Do you know what a tax inversion is?

The president is blaming CPAs for the trend towards corporate tax inversions.

That's is his opinion, I suppose, but in reality it's a technique accountants and accounting firms employ in their efforts to help American companies remain profitable as our tax burden continues to rise at a time when the economy might not have itself back on a sufficiently firm foundation to support continued growth after the worst recession/depression since the 1920s.

So what, exactly, is a corporate tax inversion?

If you don't know, you aren't alone. But suffice it to say that its one of the issues that gets the hackles up of those groups that accuse big corporations of being the "bad guys" when it comes to creating jobs and rebuilding our economy.

According to Investopedia, a corporate tax inversion is the reincorporation of a company overseas in order to reduce the tax burden on income earned abroad.

Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.

President Obama doesn't like the practice. According to Accounting Today, Obama said, “You have accountants going to some big corporations—multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States—and these accountants are saying, you know what, we found a great loophole—if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes.”

As is so often the case, some are blaming lawyers for the existence of this "profit loophole."

Accounting Today editor Michael Cohn points out that an article in The Wall Street Journal on Wednesday attributed the trend to the legal profession, describing how the international law firm Skadden, Arps, Slate, Meagher & Flom persuaded a number of corporate clients to do inversions, with the help of banks such as J.P. Morgan Chase and Deutsche Bank. So far, many of the deals have occurred among pharmaceutical companies such as AbbVie's recent acquisition of Shire in the United Kingdom. On Wednesday, Walgreen's CEO announced that his company plans to acquire the rest of the European drug store chain Alliance Boots, but its tax address will remain in the U.S. (see Walgreen Stays in U.S. in $15.3 Billion Alliance Boots Deal)

Obama argued that inversions place an unfair burden on other taxpayers. “Well, it’s not fair. It’s not right." Read more

And if you're interested in getting sound tax advice for your business, contact Neikirk, Mahoney & Smith PLLC at (502) 896-2999.