A Dubious Lawyer’s Dubious Tax Claims Against Vanguard

I have been following a bizarre and interesting story during the past six months. It involves intrigue, ethical conflicts and potentially enormous sums of money.

It first came to my attention last September when a Reuters story reported that Vanguard could be forced to raise fees to cover unpaid taxes. It was a little too technical and speculative to make ourmorning reads, but I bookmarked it, set up a Google news alert, then forgot about it. A few minor alerts followed, but I paid little attention.

That was the case until this Newsweek headline in December: “Vanguard Whistleblower Could Get Billions in Tax Dodge Complaint.” That was enough for me to get in touch with Vanguard’s PR and legal departments. As a lawyer, I already had formed views on this case, but I wanted to hear what Vanguard’s counsel thought of the claims. I had planned on letting this develop further, but a Sunday New York Times column by Jeff Sommer forced my hand.

But first, a disclosure: Vanguard is among the funds my firm uses; my wife’s retirement savings plan is almost all Vanguard; for Masters in Business, I have already interviewed Vanguard Chief Executive officerBill McNabb and former CEO and Chairman Jack Brennan. And I am scheduled to interview Vanguard founder John Bogle next month. Make of my conflicts what you will.

However, as someone who graduated from law school and (however briefly) practiced law, I immediately scoffed at this lawsuit. The claims made under federal tax law as well as various state actions are dubious for a number of legal reasons, which we explain below.

None of these are super technical — it is a simple process of looking at the intended purpose of the underlying legislation, as well as the obvious repercussions of a bastardized interpretation. Then there are the ethical issues of the whistleblower involved, and his pecuniary motivations.



Continues here: The Dubious Tax Case Against Vanguard