08.30.2011 20

Buffett’s Billion-Dollar Tax Hypocrisy

Warren BuffettBy Bill Wilson — Writing for the New York Times recently, Berkshire Hathaway chairman and chief executive Warren Buffett called for taxes to be increased on the so-called “super-rich,” suggesting that he and his elite billionaire and millionaire friends are itching to pay more.

Buffett wrote, “Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.”

Of course, if that’s the case, why doesn’t Buffett’s company settle its own ongoing tax disputes with the Internal Revenue Service (IRS)? As Americans for Limited Government (ALG) has reported exclusively — a story given national attention by a New York Post editorial — according to Berkshire Hathaway’s own annual report, the company has been embroiled in an ongoing standoff over its tax bills.

Using only publicly-available documents, a certified public accountant (CPA) detailed Berkshire Hathaway’s tax problems to ALG researcher Richard McCarty.  Now, the American people have a better idea of how much in back taxes the company could owe Uncle Sam.

According to page 56 of the company report, “At December 31, 2010… net unrecognized tax benefits were $1,005 million”, or about $1 billion. McCarty explained, “Unrecognized tax benefits represent the company’s potential future obligation to the IRS and other taxing authorities.  They have to be recorded in the company’s financial statements.”

He added, “The notation means that Berkshire Hathaway’s own auditors have probably said that $1 billion is more likely than not owed to the government.”

$1 billion is not an insignificant chunk of change, even for Buffett, representing about 0.2 percent of the company’s $372 billion in total assets.

So, on one hand Buffett advocates for paying more taxes, but when it comes to his own company’s taxes, he has gone through great lengths to pay less.  That’s rich.

As the report chronicles, “We anticipate that we will resolve all adjustments proposed by the U.S. Internal Revenue Service (‘IRS’) for the 2002 through 2004 tax years at the IRS Appeals Division within the next 12 months. The IRS has completed its examination of our consolidated U.S. federal income tax returns for the 2005 and 2006 tax years and the proposed adjustments are currently being reviewed by the IRS Appeals Division process. The IRS is currently auditing our consolidated U.S. federal income tax returns for the 2007 through 2009 tax years.”

McCarty pointed to a prior tax fight the company fought.  “Apparently, this is not the first time that Berkshire Hathaway has tangled with the IRS. They fought a 14-year battle over the dividends received deduction. That case was just resolved in 2005,” McCarty said.

Although the prior case was settled in Buffett’s favor, it demonstrates a decades-long pattern of behavior by Buffett to minimize his taxes.  That’s the important part of the story.

In politics, you don’t get to divorce your actions from your words, and if Buffett does not understand that, he ought not to step into the political arena.  It led radio host Mark Levin, commenting on Buffett’s seeming tax avoidance hypocrisy, to ask, “Is Warren Buffett stupid?”

Leaving Buffett’s poor political instincts aside, since he says he wants to pay more, why not just pay it? The answer is likely that Buffett’s actions show that he does not actually want to pay more, he wants you to pay more.

Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.

  • stevereenie

    Buffet pays 1/2 the tax rate on is whole income not because of income tax rates (and not low rates on Dividends and Capital Gains) but based on his annual giving to the Gates Foundation his “never taxed” Berkshire Stock since it doesn’t pay a dividend and he dosen’t sell it generating a capital gains tax, but he deducts the full value with never paying the capital gains on the full value.It doesn’t matter what the tax rate is raised to, he will always pay 1/2 the statutory rate because the donation to the Gates Foundation (which he serves on the board with only 2 others – Bill & Melinda Gates) which enables him to avoid Estate Tax and Capital Gains tax and pay an effective rate  oof 1/2 the statuatory rate on all other income.Raise the income tax rate to whatever the “Buffet Rule” wants and he still pays 1/2 the effective rate and it will continue to be less than his VERY WELL PAID secretary….

    He was asked once what the ideal holding period is for stocks and his answer was “forever” meaning he doesn’t take his profits and dosen’t pay the related capital gains tax and his policy is to not pay dividends, so overwhelmingly he is not enjoying low tax rates because of 15% Dividends Tax or Capital Gains but because of full write off for untaxed profits in his stock. 

    See if Warren would support the “Buffet Rule” if it included an abolition of the deduction for “Appreciated Capital Gains Property” at market value and only allowed the deduction of the “cost.”  His low tax rate is because of Planned Giving away of his estate to:

    1) Avoid Estate Tax
    2) Avoid Capital Gains Tax
    3) Remain in control of his money through the Gates Foundation (1 of only 3 Board Members)
    4) write off his donations reducing his “taxable income” to 1/2 the actual adjusted gross income.

    I don’t think Obama himself really gets this nuance, just the Headline “Buffet Tax”   Well Buffet will never pay the Buffet Tax “RATE” what ever it is even if it is passed.

    [signed……tax practitioner with 43 years of practice and over 3,000 returns prepared including individual, corporate (C&S), Partnership, LLC.]

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