally
objectionable, perhaps the conscientious lawyer ought to advise her client of just such options when they
exist. Furthermore, tax shelter cheats are entitled to legal representation when they face charges and so a
9. Remedial Responsibilities: Financial Advisors
Causal Contribution
Financial advisors, including large banks and securities firms, make up a third
group of facilitators of abusive tax avoidance. Financial advisors contribute to
abusive tax avoidance arrangements by providing sophisticated financial advice,
opening accounts, providing multi-million dollar loans and facilitating wire
transfers to offshore entities. If major banks and securities firms were not willing to
provide these services, a large number of tax shelters would be impossible to
execute.
Many of the banks involved in tax avoidance are located in secrecy jurisdictions,
such as the Cayman Islands and Switzerland, where banking laws strictly prohibit
the disclosure of client information. These banks open undeclared accounts for
lawyer who takes on such a case without having designed the particular tax product is no more guilty of her
client’s offenses than a lawyer who agrees to defend an accused murderer.
There are many responses to this cluster of concerns but here we highlight just a few. To take the last concern
first, our primary target in this paper is those teams of tax professionals for whom three key responsibility
factors converge: they are causally implicated in designing or implementing the problematic tax product; they
benefit from these products; and they have excellent capacity to remedy the defective situation. These
professionals often operate in highly organized teams, so they share responsibility for what they do together,
even if an individual professional participates in only one highly predictable part of the process (such as legal
challenges). As we saw in the Wyly case, lawyers are often core members of this team. Lawyers who only
represent tax shelter cheats but have not causally contributed to the situation nor benefited from it and are not
part of a team which provides such services are not our primary target.
We would challenge several of the assumptions that underlie many of the objections above. First, the actions
of lawyers and those of their clients are not so easily distinguished in the cases at issue here. Rather, they
work together in crucial ways when the teams of tax professionals create the products which will help clients
avoid the tax in ways quite contrary to the spirit of the law (i.e., they fail the Canadian test discussed in
Section 3, above). Second, there are limits to the kind of partiality lawyers may show for their clients’
interests, even when they have fiduciary duties. These limits are frequently defined by courts, professional
associations and other regulators. As we show in the final section, we believe plausible interpretations of the
codes that govern the relevant professionals do support our case that the partiality limits were violated for the
worrisome tax products. Recent court decisions and proposed regulation changes support our case. Third, in
many cases the lawyers are involved not only as legal advisors but also as dealmakers who have considerable
economic interest in the success of the products about which they are offering legal advice. Legal fees may
well depend on successfully completing transactions, with premium billing rates applying to successful
transactions and reduced fee structures for transactions that fail to close. We may therefore have reason to
worry about conflicts of interest being in play. These conflicts may dispose legal advisors to violating
professional norms about responsible legal judgment that gives proper consideration to public interests and
other stakeholders who will be harmed by the successful operations of abusive tax products. Fourth, it may
also be worth pointing out that we might well have one set of standards for practicing criminal law and the
standards may differ for commercial and corporate law. Much of the force of the objections relies on what we
think appropriate in criminal law, but it is a further question whether similar standards should unreflectively
apply to corporate law.
We are very grateful to Richard Painter who raised many of these objections. We have also benefited from
reading his work, notably Richard Painter, “The Moral Interdependence of Corporate Lawyers and Their
Clients,” Southern California Law Review 64 (1994): 507-584.
foreign taxpayers as well as for offshore shell entities that are set up for the
purpose of tax avoidance.105 Naturally, the existence of these secrecy laws is a
major reason why tax avoiders choose to open accounts in Swiss and other offshore
banks, as it makes it much more difficult for authorities to determine their true tax
situation. The major Swiss bank Credit Suisse has been accused of helping 22,000
wealthy U.S. taxpayers conceal their finances offshore; but to the frustration of U.S.
investigators Swiss law has restricted Credit Suisse from releasing the names of
the vast majority of U.S. residents holding undeclared accounts.106
Financial institutions are not ignorant of their complicity in abusive tax avoidance;
indeed, they sometimes play an active role in managing and implementing
avoidance schemes. Between 2001 and 2008, Credit Suisse sent bankers on secret
trips to the U.S. to recruit new clients and service existing customers, sponsoring
annual balls and golf tournaments to attract wealthy U.S. taxpayers.107 Credit
Suisse helped conceal their clients’ accounts from U.S. authorities by referring
customers to specialist firms that could establish offshore shell entities on their
behalf and open Swiss accounts in the name of those entities.108 Three major
European banks—Deutsche Bank, HVB and UBS—were integral in KPMG’s tax
shelters, providing $7.8 billion in credit to KPMG clients that was used to generate
tax losses through schemes such as OPIS.109 Despite having good reason to believe
that KPMG’s shelters were contrary to the spirit (if not the letter) of U.S. law, all
three banks continued to aid KPMG for several years.110
In 2008, six Wall Street banks—Citigroup, Lehman Brothers, Morgan Stanley,

Merrill Lynch, UBS, and Deutsche Bank—became the subjects of a U.S. Senate
Subcommittee investigation for allegedly helping non-U.S. persons avoid U.S.
105
United States Senate Permanent Subcommittee on Investigations, “Offshore Tax Evasion: The Effort to
Collect Unpaid Taxes on Billions in Hidden Offshore Accounts,” August 20, 2014, 6.
106
Id., 3, 7.
107
Id., 3.
108
Id. Senator John McCain has described the bank as using “cloak and dagger” methods to keep its U.S.
clients’ accounts secret; in one instance, a customer met with a bank representative over breakfast and was
handed bank statements hidden in a Sports Illustrated magazine. See Dominic Rushe, “Credit Suisse ‘Cloak
and Dagger’ Tactics Cost U.S. Taxpayers Billions – Senators,” Guardian, February 25, 2014,
http://www.theguardian.com/business/2014/feb/25/credit-suisse-offshore-tax-senators.
109
Subcommittee on Investigations, “The Role of Professional Firms in the U.S. Tax Shelter Industry,” 111-
112.
110
In 1998, a concerned UBS employee wrote to management to express his concern that UBS was
facilitating “an illegal capital gains tax evasion scheme to US tax payers.” His concerns were ignored. Sikka,
“Smoke and Mirrors,” 160-161.
dividend tax.111 These banks cooperated with a number of hedge funds in devising
tax avoidance schemes that manipulated the different U.S. tax rules for various
asset types. Morgan Stanley data indicates that the bank enabled clients to escape
over $300 million in U.S. dividend taxes between 2000 and 2007; the Lehman
Brothers apparently helped clients dodge $115 million in taxes in 2004 alone.112 In
2014, similar charges were made against Barclays and Deutsche Bank; one hedge
fund, Renaissance Technology Corp., allegedly dodged $6.8 billion in U.S. taxes
using schemes devised by Barclays and Deutsche Bank.113
Where banks have not actively assisted in implementing tax shelters, they have
often turned a blind eye. The U.S. financial institutions that held accounts for the
Wylys’ (ostensibly independent) offshore entities had reason to suspect that the
entities were Wyly-controlled and that they were being used to shelter taxable
assets offshore. Indeed, internal correspondences suggest that these banks knew
about the Wyly connection but decided not to request more information or bring
their suspicions to tax authorities.114 This kind of tacit facilitation also contributes
to abusive tax avoidance; if U.S. banks had refused to cooperate or sounded the
alarm about the Wylys’ activities, an important link in the Wylys’ network could
have been severed and the scale of their tax avoidance could have been
significantly curtailed.
Benefit
Due to the secrecy involved, it is difficult to estimate the extent to which financial
institutions benefit from abusive tax avoidance. However, the figures available are
telling. Deutsche Bank obtained a total of $79 million in bank fees from two KPMG
tax shelters, while HVB earned $5.45 million in three months for providing loans
111
United States Senate Permanent Subcommittee on Investigations, “Dividend Tax Abuse: How Offshore
Entities Dodge Taxes on U.S. Stock Dividends,” 45-575 PDF, September 11, 2008.
112
Id., 8.
113
John D. McKinnon and Ryan Tracy, “Senate Report: Tax Move Helped Hedge Funds Save Billions,” Wall
Street Journal, July 21, 2014.
114
for a single KPMG tax product.115 UBS earned $200 million from helping U.S.
taxpayers create false identities to conceal assets offshore.116
Capacity
Financial advisors have huge resources at their disposal with which to make
constructive changes. These include individuals who have the very highest levels of
knowledge about financial products and how they might be used for legitimate or
abusive ends. With this extraordinary level of knowledge there might well be
enhanced levels of obligation to use the knowledge in ways that are especially
sensitive to respecting public interests, along with a range of duties to other
stakeholders. Again, as with the other two categories of tax professionals, we see
enormous scope for constructive collective action to change best practice norms
and legislation. An important component of a comprehensive effective solution to
abusive tax avoidance will be greater sharing of financial information, both between
countries and between the public and private sectors. We cannot do justice to this
huge issue here, though we have remarked on some promising strategies in this
area elsewhere.117
10. Concluding Remarks

The activities of tax professionals facilitate institutional corruption in taxation
institutions. When fiscal institutions are unable to raise revenue effectively and
equitably because they are not properly dependent on citizens (because many
citizens deploy abusive tax strategies to avoid making proper contributions to state
revenue) or improper dependencies arise owing to the manipulations and abuse
opportunities available to tax professionals, we have a situation ripe for
institutional corruption to flourish. However, as we remarked in Section 5, tax
professionals can also help create and uphold fiscal institutional integrity. In
explaining ways in which tax professionals have the capacity to address abusive tax
avoidance, we also thereby, in effect, outlined ways in which tax professionals can
help promote institutional integrity.
115
Subcommittee on Investigations, “The Role of Professional Firms in the U.S. Tax Shelter Industry,” 112.
116
Sikka, “Smoke and Mirrors,” 160-161.
117
Brock, “Institutional Integrity, Corruption, and Taxation,” 26-30.
We have shown in the previous sections that the connections between tax
professionals (accountants, lawyers and financial advisors) and abusive tax
avoidance converge on three grounds: causal connection, benefit and capacity. This
is sufficient, we argue, to ground strong responsibilities for these professionals to
help address abusive tax avoidance. We now note that tax professionals are already
bound by a number of professional codes that emphasize professional integrity and
responsibilities to the public. The promotion of integrity in fiscal institutions should
be regarded as part of these professional responsibilities.
Consider as one example the American Institute of Certified Public Accountants’

Code of Professional Conduct.118 The AICPA’s code specifically notes that
professionals have duties to serve the public interest. Indeed, the mark of a
professional is said to be the acceptance of responsibility to the public. The public
interest is defined in this code as “the collective well-being of the community of
people and institutions the profession serves.” Item 0.300.030.03 in the AICPA
code is an important statement of what these obligations to the public entail. It
says: “In discharging their professional responsibilities, members may encounter
conflicting pressures from among [various] groups. In resolving those conflicts,
members should act with integrity, guided by the precept that when members fulfill
their responsibility to the public, clients’ and employers’ interests are best
served.”119 When accountants devise and promote tax avoidance schemes that
illegitimately deny communities much-needed revenue to sustain core functions,
they fail to weigh up conflicting pressures in a way that pays sufficient attention to
the public interest.
But even when professionals are not bound by existing codes of practice, our
arguments make the case that (i) there ought to be such codes and/or relevant law
changes, (ii) tax professionals have duties to help bring these into being, and (iii)
even in the absence of such codes there are strong duties to promote appropriate
collective actions that would reform tax practices in ways that assist in bringing
about institutional integrity. A common argument that we highlighted applied to all
three sets of tax professionals. In the face of defective tax practices that allow
118
AICPA, “Code of Professional Conduct,” Section 0.300.030.02,
http://pub.aicpa.org/codeofconduct/resourceseamlesslogin.aspx?prod=ethics&tdoc=et-cod&tptr=et-
cod0.300&vct=1.
119
Id., Section 0.300.030.03.
large-scale tax abuse, because of capacity (along with patterns of benefit and
contribution to creating the situation of institutional corruption in the first place), it
is not unfair to expect tax professionals to engage in collective action to support
necessary changes to practices or norms in their professions. So these
professionals can be expected to join with others in mobilizing for more
appropriate best practice norms and legislation to govern the tax industry. And
they can be expected to support such efforts and cooperate with efforts to bring
them about. Importantly, this implies that tax professionals have important duties
to refrain from lobbying against such reforms.
We also suggested that the more tax professionals have benefited from, been
complicit in, or have capacity to bring about changes, the stronger their obligations
to show moral leadership in bringing about constructive reforms. So some of the
biggest players (such as the Big Four) have specially strong obligations to mobilize
for important changes, to lead by setting good examples, and (where appropriate)
to help draft documents, codes, legislation (and so forth) that could help set new
industry standards for best practice. And by virtue of their large numbers of
members and therefore their collective capacities, bar associations and other
professional associations are similarly obligated to take a leading role in bringing
about the kinds of changes necessary to promote fiscal institutional integrity.
Acknowledgements
For excellent comments on a previous draft of this work we are grateful to Richard
Painter.
Working Paper Series
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by Lawrence Lessig
Strengthening the Theory of Institutional Corruptions:

Broadening, Clarifying, and Measuring
by Donald W. Light
Influence Incognito
by Brooke Williams
Professionalism and Moral Behavior:

Does A Professional Self-Conception Make One More Unethical?
by Maryam Kouchaki
Short-Termism At Its Worst: How Short-Termism Invites Corruption…

and What to Do About It
by Malcolm S. Salter
What Institutional Corruption Shares with Obscenity

by Gregg Fields
Investment Consultants and Institutional Corruption

by Jay Youngdahl
Does the Gender of Directors Matter?

by Miriam Schwartz-Ziv
Finding Solutions to Institutional Corruption:

Lessons from Cognitive Dissonance Theory
by Lisa Cosgrove and Robert Whitaker
Democracy in Poverty: A View From Below
by Daniel M. Weeks
What’s the Big Deal?: The Ethics of Public-Private Partnerships Related to

Food and Health
by Jonathan H. Marks
Tax-Exempt Corruption: Exploring Elements of Institutional Corruption in

Bond Finance
by Zachary Fox
Second Thoughts on Second Opinions: Conflicted Advisors Reduce the Quality

of Their Advice When They Know They Will be “Second-Guessed”
by Sunita Sah and George Loewenstein
Culture Wars: Rate Manipulation, Institutional Corruption, and

the Lost Underpinnings of Market Conduct Regulation
by Justin O’Brien
Institutional Corruption and the Crisis of Liberal Democracy

by William English
Two Concepts of Corruption

by Dennis F. Thompson
Think Tanks’ Dirty Little Secret: Power, Public Policy, and Plagiarism
by J.H. Snider
Rooting Out Institutional Corruption To Manage Inappropriate Off-Label

Drug Use
by Marc A. Rodwin
Divided Loyalties: Using Fiduciary Law to Show Institutional Corruption

by Michael Pierce
Political Finance in the United Kingdom
by Timothy Winters
Blinding as a Solution to Institutional Corruption

by Christopher Robertson
A Passport at Any Price? Citizenship by Investment through the Prism of

Institutional Corruption
by Laura Johnston
Independent Drug Testing to Ensure Drug Safety and Efficacy

by Marc A. Rodwin
Brazil’s Case Against Private-Sponsored Events for Judges:

A Not-yet-perfect Attempt at Fighting Institutional Corruption
by José Vicente Santos de Mendonça
Institutional Corruption: A Fiduciary Theory

by M.E. Newhouse
“You’re Not Just a Paid Monkey Reading Slides:” How Key Opinion Leaders
Explain and Justify Their Work
by Sergio Sismondo
The Power of Perception: Reconciling Competing Hypotheses about the Influence

of NRA Money in Politics
by Arjun Ponnambalam
Does Trust Matter?

Corruption and Environmental Regulatory Policy in the United States
by Oguzhan Dincer and Per Fredriksson
Singapore Sling: How Coercion May Cure the Hangover in Financial

Benchmark Governance
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Fighting Corruption in Education: A Call for Sector Integrity Standards

by Mihaylo Milovanovitch
Annals of Crony Capitalism: Revisiting the AIG Bailout

From “Institutional” to “Structural” Corruption: Rethinking Accountability in

a World of Public-Private Partnerships
by Irma E. Sandoval-Ballesteros
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by Juan Pablo Remolina
Judicial Independence in Latin America and the (Conflicting) Influence of

Cultural Norms
by Roberto Laver
How to Mitigate Corruption in Emerging Markets: The Case of Russia

by Stanislav Shekshnia, Alena V. Ledeneva and
Elena Denisova-Schmidt
Interagency Information Sharing with Resource Competition

by Laurence Tai
Banking Compliance and Dependence Corruption: Towards an

Attachment Perspective
by Kate Kenny
Institutional Integrity, Corruption, and Taxation

by Gillian Brock
Institutional Corruption: From Purpose to Function
by Paul C. Taylor
Institutional Corruption as a Problem of Institutional Design:

A General Framework
by Gustavo H. Maultasch de Oliveira
Community Development Authorities: A Further Exploration of

Institutional Corruption in Bond Finance
by Mary M. Báthory Vidaver
Tackling Corruption in Political Party Financing: Lessons from Global

Regulatory Practices
by Chandrashekhar Krishnan
Trust and Institutional Corruption: The Case of Education in Tunisia

by Mihaylo Milovanovitch
Systemic Corruption: Considering Culture in Second-Generation Reforms

by Roberto Laver
Negotiation Games in the Fight against Corruption

by Mariano Mosquera
Arms, Exports, Influence: Institutional Corruption in the German Arms

Export Regime
by Kathrin Strobel
Corruption Issues in State and Local Politics:

Is Political Culture a Deep Determinant?
by Oguzhan Dincer and Michael Johnston
Who Governs Global Affairs? The Role of Institutional Corruption in U.S.

Foreign Policy
by Simona Ross
Crony Capitalism, American Style: What Are We Talking About?
Edmond J. Safra Research Lab Working Papers, No.50
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by Meri Avetisyan and Varsenik Khachatryan
Fixing the Fix: Governance, Culture, Ethics, and the Extending Perimeter of
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The Suspension of Preliminary Injunctions in Brazil: An Example of

by Eduardo Gusmão Alves de Brito Neto
US Defense and Institutional Corruption

by Alexandra Gliga
The Economics of Corruption in Sports: The Special Case of Doping

by Eugen Dimant and Christian Deutscher
Abusive Tax Avoidance and Institutional Corruption: The Responsibilities

of Tax Professionals
by Gillian Brock and Hamish Russell
With Special Thanks to our Working Paper Series Board Members:
Advisory Board Editorial Board

Marcia Angell Lisa Cosgrove
Arthur Applbaum Oguzhan Dincer
Marguerite Avery William English
Mahzarin Banaji Gregg Fields
Max Bazerman Paul Jorgensen
Archon Fung Aaron Kesselheim
David Korn Genevieve Pham-Kanter
Nancy Rosenblum Marc Rodwin
Malcolm Salter Susannah Rose
Dennis Thompson

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Abusive Tax Avoidance

Edmond J. Safra Working Papers, No. 56

February 17, 2015

Abusive Tax Avoidance and Institutional Corruption:

Institutional corruption, institutional integrity, tax abuse, tax professionals and

The paper is organized as follows. In Section 2, we define the parallel concepts of

2. Fiscal Institutional Integrity and Corruption

1) An institution achieves its purposes effectively and equitably.

2) Insofar as an institution is properly dependent on P (or parties P1, P2, …,

3) Because 1) and 2) are the case, public confidence in the institution is

4) Public confidence in the institution’s practices, operations, and policies

By contrast, institutional corruption is a situation in which institutional integrity is

4*) Public confidence in the institution’s practices, operations, and policies

Institutional integrity and corruption take on different characters depending on the

1) A tax institution achieves its main purpose when it raises revenues

4) Public confidence in the institution’s practices, policies, and operations

2*) Because of improper dependencies, some parties have improper influence

4*) Public confidence in the practices, policies, and operations of tax

In an earlier contribution to this working paper series, Brock discusses a number of

3. Abusive Tax Avoidance

1. Was there a tax benefit?

4. Case Study: The Wyly Offshore Network

Furthermore, the Wylys created the appearance of being technically independent

5. Tax Professionals and Institutional Corruption

In these ways, tax professionals can help promote a situation of institutional

Furthermore, the fact that professionals serve as technical advisors to tax

While we acknowledge that governments and taxpayers have significant remedial

On this strategy particular individuals have special responsibilities to remedy

• Causal contribution: A causes or significantly contributes to D.

• Benefit: A benefits from the situation or process that leads to D.

• Capacity: A is capable of remedying D effectively and at relatively low cost

7. Remedial Responsibilities: Accountants

The “Boom Period” and the KPMG Tax Shelter Scandal

Despite these clandestine precautions, the IRS eventually became suspicious of

Current Practices of the Big Four Firms

2. If particular tax practitioners refrain from engaging in or facilitating such

3. But it is not unfair to expect tax professionals to engage in collective action

As we have been discussing, accountants have the sophisticated knowledge needed

Designing and Implementing Shelters

Providing Legal Opinions

Representing Tax Shelter Clients

In 2008, six Wall Street banks—Citigroup, Lehman Brothers, Morgan Stanley,

10. Concluding Remarks

Consider as one example the American Institute of Certified Public Accountants’

Strengthening the Theory of Institutional Corruptions:

Professionalism and Moral Behavior:

Short-Termism At Its Worst: How Short-Termism Invites Corruption…

What Institutional Corruption Shares with Obscenity

Investment Consultants and Institutional Corruption

Does the Gender of Directors Matter?

Finding Solutions to Institutional Corruption:

What’s the Big Deal?: The Ethics of Public-Private Partnerships Related to

Tax-Exempt Corruption: Exploring Elements of Institutional Corruption in

Second Thoughts on Second Opinions: Conflicted Advisors Reduce the Quality

Culture Wars: Rate Manipulation, Institutional Corruption, and

Institutional Corruption and the Crisis of Liberal Democracy

Two Concepts of Corruption

Rooting Out Institutional Corruption To Manage Inappropriate Off-Label

Divided Loyalties: Using Fiduciary Law to Show Institutional Corruption

Blinding as a Solution to Institutional Corruption

A Passport at Any Price? Citizenship by Investment through the Prism of

Independent Drug Testing to Ensure Drug Safety and Efficacy

Brazil’s Case Against Private-Sponsored Events for Judges: