The Register reported on Sunday that “Principal Life Insurance and Wells Fargo were part of two separate but similar efforts to claim unearned tax credits through an elaborate series of cash transactions disguised as investments.”
The Register said that in the Wells Fargo case, “the federal government accused the company of engaging in a 10-year “charade” in an attempt to “hoodwink” regulators and avoid the payment of $80 million in taxes. The San Francisco-based Wells Fargo executive accused of masterminding the deal allegedly falsified company records to make the plan work, then collected a $3.4 million bonus for what government lawyers call an attempted ‘raid on the federal Treasury.'”
The Register said that in the Principal case, “the company partnered with Citibank to temporarily route $300 million of their money to a group of French banks. U.S. District Judge John Jarvey recently found that Principal’s “investment” was nothing more than a loan to the French banks, engineered strictly to reduce Principal’s tax bill.”
The United States Justice Department wrote in a press release that “the court determined that the (Principal) transaction, which was designed by Citibank, was actually a loan rather than an equity investment, lacked economic substance, lacked a business purpose beyond using foreign tax credits and violated a Treasury Department “anti-abuse” regulation. Throughout its detailed opinion, the court emphasized the inability of Principal or Citibank to articulate any business purpose for the key aspects of the transaction, except to garner tens of millions of dollars in tax credits.
“The American companies received a very high return on an almost risk-free investment,” Judge Jarvey wrote. “Only one thing could make such a transaction so favorable to everyone involved: United States taxpayers made it work.”
“These … significant decisions are further evidence that the courts will not countenance abusive tax shelters, no matter who designs them or how complicated they are,” said John A. DiCicco, Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division. “Large corporations and wealthy individuals should think twice before pouring money into these sham arrangements.”
Meanwhile, Wells Fargo recently reported that it has abandoned its “Pilot of Monthly Fee for Debit Cards.” The program called for a monthly $3 fee for users of its debit cards. The program was cancelled as a response to customer feedback the bank has received.
“As we adjust to changes in our business, we will continue to stay attuned to what our customers want,” said Ed Kadletz, head of Wells Fargo’s Debit and Prepaid Cards. “This means understanding their needs as we continue to deliver the world-class service, convenience, and value they have come to expect from Wells Fargo.”
