The Dark Art of Tax Avoidance

I regularly come across stories where large companies like General Electric, Exxon Mobil, Verizon and Proctor and Gamble can get away with such an act.

Lets see how Proctor and Gamble has done it, they recently used a strategy referred to as Morris Trust.  Until 19997, a Morris Trust was used as a tax free deal making maneuver. A company would move a business it wanted to unload into a new corporation owned by its shareholders, which was a tax-free transaction.

Once moved another company would acquire the new corporation in a tax free stock for stock deal. Company shareholders would end up with the shares in both the original company and in the buyer of the business being unloaded.

But after a few deals that involved allot of cash turned Morris Trusts into major tax drains. Since then congress has tightened up its rules, loopholes openers begat Reverse Morrises, which require that all shareholders of the selling company end up with a majority stake in the acquiring company. Proctor and Gamble have been able to find buyers, Smuckers in 02 and 08 and Diamond Foods this year willing to do that.