David Cay Johnston is a New York Times reporter who wrote Perfectly Legal, a book I highly recommend if you want to: a. Get thoroughly pissed off and b. Get a better understanding of how our tax system does and/or does not work. Johnston has an article in today’s Times about how, according to a report from the US Senate Permanent Investigations subcommittee, tax cheating by the superrich is out of control.  Here’s some excerpts from the article:

The report details how the Quellos Group, a tax shelter boutique
based in Seattle, “concocted a tax shelter” using $9.6 billion “worth
of fake securities transactions that were used to generate billions of
dollars of fake capital losses.”

Senator Levin said that when
investigators asked for trading records they were first told the trades
were private, over-the-counter transactions. He said investigators
asked for trading tickets or other evidence of who owned the $9.6
billion worth of stock and were told the stocks were never owned by the
parties involved.

“They just wrote down numbers on paper and
claimed losses,” he said. “It was just like fantasy baseball, except
the taxes not paid were for real.”

And more:

The investigation, which took 18 months, involved 74 subpoenas, 80
interviews and the collection of more than two million documents, and
yet Senator Levin said “the six cases we present are just examples,
just a pinhole look.”

The 400-page report recommends eight
changes, some of them aimed at going after the law and accounting
firms, banks and investment advisers that the report says enable tax
schemes that rely on complexity, secrecy and compartmentalizing
information so that advisers can claim they had no idea that the
overall transaction was a fraud.

“We need to significantly
strengthen the aiding and abetting statutes to get at the lawyers and
accountants and other advisers who enable this cheating,” Senator Levin
said, adding that “we need major changes in law to stop the use of tax
havens” by tax cheats.

And finally this:

The report details a scheme created for Mr. Saban to avoid more than
$300 million in taxes from sale of his half interest in the Family
Channel and related properties.

Mr. Saban told Senate
investigators that he never understood the transactions but undertook
them after asking two questions of Mr. Wilk and his personal tax
lawyer, Matthew Krane.

Mr. Saban said he asked whether the deals
were legal and whether a major law firm would certify them as proper.
The two lawyers, Mr. Saban said, answered “yes to both,” so he went
ahead.

Later, when Mr. Saban learned that he had paid $54 million
in fees to Quellos; Cravath Swaine & Moore, a New York law firm;
and others for what turned out to be what the report described as fake
transactions, he said he felt “misled, lied to and cheated.”

Lewis
R. Steinberg, who as a Cravath Swaine partner helped design the deal
and wrote an opinion letter attesting that it was more likely than not
to work as a tax shelter, told Senate investigators last week that he
relied on assurances from Quellos and Mr. Johnson that real
transactions took place, not fake trades. Mr. Steinberg, who is now at
UBS Securities, another firm named in the report, is a prominent tax
lawyer and in 2004 was chairman of the tax section of the American Bar Association.

After reading Perfectly Legal and Conspiracy of Fools I’m convinced that we’ll never see tax-reform or even an even playing field because the real white collar crooks and crook-enablers are in the legal and accounting professions and they have an inordinate influence on the Hill and throughout the halls of federal and state governments.  Unfortunately I think Senator Levin and his allies are fighting a lost cause.