What did Saban know?

L.A. billionaire Haim Saban told lawmakers in Washington today that his involvement in an offshore tax shelter was based on the advice of a tax adviser, who assured him that the transaction was legal. "I just said... is it kosher and can we get a reputable firm to say so?" Saban told a Senate subcommittee looking into the shelters. The Senate Permanent Subcommittee on Investigations issues a report today that says individuals evade $40 billion to $70 billion in taxes through use of shelters. Saban and other very rich guys were hooked into something called the Personally Optimized Investment Transaction, or POINT, which was put together by a Seattle investment firm, Quellos Group.

Saban says he paid fees of "close to $50 million" for what he expected would shelter him from federal taxes. Instead, the feds sought back taxes. "My formal education ended when I left high school," Saban said. Referring to a flow chart presented at the hearing showing the web of transactions, he said they were so complicated that "if I were a professor, I don't think I could get my arms around this".

Who knows whether he knew there was something shady about POINT; like lots of the very rich, he probably relied on his lawyers, accountants and investment managers to make recommendations. The question, of course, is how the folks who service high net worth individuals come upon these ideas. Saban and the others may not have knowingly pressured their people to get into questionable deals, but they no doubt pressured them to come up with mega-tax savings. Just because you don't know doesn't mean you're not culpable. (The CEO of Quellos says the Senate report is unfair and inaccurate.)

The story is getting lots of play (it's Aug. 1 and not much competing on Capitol Hill), but as Robert Weissman points out in huffingtonpost.com, the likelihood of any significant reform - that is, outlawing offshore tax shelters for individuals - is not strong, at least in the current Congress. Here's how he concludes:

Although the tax haven business is almost impenetrably complicated, the solution is not. The issue is political will. Unfortunately, there is a lot more political will to eliminate the estate tax - President Bush and the Republican Congressional leadership's current obsession - than to make the rich pay what they do owe.