AIG Sues US-IRS to Reclaim $306 Million in Taxes – While Flaunting Shady Offshore Tax Shelters

March 20, 2009

(ChattahBox)—The level of AIG’s corporate bad behavior has just sunk to a new level of low, as the New York Times reports this morning of a pending lawsuit, quietly filed by AIG on Feb. 27, against the US seeking the return of $306 million in tax payments. Talk about biting the hand that feeds you! This translates into AIG suing its majority shareholder, the US, asking for more money, when it just received a $200 billion dollar government bailout, and to add insult to injury, it’s apparently using taxpayer bailout money to fund the costs of the lawsuit. This new information comes on the heels of the recent outrage of AIG’s payout of $165 million in bonus money to the traders of the company’s notorious financial unit, the very people who brought down AIG and the entire economy with its risky (criminal?) financial transactions.

As more layers get peeled back the darker this story gets. The majority of tax payments AIG seeks to get back from the US involve its use of shady offshore tax shelters, which have come under increasing scrutiny by the IRS. The IRS denied AIG’s claims for return of the taxes paid in 2008, ruling the foreign tax credits claimed, as improper.

Many companies have been abusing the “foreign tax credits” provisions of the US tax code, to avoid paying US taxes, but none perhaps, more egregious than AIG. Here is how the foreign tax credit shenanigans work in simplified terms: companies like AIG create foreign holding companies in tax shelter countries like Panama or Bermuda, then pay foreign taxes to those companies, and then seek a foreign tax credit/repayment from the IRS. The US tax code Section 901 allows “taxpayers to claim a credit for income taxes paid or accrued, or deemed paid, to any foreign country or U.S. possession.”

Companies like AIG, have been using Section 901 to avoid paying taxes by forming holding companies, in many instances, for the express purpose of claiming a foreign tax credit in their US tax returns. The IRS is now working on an amendment to Section 901 prohibiting foreign tax credits for “structured passive investment arrangements.”

AIG seeks foreign tax credits from offshore holding companies, out of its disgraced financial products unit, located in such places as the Cayman Islands, the Dutch Antilles and others. If this isn’t disturbing enough behavior by AIG, it even gets shadier with the involvement of C. V. Starr and Starr International Co., headed up by former AIG CEO, Hank Greenberg, who was run out of town and AIG amidst various fraud investigations and accounting scandals.The naming of C.V. Starr in AIG’s lawsuit raises questions. Some of the tax credits AIG is seeking were apparently paid to C.V. Star. AIG sued Hank Greenberg and ex-CFO, Howard Smith for missaproption of AIG shares worth $20 billion in 2008.

The New York State Attorney General’s Office is still pursuing civil fraud charges against Greenberg. C.V. Starr is run by ex-AIGers, Edward E. Matthews, Howard I. Smith and Kevin Kelley who runs Ironshore Inc., a limited-joint venture, holding company partner of C.V. Starr. The bio on C.V. Starr’s website comically touts Hank Greenberg’s accomplishments while CEO as AIG:

“During Mr. Greenberg’s tenure, AIG rose from $300 million in market value to approximately $180 billion in market value. At AIG, Mr. Greenberg pioneered the global trade in services that opened markets for the insurance industry around the world.”

So let’s recap, AIG is allegedly trying to obtain shady, maybe illegal, foreign tax credits from the US for foreign tax payments paid to offshore holding companies, perhaps created for the express purpose, in many cases, to allegedly cheat the government of the US taxes it owes for doing business.

Is AIG a criminal enterprise or just a model of what corporate America has become? The more learned about AIG’s dark business practices the more it looks like they have been abusing our laws and the American taxpayer for years with illicit behavior. Are we to entrust the same AIG executives that are responsible for these activities to help turn this company around?


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One Response to “AIG Sues US-IRS to Reclaim $306 Million in Taxes – While Flaunting Shady Offshore Tax Shelters”

  1. Topics about Banking » AIG Sues US-IRS to Reclaim $306 Million in Taxes - While Flaunting… on March 20th, 2009 4:30 pm

    […] Bits On Bytes put an intriguing blog post on AIG Sues US-IRS to Reclaim $306 Million in Taxes – While Flaunting…Here’s a quick excerpt…foreign tax credit shenanigans work in simplified terms: companies like … and AIG amidst various fraud investigations and accounting… […]

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