The perfect scam

[Burnaby49]

Perfectly legal that is. I know this doesn't fit in tax scams but I couldn't find a more appropriate Board and this scam is too good to ignore. Simple and elegant. Fill a tanker train full of pseudo-green fuel and just keep steaming it back and forth in a circular route across the US-Canada border. The fuel owners got big bucks from your federal government every time they headed south and paid back pennies every time they refreshed the scheme by going back into Canada. A train to nowhere with no economic or environmental benfits whatever, just a straight unabashed exploitation of loopholes in the federal legislation. And, as far as I can see, completely legal. One commenter stated:

"If the facts in your story bear out, there needs to be some people go to prison," said Joe Jobe, CEO of the U.S. National Biodiesel Board. “It’s not a victimless crime. [RIN fraud] has impacted the livelihoods and jobs of absolutely everybody in this industry, and it has cost the folks in the petroleum industry who have to comply with this, millions and millions of dollars and it has put small- and medium-sized biodiesel producers completely out of business.

However moral outrage is not evidence of a criminal act. If it fit within the legislation I don't see that it can be considered fraud.

Where this is analogous to tax scams is in its exploitation of unexpected consequences of legislation, perverting intent but keeping within the letter of the law. Many of the bigger tax scams up here exploit tax legislation passed to effect some social or economic goal, such as encouraging the film industry or charitable donations, rather than to just collect tax. As soon as the government starts giving tax credits to effect these goals the best legal minds in the country get to work to find ways of manipulating the law for the benefit of their clients.


http://www.cbc.ca/news/canada/story/201 ... edits.html

[Famspear]

I don't see enough information in the report to be able to say whether the scheme is legal or illegal.

Before you can conclude that it's "perfectly legal," you would have to look at the specific laws involved (both U.S. and Canadian).

A key phrase is "If it fit within the legislation".

[Famspear]

....Many of the bigger tax scams up here exploit tax legislation passed to effect some social or economic goal, such as encouraging the film industry or charitable donations, rather than to just collect tax. As soon as the government starts giving tax credits to effect these goals the best legal minds in the country get to work to find ways of manipulating the law for the benefit of their clients.

In the United States, the taxpayer runs up against the legal doctrine of substance over form, among other things.

If it's within the law, then it's not a tax scam. But, to be within the law, it must satisfy the doctrine of substance over form and, where applicable, the business purpose doctrine. Merely structuring a sham "transaction" to "appear" to fit within the "letter" of the law (in the sense in which I think you are using that term) is not enough, under U.S. income tax law.

For more information about how difficult it is to defeat these legal doctrines under U.S. tax law, ask those who were nailed after using the so-called "Son of BOSS" scheme.

[Burnaby49]

I don't see enough information in the report to be able to say whether the scheme is legal or illegal.

Before you can conclude that it's "perfectly legal," you would have to look at the specific laws involved (both U.S. and Canadian).

A key phrase is "If it fit within the legislation".

I can't speak for American law but I can't see that they have done anything illegal in Canada. All they did from our side was bring trains into the country then send them back to the states without unloading or picking up cargo. They didn't claim any credits or government money here. If there is fraud it wasn't perpetrated on us, the victim is the American taxpayer. The importer complained about a hit to his reputation for being involved but if he has a case in law it would be a commercial dispute, not fraud against him.

As far as the US is concerned I agree there isn't enough info in the article to arrive at a definitive conclusion but I'm guessing that the scheme, if effected properly, fits within the legislation. If it falls apart it may be only through sloppiness:

Northern Biodiesel insisted the RINs issued were not valid because it had never received any bills of lading or chemical analysis reports from Verdeo, and thus Northern Biodiesel never reported/certified them with the EPA. However, millions of these RINs were sold in its name.

But if the RINs were invalid this might be an administrative rather than a criminal issue.

[Burnaby49]

....Many of the bigger tax scams up here exploit tax legislation passed to effect some social or economic goal, such as encouraging the film industry or charitable donations, rather than to just collect tax. As soon as the government starts giving tax credits to effect these goals the best legal minds in the country get to work to find ways of manipulating the law for the benefit of their clients.

In the United States, the taxpayer runs up against the legal doctrine of substance over form, among other things.

If it's within the law, then it's not a tax scam. But, to be within the law, it must satisfy the doctrine of substance over form and, where applicable, the business purpose doctrine. Merely structuring a sham "transaction" to "appear" to fit within the "letter" of the law (in the sense in which I think you are using that term) is not enough, under U.S. income tax law.

For more information about how difficult it is to defeat these legal doctrines under U.S. tax law, ask those who were nailed after using the so-called "Son of BOSS" scheme.

Actually I'm familiar with Son of BOSS and commented on it in a previous thread but since the topic related to Mitt Romney's tax returns it was political and seems to have been deleted. We don't have a direct "form over substance" tax doctrine here. If a transaction isn't a sham as legally defined (in other words if the actual events match the documents of the events) then the Tax Court can't just toss it on a smell test. The only exception is if the government goes after the taxpayer on our General Anti-Avoidance Rule (GAAR) which is set down in specific tax legislation.

However the form over substance and economic reality tests may be irrelevant to the scam under discussion. These are tests used to analyze tax transaction. Is your biofuel credit system actually part of your income tax legislation or is it some other legislation outside of the tax arena? If so would form over substance apply if the actual events were not sham?

We tax Canadian tax employees are very careful about using the word sham in respect to transactions because the courts have taken us to task a number of times because of sloppy application of the doctrine.

[Burnaby49]

A follow-up article. At least the CN Railway knew where its duty lay;

“Once automatic placement and release is done you can move them to the correct track in SRS that they are sitting on. The [track No.] WH99 in Port Huron and [track No.] A004 in Sarnia will trigger all the automatic reporting required to close out a trip and start a new one in the system,” Edwards wrote.

“This move has the potential to make a lot of money for CN so need everyone’s assistance to maximize the number of trips we make and ensure that it all moves smooth.”

Edwards wrote a second, followup email two weeks later thanking local CN staff for their help. “Records show that we moved 1,984 cars total …This equates to approximately 2.6 million dollars of revenue for these flips across the border at Sarnia,”

http://www.cbc.ca/news/canada/story/201 ... probe.html