State targets tax scheme, collects $10.8 million

October 14, 2008|By Gadi Dechter | Gadi Dechter,gadi.dechter@baltsun.com

Comptroller Peter Franchot announced yesterday Maryland's first successful attempt at closing a real estate-related "tax-avoidance scheme," which yielded $10.8 million in back taxes. The amount represents three years' worth of taxes from a "major corporation" that was not identified because of tax confidentiality laws. Tax collectors have several other related audits under way and have determined that another company owes $5.7 million for using the same practice, officials said. Under the scheme, a company with stores in Maryland establishes a real estate investment trust to which its stores pay rent. The trust is formally owned by, and distributes its earnings to, a subsidiary of the parent company - thus avoiding income tax. Franchot's office began to study the tax-avoidance strategy after a 2007 Wall Street Journal article highlighted the practice, focusing heavily on Wal-Mart stores.

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