Earlier this month, the Dallas Morning News ran a story about Andy Beal’s tax kerfuffle in which the called Beal’s tax return “illegal.” At the time, I pointed to a Forbes story that referred to Beal’s tax maneuvers as a “sham,” which sounded to me like a carefully chosen word. Well, now comes a press release (after the jump) in which Beal expresses his displeasure with the News for characterizing it as an “illegal tax return.” Of particular note: “The DMN article also failed to note that … Mr. Beal paid all the taxes, penalties and interest that the IRS believes he should have paid for the years at issue. Because he believed that the law allowed the deductions, he then sued the IRS to get the money back. The article also failed to note that almost all of the penalties the IRS requested were disallowed.”
I’m guessing that Beal’s hackles are raised even higher given that the publicity-shy billionaire agreed to help the News back in February with its glowing profile of him.
BEAL’S TAX RETURNS NOT “ILLEGAL”; DMN Characterization Inaccurate
Andrew Beal did not file an “illegal tax return,” as claimed in a DMN article published on August 4, 2010 — the DMN article is wrong. Judge Bush did not make a single finding that Mr. Beal’s tax return was “illegal.” Judge Bush did disallow deductions and impose a negligence penalty, but that is a far cry from being “illegal.”
Mr. Beal and his advisors disagree with certain of Judge Bush’s findings about the transactions and losses at issue, especially the idea that the transactions were similar to the Son- of-Boss shelter. In fact, the Internal Revenue Service’s own representative testified–contrary to the court’s finding–that the transaction at issue was not substantially similar to the Son-of-Boss shelter. This Internal Revenue Service testimony is consistent with the advice that Mr. Beal received prior to taking the deductions in the first instance.
The DMN article also failed to note that prior to filing suit, Mr. Beal paid all the taxes, penalties and interest that the IRS believes he should have paid for the years at issue. Because he believed that the law allowed the deductions, he then sued the IRS to get the money back. The article also failed to note that almost all of the penalties the IRS requested were disallowed. Furthermore, the article failed to note that the IRS improperly attempted to change the law in the 2003 to retroactively eliminate the tax treatment at issue in the transactions, which occurred in 2001.
Mr. Beal is disappointed and embarrassed to be involved in any type of tax litigation. He believes that the problem is not that taxpayers like himself do anything wrong, rather that the U.S. tax system is so complex that taxpayers, despite seeking the most competent tax advisors, still don’t understand what taxes are due. This position is bolstered by the fact that General Electric, Bank of New York Mellon Corp., Hewlett-Packard Company and many other Fortune 100 corporations are routinely litigating tax issues with the US government.
The article also failed to note that Judge Kinkeade of the Northern District of Texas, who has reviewed another of Mr. Beal’s tax cases referred to in the DMN article, has taken a very different view of Mr. Beal. Judge Kinkeade stated that Beal “plays the game above board.” (Southgate Master Fund LLC v. United States, 651 F. Supp. 2d 596, 668 (N.D. Tex. 2009).
