An expert hired by former Vanguard Group tax lawyer David Danon in his whistle-blower lawsuit against Vanguard, has sent the IRS a report estimating the company’s unpaid federal income tax liabilities at $34.6 billion from 2007 to 2014. Avi-Yonah, who has also taught tax law at Harvard and the University of Pennsylvania, has advised the U.S. Treasury and international agencies on tax matters, and has testified on major corporate tax cases before Congress.
Vanguard, the nation’s largest mutual fund company, “has no legal justification” for charging its mutual funds artificially low management fees that reduce its reported profits and tax obligations, Avi-Yonah wrote. And Vanguard failed to pay taxes on a $1.5 billion “contingency reserve” set aside from investors’ funds, he added.
Danon also filed complaints on Vanguard’s tax practices to the IRS and the Securities and Exchange Commission, which decline to comment on cases that may be under investigation.
Danon says Vanguard has been able to charge lower fees by underpaying its income taxes. While other companies that pick securities and do specialized work for mutual funds charge high fees, Vanguard executives have said their company provides similar services to its mutual funds “at cost,” not taking a profit, and passing on the savings to investors.