@OpLaw Dirty Dozen; When Every Bank Is Guilty; The Only Crime Is Getting Caught

Thu Aug 9, 2012 by on Bank Fraud

Man in Handcuffs, Holding Money

Would you believe it if I told you that 24% of executives in the United States and the UK believe that financial services professionals need to engage in unethical or illegal conduct to be successful?

Well, a recent survey of over 500 executives found exactly that, with 26% of them admitting first hand knowledge of wrongdoing in their workplace.

I can’t say I was surprised. Not one bit.

With this type of mentality, is it any wonder that our financial system is failing, and that the banks have a holier than thou mentality where they think they are above the law?

Apparently on Wall Street, the crime isn’t engaging in misconduct, but in getting caught.

I mean, since everyone is doing it, it must be OK, right?

But down here on Main Street, we would not have the same success rate with that line of reasoning.

Let’s say you got pulled over for speeding, and when the officer asked why would you going 100 miles-per-hour when the speed limit is 70, you told the officer;

“Well officer, everyone else was speeding; it would have been dangerous for me to slow down.”

Do you think that officer would let you off? Of course not.

Yet regulators and politicians have been accepting this type of excuse from the banks for far too long.

Oppenheim Law’s Dirty Dozen Exposed

And that exact excuse has reared its head again in relation to a massive tax fraud being investigated by New York Attorney General Schneiderman, the IRS, as well as the attorneys here at Oppenheim Law.

The investigation centers on what we have coined the @OpLaw Dirty Dozen, a group of twelve banks that have perpetrated the most egregious tax fraud at the expense of the American people.

This tax fraud, resulting in a potential liability to the banks of a trillion . . . yes, TRILLION, stems from the banking system’s use of an entity known as REMICs (Real Estate Mortgage Investment Conduits) during the housing bubble to illegally disguise and manipulate the need to pay corporate income taxes.

A REMIC is an entity that receives very special tax treatment, but only if those setting up and administering the REMIC play by very specific rules set forth by the IRS and Congress.

In order to get this special treatment, resulting in a tax exemption in the trillions, REMICs are required to be passive entities, meaning they are stuffed with bundled home mortgages during the first 90 days after creation andthen left to collect interest on those loans. After that they are not permitted to add mortgages to the trust.

This may sound like a technical requirement, but it a clearly defined line in the sand. Once banks cross over it, all the special tax breaks disappear like a rabbit in a magician’s hat.

The key to this is that virtually no mortgages can be placed into the trusts after those 90 days.


Wall Street On The Hook With IRS?

Because, if a small percentage of mortgages are transferred into the trust past that 90 day cutoff point, the REMIC can be taxed 100% on all income earned in the entire REMIC, as well as assessed penalties and interest by the IRS.

During the foreclosure crisis plaguing the nation, it became apparent to the world that the transfer documents assigning the mortgages into the trusts were not completed during that 90 day period.

Oops, yet another big mistake by the banks. But like other mistakes before it, they were simply written off as inadvertent errors.

And while usually such violations would mean that the investors in a REMIC would owe the IRS for all of the taxes, penalties and interest, the big banks that were hired to manage the REMICs are on the hook too with the IRS, thanks to indemnification agreements with investors.

Securitized Trusts Deconstructed, Part Two

As a follow-up to the law review article that Jacquelyn Trask and I wrote last year, concerning the Black Magic of Securitized Trusts, we decided to investigate further.

In doing so, we discovered another arcane rule from the Financial Account Standards Board, called the FASB Interpretation Number (FIN) 48, that requires public companies to disclose their unrecognized tax benefit every year.

The unrecognized tax benefit, or UTB, is a reserve of money that companies must hold back for tax positions that a company thinks the IRS is likely to require to be paid once the IRS audits the company.

It’s kind of like a game of cat and mouse that large companies get to play with your tax dollars.

For example, if a company claims a $1 million deduction but believes it will only realistically be able to claim back $750,000, then the company is required to put the $250,000 difference into a bank account until the issue is resolved with the IRS.

And because banks love to claim deductions from the income tax that they owe the IRS, they are required to show what the difference is between what they have claimed and what they think they will actually be able to deduct.

So What Is the American Taxpayer Owed?

We got curious – just how much money the @OpLaw Dirty Dozen, which are responsible for the some of the most egregious law-breaking associated with the foreclosure crisis, had actually putaside in their UTB reserves?

It turns out that the number as of December 31, 2011 is just shy of $24 billion, representing the amount of money that the @OpLaw Dirty Dozen thinks the banks may owe the American people, but won’t pay until the IRS forces them too.

Now if only all of us could get away with not paying our taxes too!

The thing is, while we found the @OpLaw Dirty Dozen’s unrecognized tax benefits, we just don’t know for sure how much of that money is for the REMIC scandal and how much of it is merely garden variety tax avoidance.

However, knowing the sums involved, we can assume that a substantial portion of the $24 billion is related to REMICs.

Given that our calculations show that the potential amount owed to the IRS by the @OpLaw Dirty Dozen could be $3 trillion, these banks have set aside less than 1% of what they might actually owe to the American people, a scary thought considering that their previous greed and malfeasance nearly toppled the entire economy back in 2008.

It is clear that the @OpLaw Dirty Dozen went wild with REMICs back when securitization was booming and now are trying their best to prevent the skeletons from coming out of their collective closets.

To find out which banks are a part of the @OpLaw Dirty Dozen, and to see just how much money they have stashed under their collective mattresses, please click here to see our @OpLawDirty Dozen Infographic.

From The Trenches,

Roy Oppenheim

Foreclosure Defense Attorney Roy Oppenheim

Tags: a bank, bank, bank account, banks love, dirty, dirty dozen, dozen, expose, foreclosure, income tax in the united states, Internal Revenue Service, mortgage, oplaw dirty dozen, oppenheim, real estate mortgage investment conduit, tax avoidance and tax evasion, tax resistance, taxation in the united states, the bank

6 responses to “@OpLaw Dirty Dozen; When Every Bank Is Guilty; The Only Crime Is Getting Caught”

  1. […] my staff and I started working on compiling our list of Dirty Dozen banks, I realized there are many questions that the list does not […]

  2. […] By sifting through the banks’ own annual reports, along with other public data, Oppenheim Law has compiled a list of what they call the Wall Street Dirty Dozen banks. […]

  3. […] By sifting through the banks’ own annual reports, along with other public data, Oppenheim Law has compiled a list of what they call the Wall Street Dirty Dozen banks. […]

  4. […] By sifting through the banks’ own annual reports, along with other public data, Oppenheim Law has compiled a list of what they call the Wall Street Dirty Dozen banks. […]

  5. […] By convincing Congress to ease certain tax restrictions back in 1986, these securities called REMICS were created and became a loophole to allow the banks to avoid paying income tax on millions upon millions of mortgages, which I alluded to back in August. […]

  6. […] An unfair tax code that favors one group over another has the ability to slowly corrupt and destroy our union. It creates the sense of unfairness and so negatively impacts our economy and our ability to run the nation […]