Sunday, August 3, 2014

Taxation Of "Egregious Or Repulsive" Conduct

So citizens. Would it surprise anyone that CIBC figures it's settlement related to damn crooked Enron activities is tax deductible? In other words, the Bank's taxable income should be reduced by the amount paid out. In even other words (assuming a 30% marginal tax rate) this scam activity will cost the Canadian Taxpayer around $ 900 million in lost tax revenues.

"CIBC asserted that the settlement payments were properly deducted for tax purposes pursuant to sections 3 and 9 of the Act. The minister reassessed CIBC, denying the deduction of the settlement payments."

"The main issue in each of the four income tax appeals was the deductibility of expenses totalling approximately $3 billion incurred by CIBC in connection with the settlement of certain legal claims that arose following the bankruptcy of Enron Corporation ("Enron"). Most of the $3 billion was paid to settle certain law suits (referred to in the decision as the "Newby Litigation" and the "MegaClaim Litigation") in which CIBC and several of its affiliates were named as defendants. The remainder of the impugned expenditures were attributable to payments of interest and legal fees relating to the settlements."

"The misconduct of [CIBC and its affiliates] was so egregious and repulsive that any consequential settlement payments . . . cannot be justified as being incurred for the purpose of gaining or producing income from a business or property within the meaning of paragraph 18(1)(a) of the Act. The [CIBC affiliates] knowingly aided and abetted Enron to violate the United States' federal securities laws and falsify its financial statements. The misconduct of [the CIBC affiliates] in enabling Enron to perpetrate its frauds, known to [CIBC], or the misconduct of [CIBC] itself, was so extreme, and the consequences so dire, that it could not be part of the business of a bank."

This issue is an ongoing legal quagmire in the Tax Court. CIBC has won a few (small) technical battles along the way but the issue is not concluded. Very sadly the proven FACT Enron was a complete scam and CIBC promoted that scam appears not relevant to the wicked large tax deductions being disallowed. It will be the narrow definition of if CIBC was operating in a manner of a normal Bank or not. (Pffffffft! and how about taking a poll on that one?)