Don't Mess With Taxes

Chrysler exec owes $1M+ in taxes, loans

While Chrysler was in bailout talks with Uncle Sam, one of its top executives was dealing with his own financial problems.

Jim Press, deputy chief executive of Chrysler Group LLC, owes $947,410 in back federal taxes and has defaulted on $609,286 he owes Western Federal Credit Union, according to the documents filed in Oakland County.

The Wall Street Journal (via initial reports from the Detroit Free Press and the Detroit News) says IRS has filed a lien against Press' Birmingham, Mich., home. Another was placed on a townhouse he has n Manhattan's exclusive Lenox Hill neighborhood.

Press and his wife allegedly failed to pay their 2007 income taxes.

Last November, according to reports, Press sent a letter to the credit union, assuring it that "You don't have to worry about my ability to pay, it's just a cash flow issue at this time. My employment is not in jeopardy, and I still have monthly income to service the note."

The letter, notes the WSJ, was sent two weeks before the chief executives of the three major U.S. car makers went to Capitol Hill seeking emergency funds. Since then, Chrysler filed for bankruptcy and went through a federally orchestrated bailout. It now is under the control of Fiat SpA.

Press is the only top Chrysler executive kept on by Fiat after the bailout. He reportedly will leave his auto company job at the end of the year. I'm sure Press and the IRS are hoping he gets a nice exit package.

The financial crisis diagrammed

Having trouble understanding exactly how all those banks and brokerages and various financial entities that crashed last fall are connected? Check out this diagram:

Yeah, that's clear as mud.

To me, the shape of the diagram looks sort of like a brain. And after staring at it, I'm reminded of that anti-drug television ad illustrating your brain after taking banned substances.

That probably says more about my gray matter than the diagram. I know it definitely explains why I don't work in high finance.

According to NPR's Planet Money, which alerted me and other @planetmoney Twitter followers to this funky graphic via this tweet, the image comes from the International Monetary Fund's just released Global Financial Stability Report.

The diagram is an effort to show how all the financial institutions indicated within were linked by credit default swaps.

One of the key points in the press summary is:

The ongoing crisis has shown how financial innovations have enabled risk transfers that were not fully recognized by financial regulators or by institutions themselves, complicating the assessment of a “too-connected–to-fail” problem. It is thus essential to improve our understanding and monitoring of direct and indirect systemic linkages.

OK, I get the "essential to improve our understanding and monitoring" point, but must agree with Planet Money's overall assessment: "Man, I do not envy whoever gets the job of regulating systemic risk."

Related posts:

• AIG bonus tax effective sans enactment
• Nullify, don't tax, AIG bonuses
• OMG! AIG ... WTF?!? 
• A modicum of bailout shame from Citi?
• Sing along, y'all, to The TARP Song! 
• More bailout-related tax shenanigans
• Anti-tax advocate seeks bailout money
• Tax breaks sweeten bailout bill

AIG bonus tax effective sans enactment

Put away your torches and pitchforks. Your outrage, along with a proposed but not likely to be enacted 90 percent tax on AIG bonus payments, has done its job.

It seem that the threat by Representatives to take back via taxes most of the AIG bonuses paid in federal bailout dollars was enough to get most of the insurance company's recipients to give the money back. That and New York Attorney General Andrew Cuomo's promise to name names of those who keep the money.

I was as mad as anyone at AIG and its hubris and Capitol Hill and its sloppiness. But as I said as the 90 percent "clawback" tax was being debated on the House floor, it's bad tax policy.

I wasn't alone in that assessment. Roth & Company Tax Updates Blog cites a couple of bonus tax opponents. TaxProf has another collection of AIG tax backlash commentaries.

And there's the constitutional question. Laurence H. Tribe, a professor of constitutional law at Harvard Law School, fist thought the measure would pass court review. But he has had a change of heart, now telling Tax Analysts he has "growing doubts about the constitutionality of H.R. 1586's 90 percent AIG bonus clawback tax."

Political cover achieved: But the most important responses have come from the White House and Senate, both of which have taken a breath since the AIG fury erupted and the House bill was passed.

As is often the case legislatively, the Senate is more deliberative and, because its members have the luxury of six-year vs. two-year election cycles, less prone to public pandering.

In fact, from my years in Washington, working on both sides of the Hill, I've seen House members vote for a bill that might get them some good political mileage even thought they think it's bad legislation. The reason: They knew that the measure would die or be substantially changed when it got to the Senate.

But the House members, looking at an impending election day, still got to tell their constituents that they voted for it.

Ain't politics grand?

Patience prevails, for now: That's effectively going to be the case here. Senate leadership has said they aren't in any hurry to deal with the AIG bonus tax, either the House version or their own proposal.

Senate Finance Committee Chair Max Baucus (D-Mont.) told reporters he was looking "more closely" at his own proposal to impose heavy corporate and individual excise taxes on certain employee bonuses. The reconsideration came after President Obama said on CBS News' 60 Minutes that "you certainly don't want to use the tax code to punish people." 

Similarly, Senate Majority Leader Harry Reid (D-Nev.) did not specify a time frame for the AIG bill. He did, however, note that Republicans are pushing for hearings into the legislation's potential impact, and that could delay any Senate bill's passage.

House happy: And today, House Majority Leader Steny Hoyer (D-Md.) said that the House-passed bonus tax bill seems to already have had much of its desired impact.

Hoyer cited the AIG executives who have agreed to return their share of the $165 million bonus money that triggered public and Congressional outrage.

"I think apparently the House bill had its intended effect. They’re giving it back," Hoyer said.

More anger at AIG: If you're just not ready to forgive and forget, here's another reason to remain angry at AIG.

Even in the wake of public outrage, the company is pressing forward with its lawsuit, funded in part with bailout money, against the IRS.

Even better is the tax issue at the heart of the lawsuit. AIG is fighting for the return of $306 million in tax payments, some related to deals that were conducted through offshore tax havens.

The IRS isn't waiting around for the case to play out. It is challenging some of the tax deals structured by AIG Financial Products Corp., the same unit that has caused political outrage over its bonuses.

Looks like the pitchforks and torches might have to come out of storage sooner than we thought.

And the bailout tax fun continues

Not to get your Friday off on an irritable start, but did you know that more than $221 million in taxes is overdue from 13 of the 23 largest recipients of Troubled Asset Relief Program (TARP) funds?

That's the word from the House Ways and Means Subcommittee on Oversight, which held a hearing yesterday on the state of federal borrowing and the use of taxpayer money. The timing was perfect, given that the same day the full House approved a "clawback" measure to recoup most of the bailout money used by AIG as employee bonuses.

The revelations from Lewis' subcommittee no doubt played a big role in the House passage of the bailout bonus bill.

Not naming names ... yet: The Oversight Subcommittee wouldn't disclose the companies that have not paid their taxes; privacy issues and all that. Somehow I suspect those identities will be finding their way into public view soon.

However, Oversight Chairman Rep. John Lewis (pictured at right) did release a chart detailing the amounts owed by "Recipient A" through "Recipient W" over the years.

And the Georgia Democrat had no problem castigating not only the anonymous tax-evading entities, but also the apparently shoddy review of such firms during the bailout money distribution process.

"To get money from Treasury, banks and others must sign a contract that states they have no material unpaid taxes. Treasury did not ask these banks and companies to turn over their tax records. Treasury relied on the signed statements when it agreed to invest billions of taxpayer dollars," said Lewis.

"“Are they signing contracts knowing that they owe taxes but thinking they will not get caught? Did then-Secretary Paulson turn a blind eye? Either way, this is shameful. It is a disgrace," Lewis continued in his statement before opening the hearing. "The American people are fed up, they are fired up, and they're not going to take it anymore."

Don't hold your breath: Recovery options include the usual IRS tactics of liens, levies and penalties. But that could take a while

Gene Dodaro, acting comptroller general for the Government Accountability Office, told the hearing that the IRS' "collection record isn't that terrific" in this area. While the IRS has the tools in place to collect this money, Dodaro said, Treasury and the IRS "really haven't had their program" to monitor compliance in this area "up and running yet."

After the hearing, the IRS released a statement: "The IRS has every expectation that these amounts will be paid and is committed to collect every dollar of taxes that are owed."

Let's certainly hope so.

Hearing particulars and other coverage: You can check out the hearing notice at the Oversight Committee's Web page. There you'll find links to the witnesses' prepared testimony, which includes a GAO report (pdf) on "Status of Efforts to Address Transparency and Accountability Issues" in connection with TARP.

You also can read more at:

• TARP Corps Owe More Than $220M in Back Taxes at ABC News
• Some Rescued Companies Owe U.S. Taxes by Reuters
• 13 Firms That Received Bailout Money Owe Back Taxes in the New York Times
• 13 Bailed-Out Banks Failed to Pay Taxes in the Washington Post

AIG bonus tax passes

OK, I totally underestimated the appeal of using the tax code to recoup AIG bonus payments. Sorry, Charlie, for doubting you.

Charlie is, of course, Charles Rangel, chairman of the House Ways and Means Commitee and chief sponsor of H.R. 1586, a bill that would tax up to 90 percent of bonus money paid to certain AIG employees. By a vote of 328-to-93, the measure passed the House.

The Senate Finance Committee leaders are working on their own AIG bonus bill. It must pass that chamber and then the two pieces of legislation will have to be reconciled.

It will be interesting to see what the Senate comes up with and just how a final AIG measure will shape up. Regardless, I stand by my earlier positon that the bonuses should be nulified, not taxed.

But then, for better or worse (for me and the country!), I'm not in Congress.

Nullify, don't tax, AIG bonuses

Two days ago, the head of the House tax-writing committee spoke out against the idea of a specific tax on recipients of AIG bonuses. The tax code is "not a political weapon," said Rep. Charles Rangel (D-N.Y.).

Today, Rangel has loaded his tax gun.

He and his House colleagues are debating a bill, H.R. 1586, sponsored by the Ways and Means chairman which would take 90 percent of the AIG bonuses back in federal taxes. It would apply to bonuses paid since Jan. 1 by the federally rescued insurance giant or any other company accepting more than $5 billion in bailout money. It also would apply only to individuals with total adjusted gross income exceeding $250,000 per year.

What a difference a couple of days and a lot of angry public outcry make.

It's unclear how much of a chance Rangel's bill has. The format under which it's being debated, known as suspension of the rules, means that the measure needs a two-thirds majority vote to pass. That means he must get a "yea" vote from all his fellow 253 Democrats and pick up 34 Republicans votes.

Good luck with that, Charlie, both in keeping all the Dems corralled as well as persuading enough Republicans.

UPDATE, 2:40 p.m. March 19
I underestimated Charlie. His bill did pass.
But I stand by my position
detailed a little later in this post.

And even if H.R. 1586 somehow passes in the House, it then must face the Senate. Over on that side of Capitol Hill, Senate Finance Committee Chairman Max Baucus (D-Mont.) and the committee's ranking member Charles E. Grassley , (R-Iowa) are drafting their own, and different, version of AIG-whacking legislation.

Bad idea anyway: I hope H.R. 1586 doesn't clear the House. As irked -- yeah, that's a good, and printable, word for it -- as I am about the AIG bonus deal, I think Rangel was correct in the first place.

Congress it trying to overcompensate now for it's egregious lack of oversight when the Troubled Asset Relief Program (TARP) deals were cut last year.

And to prove how weird politics and our country's financial situation is now, I agree with House Minority Leader John A. Boehner (R-Ohio), who opposes Rangel's bill. "It’s nothing more than an effort to cover somebody's rear end because of the political damage that’s out there," Boehner said.

Supporters of the measure say the measure is necessary because the AIG bonuses "go against the ideals of capitalism," that we shouldn't reward the people who helped create the current economic mess. And then there's the matter of taxpayers/voters footing the bill. All true.

But enough with the tax code. It's got plenty of pages already. And the administration of a special tax on just certain taxpayers would be an administrative and costly endeavor. Haven't we wasted enough on these guys already?

Void the bonuses: I say just void the bonuses. Yeah, yeah, contracts. Big deal. Contracts are renegotiated or broken all the time. Just ask any divorce lawyer who's looked a prenup and laughed.

Plus, I would argue that any contracts that workers had with AIG were voided the minute that AIG money quit being used and bailout funds were accepted. He who controls the purse strings makes the rules. Guess what, ladies and gentlemen, new sheriff in town, new wallet, new rule: No bonuses.

Yes, there are legal issues. And concern about government intervention now, after the fact, is understandable. Ideally, the bonus clause and the possible (probable) problems it could cause should have been caught well before the payout date. And apparently it was in the legislation but removed. That's another matter to deal with on its own.

Right now, however, it's worth the risk and precedent to nullify the TARP bonus provision and take the money back rather than extend the matter and creating collection issues through another tax season.

Attention AIG: Enough is enough

That's the message from President Obama, who has instructed Treasury Secretary Timothy Geithner to "pursue every legal avenue" to block $165 million in bonuses that the bailed out insurer plans to pay executives who were in part responsible for the company's near collapse.

The attempt by the Administration to rein in AIG comes after the avalanche of outrage from lawmakers and the general public (waving hand wildly!) over the company's latest brazen example of fiscal excess.

Public anger was further fueled by AIG's revelations of the names of dozens of big banks it has paid off with the bailout money. "The disclosure, which the company said was made after consulting the Federal Reserve, revealed that AIG paid more than $75 billion in the final months of 2008 to numerous domestic and foreign banks, as well as to various U.S. municipalities," reports the Washington Post.

The funds were paid between Sept. 16, the date that AIG first got an $85 billion emergency loan from Uncle Sam, and Dec. 31. Recipents of our money via AIG included Goldman Sachs, Societe Generale, Deutsche Bank, Merrill Lynch, Morgan Stanley, Bank of America and Barclays.

More than $34 billion of the money went to trading partners of AIG Financial Products, the small subsidiary whose exotic derivatives brought AIG to the edge of collapse.

Control the federal flow: Citing AIG's "recklessness and greed," Obama today noted that "it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?"

"In the last six months, AIG has received substantial sums from the U.S. Treasury," the president continued. "I've asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."

Obama's announcement of the effort to stem public funds going toward AIG bonus payments followed an exchange of correspondence between the company's chief executive and Geithner on how the money is being spent.

"This isn't just a matter of dollars and cents. It's about our fundamental values," said Obama. "... all [we] ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules."

No sarcasm intended when I say, amen and good luck with that, Mr. President!

OMG! AIG ... WTF?!?

If you find my headline offensive, I apologize. But it accurately reflects just how offensive I find the latest actions of AIG.

The insurance giant is totally shameless. Since we, the taxpayers, bailed out AIG last year -- without, I must add, being specifically asked whether we wanted to do so -- our stake in the company has risen to $170 billion. And what has the firm done with our generosity? Used our money and abused our trust. 

Now we learn that AIG is giving $450 million in bonuses to employees. Even more infuriating, these aren't just any employees. They are part of the financial products division, that same operating group that underwrote many of the risky subprime mortgages that set off our current economic nosedive.

Are you sitting down? There's more.

AIG wants to use another $121 million to pay senior executives and other company employees. Uh, didn't these same folks get treated, on our taxpayer bailout dime, to a ritzy spa retreat last year?

Again, I must ask WTF?

Obviously, that question is directed first to AIG, whose government-installed CEO Edward Liddy now claims that the company is (1) contractually obligated to pay the bonuses and (this is my favorite) that (2) AIG must hand over the money in order to hang onto the best people.

Liddy's exact words, from a letter to U.S. Treasury Secretary Timothy Geithner detailing the upcoming egregious outlays: AIG "cannot attract and retain the best and brightest talent … if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

Uh, excuse me. First, Treasury should be able to make adjustments since it's the one handing out the billions in bailout money. And more to the point, these bonus recipients are the "best and brightest" that AIG has? To paraphrase an old saying, with employees like these … .

Questions for Congress, too: WTF also must be asked of our lawmakers.

Hey, Congress! I thought you were going to make sure that this kind of outlandish disregard for taxpayers -- we now own around 80 percent of this company! -- wasn't going to happen again.

What happened? Are the inmates truly running the asylum? Are AIG's remaining attorneys that much better than our government lawyers? If anyone needs bonus payments, and I'm in no way saying they do, the only ones with any shred of a claim are the insurer's legal team, which is whipping up on their counterparts who set up the government side of the bailout deal!

And what's this BS about the government facing possible lawsuits if the bonuses are disallowed? Please, let me help file the petitions. Let's see how many of these guys actually have the cojones to go to court and argue, under oath, that they deserve the bonus payment. I'd love to be on that jury!

Plenty of disgust to go around: As you suspect, I am not the only person aghast at this latest AIG in-your-face-suckers development. More reaction comes from:

• Politico: Lawmakers blast AIG
  

• ABC's Political Punch: A.I.G. = Allowing Irreversible Greed? and Trying to Play the American People for Fools

• CBS's Political Hotsheet: Summers: AIG Bonuses Are "Outrageous"

• Huffington Post: AIG Outrage Dominates Sunday Shows

• Wall Street Journal's Washington Wire: Reactions to AIG Bonuses: 'Outrageous,' 'Angry'

• Talking Points Memo: AIG, Begone!
  

It's the tax code's fault: Want some tax icing on the excessive bonus cake? Jeff Korzenik, says our tax code is to blame for hefty Wall Street bonuses.

In a commentary for Forbes, Korzenik, chief investment officer of VC&C Capital Advisers, points to Internal Revenue Code section 162(m), enacted in 1993, that governs the salary-based compensation of the top five executives within publicly traded companies:

The rule influences compensation by limiting the deductibility of salary expense to $1 million for each of these executives. Deductibility above that ceiling was permissible as long as the excess came in the form of performance-based compensation, whether cash bonuses or equity-based compensation like options (various technical rules needed to be followed as well).

IRC 162(m) is generally believed to be inconsequential because overall executive compensation, even of individuals covered by the act, has largely been unhindered. A few companies chose to accept the lack of deductibility of large salaries, but most simply find other ways to compensate their leaders. Over time, this has meant that executive pay has generally become more skewed to deductible bonus and option grants. The fact that deductibility limits were never indexed for inflation (which would have added about 40% to the deductible salary amounts) has only exacerbated this trend.

And while the financial industry bailouts have focused attention on excessive executive pay, Korzenik says "the real issue should be the executive pay regulations that contributed to the crisis in the first place."

So Congress, while you're figuring out a way to keep us from getting shafted again by AIG and other bailed-out businesses, how about taking a look at Korzenik's tax code take on the whole bonus issue?

The view from Bonus, Texas: In a special section examining bonuses, Forbes decided to get a different perspective. It visited the tiny Texas town of Bonus.

Check out what my fellow Lone Star Staters think about all this big money being handed out to corporate execs.

Racing, cars and taxes, oh my!

Helio Castroneves has found maneuvering the federal court system a bit more challenging than the race tracks with which he's more familiar.

The two-time Indianapolis 500 winner has been charged with plotting, along with his sister and an attorney, to evade taxes on approximately $5.5 million in income. Last week, he headed to federal court in Miami to seek dismissal of the charges.

U.S. District Judge Donald Graham, however, black flagged the request. Another hearing on more pretrial motions is scheduled for Monday. The trial itself is set to start on March 2.

Federal prosecutors allege that the Brazilian racer and his colleagues created a "deferred royalty plan" that sent licensing payments to a company in the Netherlands via a Panamanian shell company.

The ever ebullient Castroneves, whose personality was a big part of his off-track success on TV's "Dancing With the Stars," didn't let the ruling get to him. After last week's hearing, Castroneves said that the more he sees of the government evidence, the more confident he is that he will be cleared.

You can read more on Castroneves' tax charges and the hearing in WebCPA, the Miami Herald and Sports Illustrated.

Taxpayer financed MVP auto: Another car and tax controversy is getting attention, but this one is completely legal.

The headline from The Truth About Cars says it all: Super Bowl MVP Receives $85k Taxpayer-Funded Caddy.

As has been the case for the last eight years, the big game's biggest player received the Cadillac of his choice. Pittsburgh Steelers' Santonio Holmes decided on Caddy's priciest SUV, an $85,000 Escalade Hybrid Platinum.

Good for Holmes for going relatively environmentally friendly. But the bottom line is that GM gave a millionaire athlete an $85,000 vehicle just weeks after the federal government handed over billions in bailout money to struggling U.S. automakers.

Sensing that the giveaway might not be the best PR move, GM decided to forgo the usual onfield presentation.

"Given the current business environment, it was much more appropriate we not do that," Cadillac spokeswoman Joanne Krell told the New York Daily News. "We made the decision not to actively participate in the Super Bowl. We congratulate the MVP, it is a great achievement. We are very sensitive to the federal assistance loan we have received and we want to carry on our fiduciary responsibility. We will live up to the contract we negotiated."

Gentlemen, start your engines: The 2009 NASCAR season officially starts next week, but the cars have already been circling Daytona International Speedway. Tonight 2008 pole winners will take the track for the Bud Shootout.

The start of any new sports season is great. Your favorite team has just as good a chance, at least theoretically, as any other to win the championship.

My latest Crazy Woman Driver column basks in that feel-good glow, focusing on the accessibility of NASCAR stars. Read it quick, before some on-track incidents and incomprehensible decisions by NASCAR brass send me back into my typical ranting mode!

And you can catch up on my previous columns here.

Photo of Helio in happier times courtesy totalAldo

A modicum of bailout shame from Citi?

Could it be true? Could Citigroup executives really decide to pull out of the company's 20-year, $400 million agreement with the Mets, which includes naming rights to the club's new baseball stadium?

Maybe public shaming does work after all.

Reports of financial groups spending extravagantly after receiving Troubled Asset Relief Program (TARP) funds, aka bailout money, have not set well with the public.

Last fall, Citigroup received $45 billion in bailout funds. Subsequently, Uncle Sam agreed to cover most losses on $301 billion worth of the financial group's bad assets. And Citigroup's CEO, along with other banking industry officials, are scheduled to appear next week before a House committee.

Perhaps the thought of being grilled about excessive spending on non-essentials after taking taxpayer money prompted the apparent change of heart at Citigroup. Whatever the reason, with Major League Baseball's opening day just two months away, the company issued a statement yesterday, declaring that "no TARP capital will be used" for the stadium.

Maybe the company will be able to find a way, without public money, to keep its tarnished name on the new ballpark. But it's more likely, as the Wall Street Journal reports, that "Citigroup is essentially acknowledging that the volatile political climate could make it untenable for the bank to proceed with the deal."

MSNBC reports, however, that it received the following statement this morning from the Mets: "In conversations this morning, Citi reinforced that they will honor our legally binding agreement."

I'm not surprised that, after both sides talked with their respective lawyers, that such a statement of contractual commitment was issued.

But seeing as how this involves a sports team, I'm also reminded of owners who espouse full support for a general manager or coach or troublesome player when things are going poorly on the field or in the arena. That's usually the signal that the guy needs to start packing up his office or locker and put his house up for sale.

So I won't be surprised if Citigroup does indeed eventually bail out of its deal. Breaking contracts is one thing corporate and sports attorneys are very good at.

And if part of the reconsideration is due to the public outcry, all the better.

If taxpayer outrage over companies using taxpayer money to pay for executive retreats, refuel private jets and buy access to luxury sports boxes does indeed cause Citigroup and other companies to become more fiscally responsible, then I say keep the stories of excess coming.

Maybe we also should reconsider public stocks for the execs who are using and abusing the taxpayer trust.

Pillory stocks image courtesy WP Clipart