BofA in tax shelter probe

[FaGal]

BofA in tax shelter probe

Regulators investigate bank's role in $100 million-plus transaction, WSJ says.


NEW YORK - Bank of America, the nation's third-largest bank, is under investigation for helping two wealthy Texans hide their fortunes from taxes, a newspaper reported Friday.

The Wall Street Journal, citing unnamed sources, said federal and state authorities are probing whether Bank of America (Research) violated securities and anti-money laundering laws in helping Sam and Charles Wyly shelter more than $100 million in stock-option gains from U.S. taxes. The paper indicated the probes could expand to include other wealthy clients of the Charlotte, N.C.-based bank.

A Bank of America spokeswoman told the Journal the bank is cooperating with investigators and doesn't believe it broke any laws. A lawyer for the Wylys said his clients did nothing wrong.

The Internal Revenue Service, the Securities and Exchange Commission, and New York District Attorney Robert Morgenthau are reportedly focusing on a popular stock-option transaction that Bank of America and other financial services companies marketed to executives and prominent investors during the 1990s bull market.

The IRS concluded the transaction was an illegal tax shelter and banned it in 2003.

According to the Journal, The IRS alleges that more than 40 unidentified U.S. companies and dozens of executives used the shelter to avoid more than $700 million in taxes.

The Journal noted that the Bank of America investigation comes amid a broader IRS campaign to penalize tax professionals for marketing improper shelters.

[FaGal]

Sam Wyly, B of A, and the Isle of Man

samwyly.jpgThis Wall Street Journal ($) article reports that Manhattan District Attorney Robert Morgenthau has launched an investigation in New York of Bank of America, Dallas-based investor Sam Wyly http://www.samwyly.net/bio.html and his brother, and several other institutions in regard to lucrative tax shelters that the Wylys set up in the English tax haven, the Isle of Man http://www.gov.im/. Here is a previous post on the colorful Mr. Wyly, who was also one of President Bush's biggest campaign contributors in both the 2000 and 2004 election campaigns http://blog.kir.com/archives/001708.asp .

Although legally a possession of the United Kingdom, the Isle of Man operates as an independent country with its own financial laws, the most important of which is that a foreign government cannot enforce in the Isle of Man courts a claim for unpaid taxes against an Isle of Man entity. Thus, tax-shelter promoters often tout the Isle as a convenient tax haven just an hour's flight from London.

Mr. Morgenthau's office, and now the Internal Revenue Service and the Securities and Exchange Commission, are investigating a popular stock option that B of A helped the Wylys establish to lock in gains on stock options during the bull market of the 1990's. The IRS has already determined that the transaction was widely used as a tax shelter, so this new investigation is a part of a larger IRS drive to to identify and punish firms that promoted improper tax shelters.

Under the particular shelter under scrutiny here, wealthy businessmen and U.S. corporations donated options to trusts that they alleged were not under their control. The IRS contends that they retained control of the trusts and that over 40 U.S. corporations and dozens of executives used the arrangement to shelter income and avoid paying more than $700 million in taxes. The Wylys contend that they neither owned nor controlled the trusts, and that they were legitimate vehicles established for the benefit of family members and charities.