For Immediate Release
October 5, 2004
The Edwards Tax Returns: The FactsThe attacks on Senator Edwards' taxes have been repeatedly refuted by national tax experts. These attacks are nothing new. In 1998, the desperate campaign of then-incumbent Republican Lauch Faircloth and the National Republican Senatorial Committee launched personal attacks against Senator Edwards. These charges, which were also included in hundreds of thousands of dollars of attack ads, were misguided and were proved false in the Senator’s 1998 campaign. In 1998 and again in 2003 and 2004, national and local tax experts have agreed that the Edwardses’ arrangement was legal, ethical, proper, common, and very allowed.
2004: Nationally Respected Tax Group “Set the Record Straight For Edwards,” Said It Was “Not (An) Abusive Tax Shelter”2004: Nationally Respected Group of Tax Experts – Tax Analysts – Determined It Was “Not An Abusive Tax Shelter,” Entity Was “Common and Perfectly Legal.” On July 27, 2004, Tax Notes, published by the group Tax Analysts, published an analysis of the Edwards’ professional association under the headline “News Analysis: Despite Media Reports, Sen. Edwards’ S Corp. Not Abusive Tax Shelter.” The summary of the article noted that the “using such an entity is common and perfectly legal.” (Tax Notes published by Tax Analysts, Kenneth A. Gary, “News Analysis: Despite Media Reports, Sen. Edwards’ S Corp. Not Abusive Tax Shelter,” 7/27/04)
· Tax Analysts: Said It Wanted to “Set the Record Straight For Edwards;” Said Choice of Business Entity Was “Not Only Legal,” But “Wise Tax Planning.” The article said, “Tax Analysts wanted to set the record straight for Edwards, because it seems his choice of business entity was not only legal, it was wise tax planning under the rules and regulations of the Internal Revenue Code.” Tax Analysts also noted that the professional association was “not uncommon.” (Tax Notes published by Tax Analysts, 7/27/04)
· Tax Analysts Is Nationally Respected Non-Partisan and Non-Profit Association. Tax Notes is a weekly publication of Tax Analysts, which is a nationally respected nonpartisan and nonprofit corporation who have the largest staff of reporters and editors dedicated exclusively to tax issues. (
http://www.taxanalysts.com)
Partner At White & Case LLP: “I Think It Is An Appropriate Tax Plan.” Linda Carlisle, a partner at White & Case LLP said: “The Internal Revenue Code allows us to pick the form of our business entity, and an S corporation is a very viable tax structure and appropriate tax structure in a lot of situations. I think it is an appropriate tax plan.” (Tax Notes published by Tax Analysts, 7/27/04)
· “He’s Not Doing Anything That Congress Did Not Intend.” Linda Carlisle, a partner at White & Case LLP said: “It’s not illegal. It is clearly a structure that is sanctioned by the Internal Revenue Code, as are the ramifications of the structure. He’s not doing anything that Congress did not intend for shareholders of an S corporation to be able to do.” (Tax Notes published by Tax Analysts, 7/27/04)
Tax Analysts: “Smart, Efficient, Perfectly Legal, and Done All Day.” Tax Analysts wrote that “another Washington lawyer experienced with business restructuring and entity choice” said, “It’s smart, efficient, perfectly legal, and done all day. It happens to be good tax planning.” (Tax Notes published by Tax Analysts, 7/27/04)
Tax Practitioners: “Scoffed” At Depiction That Business Entity Was “Complicated Scheme to Skirt the Law.” Tax Analysts wrote, “Most tax practitioners contacted by Tax Analysts scoffed at The Wall Street Journal’s July 13 editorial, which depicted Edwards’s choice of business entity as a ‘complicated scheme to skirt the law.’” (Tax Notes published by Tax Analysts, 7/27/04)
· Several Practitioners Said Use of Phrase “Tax Shelter” Was Incorrect Characterization Because Use Was Common and Legal. Tax Analysts wrote, “Several practitioners also told Tax Analysts that the July 10 article in The New York Times liberally characterizes the terminology and usage of S corporations as ‘tax shelters,’ when that use is common and considered legal by the IRS.” (Tax Notes published by Tax Analysts, 7/27/04)
· Laura MacDonough of Ernst & Young: Choice of Professional Association Wasn’t “An Abusive Tax Shelter.” Laura MacDonough of Ernst & Young said that “I don’t think the fact that he’s choosing to operate in an S corporation form in and of itself would be an abusive tax shelter.” (Tax Notes published by Tax Analysts, 7/27/04)
· Partner at Mayer, Brown, Rowe & Maw LLP and Former Chair Of The S Corporation Committee Of The American Bar Association Section Of Taxation: “I Would Not View This As An Abusive Tax Shelter;” “It’s Not All That Uncommon.” C. Wells Hall III, partner at Mayer, Brown, Rowe & Maw LLP and former chair of the S corporation committee of the American Bar Association Section of Taxation, said “I would not view this as an abusive tax shelter, until either Congress changes the law or the Service issues regulations providing something different. It’s not at all uncommon.” (Tax Notes published by Tax Analysts, 7/27/04)
· Partner At Steptoe & Johnson: “I Don’t Understand How This Is A Shelter.” Mark J. Silverman, a partner at Steptoe & Johnson, said “I don’t understand how this is a shelter. If the state law allows professional corporations, I don’t see anything wrong with doing an S corporation.” (Tax Notes published by Tax Analysts, 7/27/04)
Practitioners Agreed: Salary Edwards Paid Himself Was Reasonable Compensation. Tax Analysts wrote, “Several practitioners agreed that the $360,000 annual salary Edwards received from his law firm will likely be interpreted as reasonable compensation should the issue be litigated by the government.” Daniel N. Zucker, a partner at McDermott Will & Emery and Linda Carlisle, a partner at White & Case LLP said they doubted the IRS would challenge Edwards’s salary as unreasonable. “They probably would have a tough time winning that argument,” Zucker said. “Edwards wasn’t trying to pay himself less than $80,000 to avoid paying the Social Security tax -- he maxed out on the Social Security tax.” (Tax Notes published by Tax Analysts, 7/27/04)
1998 – 2004: Experts Agree That What Edwards Did Was Common and Legal 2004: New York Times: Said S Corporation Filings Were Quite Common, With 3,191,108 S Corporations Filed In 2002. The New York Times reported that “accountants and tax-law specialists say that S Corporations have grown increasingly popular with lawyers, contractors and entrepreneurs. The IRS received 3,191,108 such filings last year.” (New York Times, 7/10/04)
2004: New York Times: Experts Said Edwards Used Structure “Rather Conservatively.” The New York Times noted that “If anything, these experts said, Mr. Edwards used it rather conservatively. While most of his income, which included some investments, was labeled dividends on the S Corporation, for which he paid no Medicare tax, Mr. Edwards did designate $360,000 a year as wages on which he was taxed for Medicare.” (New York Times, 7/10/04)
2004: Federation of Tax Administrators: “Anyone Who Puts In A Structure That Pays More Taxes Than Necessary Is Nuts.” The New York Times reported “even those whose business it is to collect taxes said they could find no fault with what Mr. Edwards did.” Said Veranda Smith, a government affairs associate with the Federation of Tax Administrators, “Let’s face it, I work for the state tax agencies, and I’m perfectly happy to say that anyone who puts in a structure that pays more taxes than necessary is nuts.” (New York Times, 7/10/04)
2003: Four CPAs Contacted By Raleigh News and Observer: “Edwards Had Done Nothing Illegal”: “Four certified public accountants contacted by North Carolina newspapers -- in 1998 and this year -- said Edwards had done nothing illegal.” (News and Observer, 9/9/03)
2003: Wake Forest University Professor, Business and Legal Expert: “There Is Nothing Wrong”: Edwards said he set up the corporation after several years of being urged to do so by his firm's business lawyer and accountant. “I think what I did was perfectly legal and normal,” Edwards said. “I think it's what lawyers did all over the country.” Thomas M. Steele, a Wake Forest University law professor who is an expert in the business practice of law, agreed with Edwards. “There is nothing wrong with what he is doing,” Steele said. (News and Observer, 9/9/03)
1998: Ashville Citizen Times: Tax Experts Said Actions Were Neither Illegal or Unethical; Said Attacks Were “Misleading and Untrue” According to Experts. The Ashville Citizen-Times noted that Faircloth’s allegation that Edwards was using a questionable and unethical was “misleading and untrue, according to tax attorneys and a spokeswoman for the Federation of Tax Administrators.” The Citizen-Times wrote, “When a Citizen-Times reporter contacted tax experts about the way the Edwards law firm is set up, they said there was nothing either illegal or unethical about it.” (Asheville Citizen-Times, editorial, “It’s Time For Voters to Say Enough With Negative Campaigning,” 10/29/98; 10/20/98)
1998: Federation of Tax Administrators: Called Practice Common and Should It Not Be Characterized As Avoiding Medicare Taxes. The Ashville Citizen-Times reported that Veranda Smith, a spokeswoman for the Federation of Tax Administrators, said the income was “subject to other taxes and should not be characterized as an attempt to avoid paying Medicare taxes.” “This is common,” she said. (Asheville Citizen-Times, 10/10/98; 10/29/98)
1998: American Institute of CPAs: Edwards Arrangement Was “Common and Very Allowed.” According to Dirk Edwards, chair of the American Institute of Certified Public Accountants committee on personal financial planning, “It’s very common and very allowed by the tax law for an ‘S’ corporation to pass on dividends, as in Edwards arrangement.” (Charlotte Observer, 10/10/98)
1998: IRS: Said Edwards Did Nothing Wrong. John Lenik, a spokesman for the Internal Revenue Service in Greensboro, said, “From a tax standpoint, I don’t see where he’s doing anything wrong.” (Winston-Salem Journal, 10/18/98)
1998: Tax Attorneys Said Edwards Did Nothing Unusual. According to Michael L. Miller, an Asheville tax attorney, “This is not at all an unusual action. Most lawyers these days do incorporate their practices.” Miller went along to say such a practice is both legal and ethical. (Asheville Citizen-Times, 10/10/98)
1998: Tax Attorneys Said There Was Nothing Unethical With Edwards’ Arrangement. Tax Attorney William Christy of Black Mountain said there is nothing unethical or immoral about Edwards financial arrangement. “He has to file his taxes with the IRS each year,” Christy said. “They tend to take a very close look at people with incomes as large as that. If anybody was going to find that problematic, they would.” (Asheville Citizen-Times, 10/10/98)
1998: Accountants Said Practice Was Common. According to the Charlotte Observer, “Several accountants say it is a common practice for lawyers, architects and other businesspeople to give themselves a reasonable salary and then declare the excess income as dividends.” (Charlotte Observer, 10/16/98)
1998: Professional Accountant Said Practice Was Common. Michael Pryor, an accountant with the Daniel Professional Group in Winston-Salem, said, “There’s nothing in the law that says we’re required to pay more taxes than we should.” (Winston-Salem Journal, 10/18/98)
1998: News and Record: Edwards Did Nothing More Than Many, If Not Most, Lawyers And Doctors Do.” The Greensboro News and Record opined, “By incorporating his practice, Edwards did nothing more than many, if not most, lawyers and doctors do.” (Greensboro News and Record, 10/14/98)
October 1998: Faircloth and NRSC Launched Vicious Personal Attacks Right Before Senate Election - Attacks That Were Quickly Discredited10/9/98: Faircloth Campaign and National Republican Senate Committee Launched Smear Attack Against Edwards Over Personal Taxes. In 1998, the Faircloth campaign launched a smear campaign against Edwards over the issue of his personal taxes. The attack began at a press conference on October 9, 1998 with Faircloth press secretary Chuck Fuller and Mike Russell of the National Republican Senate Committee. The NRSC even had Faircloth ally Republican Senator Phil Gramm – who helped Faircloth raise money - phone in to criticize Edwards. Under the headline, “Edwards accused of tax gimmick,” the News and Observer reported, “The campaign of Republican Sen. Lauch Faircloth alleged Friday that Democratic Senate candidate John Edwards used an ‘unethical tax gimmick’ to avoid paying at least $290,000 in federal Medicare taxes.” Fuller also called Edwards’ actions a “deceptive scheme,” and the Charlotte Observer reported that Fuller called Edwards’ actions a "deceitful ploy.” (News and Observer, 10/10/98; AP, 10/9/98; Charlotte Observer, 10/10/98)
October – November: The Faircloth Attack Then Appeared in Three Different Vicious Attack Ads. The attack on Edwards’ taxes was continued in three different paid television ads in October and November 1998. These ads alleged, “Edwards used a deceptive tax scheme to get around the IRS, ” “dodges Medicare taxes through an unethical tax gimmick,” “Edwards has used unethical gimmicks to evade taxes and dodge paying Medicare,” (Faircloth ads, 1998; News and Observer, 10/14/98)
Ø 1998: Tax Experts Said Faircloth Was Just “Blowing Hot Air on this Issue.” According to the Asheville Citizen-Times, “Local and national tax experts say Faircloth is just blowing hot air on this issue.” (Asheville Citizen-Times, 10/10/98)
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