The Obfuscation Report

Here Illegally, but Choosing to Pay Taxes
Some undocumented workers hope that by establishing a record of their time in the United States, it will be easier to gain citizenship later.
By Anna Gorman
Times Staff Writer
From the Los Angeles Times

April 17, 2006

They may be here illegally, but tens of thousands of undocumented immigrants are expected to abide by Uncle Sam's rules by filing tax returns — with the hope of someday becoming U.S. citizens.

Though there is no way of knowing how many people are filing taxes in response to the national debate on immigration, Southern California tax preparers are seeing a steady stream of clients eager to be on record as taxpayers.

"There has definitely been an increase," said Noemi Munoz, a senior tax advisor at H&R Block in Los Angeles. "After whatever they've heard on TV, I guess that's why they want to file taxes."

Some illegal immigrants have long paid taxes through special identification numbers issued by the Internal Revenue Service for people who are not eligible for Social Security numbers — whether out of a sense of duty or hope for eventual citizenship.

But now that the U.S. Senate is considering a broad proposal that could lead to citizenship for migrants who have lived here for at least two years, there is a greater incentive to file a tax return. Some are pulling out their W-2s and heading to the nearest tax office — not just to pay this year's bill but to catch up on back taxes. In interviews, many said they wanted to prove how long they had lived in the United States and that they would be good citizens.

"It's important for all of us to pay our taxes, to have proof that we are working in this country," said Efrain Santa Cruz, 44, an illegal immigrant from Mexico who recently filed his return, "so someday maybe they will give us papers."

Illegal immigrants often live in an underground cash economy and don't have a paper trail establishing their presence, experts said.

"Proving that you have been here is sometimes a challenging task," said Harry Pachon, president of USC's Tomas Rivera Policy Institute, a Latino think tank. "As people start thinking there is a chance for legalization … they are going to be much more conscious of that."

Illegal immigrants can file taxes by applying for an Individual Taxpayer Identification Number, or ITIN, designed for foreigners living here legally but now widely used by illegal immigrants. Last year, the Internal Revenue Service issued an estimated 1.2 million tax identification numbers — the vast majority of which ended up on tax returns, up from roughly 838,000 issued in 2004.

The IRS, which has issued more than 9.2 million tax identification numbers since 1996, does not ask whether immigrants are legal. "Our job is to make sure that everyone who earns income within our borders pays the proper amount of taxes, even if they may not be working here legally," IRS Commissioner Mark W. Everson said in an e-mail.

How much illegal immigrants pay into the system is part of a larger debate over whether they are a drain or a benefit to the U.S. economy. In addition to sales taxes, many pay income taxes, and, in some cases, property taxes. But numerous studies have shown that their presence is a financial strain on hospitals, schools and local services.

Opponents of illegal immigration said offering illegal immigrants taxpayer identification numbers highlights the federal government's contradictory approach in dealing with the problem. Immigrants who cannot get a Social Security number to work legally can get a taxpayer ID number to pay taxes.

"The issuing of these numbers to people who are here illegally is simply helping them to remain and work in this country, which is part of the federal government's schizophrenia when it comes to illegal immigration," said Rick Oltman, Western field director for the Federation for American Immigration Reform.

Opponents said the amount of money paid by illegal immigrants in taxes hardly makes up for what they cost this country in services.

The process of paying taxes, for illegal immigrants, essentially involves owning up to their undocumented status. Many have gotten jobs with fake Social Security numbers. Their employers make deductions based on those numbers. So these immigrants file returns using legitimate taxpayer ID numbers, but the tax preparer must attach a W-2 showing the fake Social Security number so that the IRS knows how much is due or owed, according to H&R Block tax advisors.

When taxpayer ID numbers were first issued, tax preparers said, illegal immigrants were afraid to apply. But now there is less fear because tax preparers assure them that the IRS is prohibited from reporting the data to immigration authorities.

Many illegal immigrants earn so little that they don't owe any income taxes. If they support children or parents in the U.S. or in Mexico, they can claim them as dependents, further reducing their taxable income. Some are entitled to refunds.

Illegal immigrants who are paid under the table have not had any taxes withheld by their employers, so they may owe the government money. But since there is no record of how much they earned, they may underreport their income.

On the other hand, many illegal immigrants have Social Security taxes withheld from their paychecks but are not entitled to collect any benefits. The Social Security Administration said $7 billion in payroll taxes had been credited to its trust fund from Social Security numbers that were either invalid or didn't match names in the agency's records. Undocumented workers are believed to make up a large portion of these contributors.

Income tax businesses are catering to this burgeoning clientele.

Outside H&R Block on Western Avenue in Los Angeles, signs read in Spanish, "Hablamos taxes" (We speak taxes) and "Solicita tu ITIN aqui" (Apply for your ITIN here).

Inside the office last week, Carmelo Santiago Hernandez signed his tax return and learned he would receive a $15 refund. Hernandez, an illegal immigrant, arrived from Mexico four years ago and works as a janitor. Last year, he said he earned just over $11,000. He paid about $700 toward Social Security and $160 to Medicare.

Hernandez, 28, decided to apply for an ITIN and file taxes after an uncle suggested it might increase his chances to become a legal resident someday. "You never lose hope," said Hernandez, who is married with three children.

Others say they are bound by a sense of duty.

Luis Vazquez, 26, was paid under the table as a day laborer most of last year. Last week, he arrived at H&R Block with documentation that he had earned about $3,500 — not much, he said, but he still wanted to comply with tax laws. He didn't have the means to pay the government anything, so he was relieved to discover he was owed a refund: $4.

"I want to do things how they should be done," said Vazquez, who crossed the border two years ago. "I'm here. The least I can do is demonstrate that I have good intentions … that I came to work."

Unlike Hernandez and Vazquez, who both filed for the first time this year, Santa Cruz, a dishwasher, has been filing tax returns for nearly a decade. He earned about $11,600 last year, paying roughly $720 toward Social Security and $170 to Medicare. He claimed his three children here as dependents and will receive a refund of about $890.

"Every year I have done them, and this year I did them too," he said. "I have the hope that by paying taxes, I will have the right to become legal."

Now check this out:

"SACRIFICE IS FOR SUCKERS"
How Corporations Are Using Offshore Tax Havens to Avoid Paying Taxes

A Citizen Works briefing paper
by Charlie Cray and Lee Drutman, with help from Sam Ferguson

Introduction

"I think we ought to look at people who are trying to avoid U.S. taxes as a problem. I think American companies ought to pay taxes here and be good citizens," President George W. Bush told reporters last July, when asked about companies that incorporate overseas to avoid taxes.(1)

But the President has yet to get behind any legislative or regulatory effort to close offshore tax haven loopholes.

Meanwhile, an increasing number of corporations are either moving their headquarters offshore or establishing subsidiaries in offshore tax havens such as Bermuda(2), at a time when the actual taxes they pay are approaching historical lows.

Most studies indicate that corporate taxes are at their lowest levels in decades. Although the statutory corporate income tax rate is up to 35%, according to Robert McIntyre of the Institute on Taxation and Economic Policy, the top 250 companies paid what amounts to only a 20.1 % rate in income taxes in 1998, down from 22.9% in 1996 and well below the 26.5 percent that a similar group paid in 1988 (3). McIntyre estimates that currently, big corporations pay only about 15% of their pretax U.S. profits in federal income taxes. (4)

Looked at from the perspective of who pays what portion of the nation's overall taxes, the decline in corporate taxation is even more stark. In a recent special investigation on corporate taxes, Business Week reported that in 1940, companies and individuals split the federal income tax bill equally. Corporations now pay only 13.7% of the federal income tax bill and individuals pay 86.3%. (5)

According to the Congressional Budget Office, corporate income taxes in 2002 contributed less than one-tenth of overall revenues (down from 15 % in the 1970s and 25% in the 1950s and 1960s) and represent approximately 1.5 percent of GDP, down from 4.1 percent in 1965. (6)

Over two dozen major U.S. corporations have reincorporated offshore, most in recent years.(7) Community, union and investor resistance to Connecticut toolmaker Stanley Works' well-publicized attempt to move offshore (the company announced it was dropping the proposal last August) may have slowed that trend.(8) But the message that these corporations and their accountants and consultants seem to be sending ordinary Americans is that "sacrifice is for suckers." Or as an Ernst & Young tax partner explained: "we are working through a lot of companies who feel that … just the improvement on earnings is powerful enough that maybe the patriotism issue needs to take a back seat." (9)

Although no one knows for sure how much offshore tax avoidance is costing the country, Senator Max Baucus (D-MT), ranking member of the Senate Finance Committee estimates that the cost of tax avoiding by both individuals and corporations through the use of offshore tax shelters to be $70 billion a year - roughly the same amount that President Bush requested to pay for the first 6 months of the war and occupation of Iraq. (10)

While U.S. companies say they are moving offshore in order to compete with foreign multinationals that do not have to pay a tax on income earned overseas, U.S. corporate taxes are actually much lower than those of other industrialized countries.

Two congressional experts familiar with the corporate tax debate suggest that "the U.S. tax system, with its combination of deferral and a foreign tax credit, is probably more generous in most circumstances than the "territorial systems" used by other countries." (11) The data bear this out:

* By 2000, U.S. federal and state corporate taxes had dropped to 2.5% of GDP from 4.1% in 1965, while corporate income taxes in other OECD countries had risen to 3.4% GDP. In 2002, U.S. corporate taxes plummeted to only 1.5% of GDP. (12)

* The New York Times reported in August, 2002 that the 100 largest U.S. publicly traded companies pay a significantly smaller share of their profits in taxes worldwide than the 100 largest companies based outside the United States. (13)

The multinational corporations that dominate the global economy are able to manipulate their corporate structures to straddle different geographic locations and shift their operations on paper in order to take advantage of tax havens and other national differences in taxation.

Although other countries have done a better job of maintaining their corporate income taxes, they're worried, too. On his publication's 30th anniversary, Tax Notes publisher Thomas F. Field wrote: "One obvious change in the international area is the near-universal reduction in corporate tax rates on a country-by-country basis and the ongoing competition between taxing jurisdictions to reduce their corporate rates further. … A few years ago, at the first World Tax Conference sponsored by the Canadian Tax Foundation, a corporate tax panelist asked for a show of hands from the audience of tax professionals. He asked, "How many of you think there will be a significant corporate income tax in industrialized countries 10 years from now?" Only a few hands went up. "How many of you think there won't"? Almost all hands were in the air. That response is not a scientific survey, but it shows which way the wind is blowing." (14)

Martin Sullivan, a tax economist, recently published an analysis in Tax Notes that concluded that over and above the drop in taxes levied by foreign governments on U.S. multinational corporations over the last two decades, "multinationals have lowered their foreign taxes even further by shifting income from the traditional sites of U.S. foreign investment to bona fide tax havens. … In part, this additional reduction is due to shifting real economic activity. But it appears that the lion's share of income shifting is tax-motivated." Sullivan calculated that the effective rate of tax on profits generated by foreign affiliates of U.S. multinationals was more than halved between 1983, when it stood at 49.6 percent, and 1999, when it had declined to 22.2 percent. (15)

The ability of multinationals to shift income among jurisdictions may allow them to pay even less in taxes than most corporations.

GAMING THE SYSTEM

There are two basic ways that corporations exploit offshore tax havens. One is through corporate expatriation, where a company transfers its corporate headquarters in name only to an offshore tax haven, without moving its top management or physical operations. Also known as "corporate inversions," this move allows companies to significantly reduce their taxes at minimal expense (e.g. by merely registering the company and establishing its residence by renting a post office box).(16) The savings are made as corporations no longer have to pay taxes on their overseas operations. (17) Tyco, for example, which relocated to Bermuda in 1997, estimated that it saved $400 million in 2001 alone. (18)

The second, and more complicated way that corporations exploit offshore tax havens is through the use of offshore tax haven subsidiaries.

In Appendix 1, we list the 25 corporations of the Fortune 500 with the greatest number of offshore tax haven subsidiaries, as reported to shareholders. (19) Virtually all of the Fortune 500 corporations with the most offshore tax haven subsidiaries (see Appendix 1 for a list of companies) increased the number these offshore subsidiaries significantly in recent years. For example, the company with the most offshore tax haven subsidiaries -- El Paso - added 192 tax haven subsidiaries between 1999 and 2002.

There are a variety of ways that large U.S. multinationals can use offshore tax havens to avoid taxes, depending on the type and location of the business they are in, their investment strategy, tax strategy, etc. Here are descriptions of a few ways that corporations use offshore tax havens to avoid taxes:

1) Deferred tax payments. The U.S. nominally has a worldwide system of taxation under which a company's worldwide income is subject to U.S. tax. However, corporations are allowed dramatically reduce their taxes by being allowed to postpone tax payments on the profits from overseas operations by reinvesting that money in foreign operations. (This is in addition to reductions on the taxes they pay to the U.S. for taxes paid to other countries).

The practice is common in the energy sector, where many large companies have an unusual number of subsidiaries in "far-flung places with lots of sand and sunshine but precious little oil or gas." (20)

Anti-deferral rules do require that some portion of income be counted immediately. Nevertheless, oil and gas companies pay the lowest taxes of any major industrial sector. Between 1996 and 1998 the petroleum and pipeline industry had an effective tax rate of 12.3 % -- the lowest of all major U.S. economic sectors. (21) "Energy companies have more opportunity to do this [shelter their income elsewhere] because much of their income is abroad," a former Treasury Department international-tax expert told the Wall Street Journal. (22)

According to our analysis, the Fortune 500 companies with the most offshore tax havens is dominated by companies in the energy sector, including El Paso (#1), AES (#2), Aon (#5), Mirant (#7), Halliburton (#8), and Williams (#14).

2) Income Stripping. In this scheme, money is "lent" by the offshore subsidiary to the U.S. parent company or another U.S. subsidiary and paid back to the offshore company at higher rates of interest. That interest payment is then deducted from the U.S. company's federal taxes.

One example of this occurred at Tyco, which set up a Luxembourg-based subsidiary to finance most of the company's debt. The Luxembourg subsidiary made loans to Tyco units in the U.S. and elsewhere, which then deducted the interest payments from their taxable income. (23)

3) Parking Intellectual Property ("Intangibles") Offshore. A third way corporations reduce their taxes is by relocating intellectual property to offshore subsidiaries in order to shelter income from overseas sales. The subsidiary company then charges a licensing fee for the use of trademarks, patents, etc. Any such income that comes from overseas operations is not taxed in the U.S. The subsidiary can also charge the U.S. parent or other U.S. subsidiaries -- a variation of income stripping.

The practice of holding intellectual property offshore began in the early 1990s and is now so widespread that it has prompted an aggressive crackdown by the IRS on alleged abuses that one IRS consultant says could total tens of billions of dollars. (24) More than two dozen U.S. pharmaceutical and computer companies have set up subsidiaries in Bermuda in recent years.

4) Transfer pricing is another arrangement whereby companies with operations around the world arrange their transactions so that profits show up in jurisdictions with kinder, gentler tax collectors (since a large percentage of international transactions and trade takes place within centrally managed corporations either as sales between subsidiaries or as sales between parent and subsidiary, the prices are not set by arms-length market forces).

Senator Byron Dorgan (D-ND) released a study in 2002 that estimated that U.S. multinationals used phony pricing schemes to avoid over $53 billion in taxes in 2001. The companies use phony pricing schemes which under-price goods sold to offshore affiliates and over-price goods purchased by U.S. companies from their overseas affiliates. The sham transactions have the effect of moving U.S. profits - and tax liability - out of the U.S. where they are not subject to U.S. taxation. The problem has continued to grow in recent years. In 2001, the authors of the study estimated the schemes cost $53 billion, up from 35.7 billion in 1998. (25)

LEARNING FROM THE ENRON EXAMPLE

Enron, the poster child of corporate crime, fraud and abuse, was no less aggressive in seeking to avoid paying taxes than it was in manipulating markets and cooking the books. Enron paid no taxes in four of the five last years before it filed for bankruptcy. (26)

Robert Hermann, a former managing director at Enron and general tax counsel explained to the Washington Post how he "grew increasingly uneasy in recent years as more and more of the company's reported profits came from one-time tax transactions rather than business operations." (27)

One of the interesting things about Enron is that it did not move offshore. The company was incorporated in the U.S. (Oregon). It managed to avoid paying through a number of tax strategies, many involving the use of offshore subsidiaries. The company had an enormous number of subsidiaries in offshore tax havens (872 according to its 10-K report, which does not include many "special purpose entities" used to hide the company's debt).

The Enron example also points to the need to look beyond the issue of corporate expatriation -- also known as "corporate inversions" (28) to other ways that corporations use offshore tax havens to avoid paying taxes. As Business Week has noted, "concern about these so-called corporate inversions may be taking attention away from a larger, more subtle migration of corporate income and assets toward countries with lower rates." (29)

Enron's aggressive tax strategies, while extreme, were nonetheless indicative of how common it is for large corporations to use their resources to game the tax system. As Business Week explained, "Tyco and Enron may have been the masters, but it's not just corporate rogues that have taken tax games to new extremes. After all, Enron Corp. modeled its massive tax department on that of General Electric Co. and a host of other big companies." (30)

Lindy Paull, the Chief of Staff of the congressional Joint Committee on Taxation summed it up this way: "Viewed in their entirety, Enron's structured transactions not only pushed the concept of business purpose to the limit (and perhaps beyond) but also highlight several general issues about the nature of the tax system and a corporation's attitude towards it. Enron's behavior illustrates that a motivated corporation can manipulate highly technical provisions of the law to achieve significant unintended benefits." (31)

THE NEED FOR IMPROVED DISCLOSURE TO EXPOSE TAX CHEATS AND PROTECT INVESTORS

It is difficult to correlate the number of offshore tax haven subsidiaries a company has with how much it actually pays in taxes. In large part, this is due to a lack of transparency in how much corporations actually pay in taxes.

One of the key revelations of the Joint Committee on Taxations' investigation into Enron's financial and tax shenanigans was the wildly different tax information that Enron reported to its shareholders (via SEC reports) and to the IRS. (32) From 1996 to 1999, Enron paid no Federal income tax, reporting tax losses of three billion dollars to the IRS. At the same time, it reported over two billion dollars in profits to its shareholders.

If investors (including pensioners and small investors whose lifetime savings were lost) had been aware of the over $5 billion gap, they might have realized much earlier how unsound the company's core business was.

Tax experts also suggest that if investors had seen WorldCom's tax return the year before the telecom giant collapsed, it also would have been an indication of trouble. (33)

The gap between the corporate income reported to shareholders and the IRS has grown significantly, and likely reflects an increase in the use of offshore tax shelters. According to CFO Magazine, although there was no significant difference between pretax book income and taxable net income reported to the IRS in 1992, by 1996 a $92.5 billion gap had appeared. That gap grew to $159 billion in 1998. (34) Currently, Robert McIntyre estimates that only about 44% of the U.S. profits that big American corporations report to their shareholders are reported to the IRS. Although accounting treatment under the tax code is different from that under the generally accepted accounting principles used for financial reporting, recent studies using internal IRS data suggest that at least half of the gap cannot be explained by conventional book/tax differences and is "consistent with increased sheltering activity." (35)

By requiring publicly traded corporations to disclose selected tax return information (which they prepare for the IRS already, thus requiring little additional paperwork) investors could better determine if a corporations numbers are legitimate or cooked. This minimal improvement in transparency would help provide an early warning system for investors and analysts, and give the broader public a sense of whether or not a corporation is paying its fair share of taxes.

REIN IN THE CONSULTANTS

The obvious implication here is that Enron couldn't have done this by itself. As Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance committee put it, the Joint Committee on Taxation's Enron report "reads like a conspiracy novel, with some of the nation's finest banks, accounting firms, and attorneys working together to prop up the biggest corporate farce of this century." (36)

Enron sought out the advice of a coterie of accountants, banks, and lawyers, who were only too happy to sell them expert advice on how to trick Uncle Sam (i.e. the rest of us). Enron paid $40.2 million to Bankers Trust (now part of Deutsche Bank), $16.3 million to Deloitte & Touche, and $12.7 million to Chase Manhattan for tax-shelter schemes. Influential Washington law firm Akin, Gump, Strauss, Hauer & Feld got $1 million for providing a letter approving a tax shelter.

What happened at Enron is indicative of a larger trend - the mining of the tax code, which has become "ridiculously complex" (as Business Week describes it) by accountants, bankers and lobbyists familiar with the "annual welter of revisions from Congress and dogged work by an army of lobbyists. … [I]n the late 1990s, the hunt for tax breaks became a much bigger business. For one thing, a new class of professionals - Wall Street investment bankers - joined the legions of lawyers and accountants hawking tax-management services. "Squadrons of lawyers, accountants, and Wall Street structured-finance experts have made an art form of minimizing the U.S. multinational's effective tax rate within this maze of the U.S. tax code, tax treaties, and global tax systems," says Selva Ozelli, international tax editor for RIA, a New York provider of tax information and software." (37)

The benefits of this tax code expertise rarely trickle down to small businesses who can't afford to pay high-priced Wall Street consultants. As The late Senator Paul Wellstone explained on Nightline, "[I]n Minnesota, companies in Detroit Lakes or Red Wing or my town of North Field … don't have the lawyers and the tax accountants to let them do this kind of Enron scheme." (38)

As the New York Times recently explained, the decline in corporate taxes in recent years "was concentrated among the largest corporations. Corporate profits are officially taxed at 35 cents on the dollar, but the 10,000 largest companies actually pay only about 20 cents of tax on each dollar of profit. Most of the tax savings, academic studies and Senate Finance Committee reports show, come from tax shelters that range from the perfectly legal to frauds so complex that I.R.S. auditors cannot understand them." (39)

In addition to making some technical corrections to the corporate tax code, as recommended in the committee's report, the role of accountants in tax dodging suggests that the Securities and Exchange Commission needs to rethink Harvey Pitt's auditor independence rules, which failed to address the corporate tax dodge by allowing auditors to continue to provide tax consulting services.

BAN GOVERNMENT CONTRACTS FOR TAX TRAITORS

One of the most outrageous tales of hypocrisy is the story of how many corporate tax dodgers continue to receive hundreds of millions worth of government contracts.

According to the General Accounting Office, for instance, four of the top 100 federal contractors that are publicly traded corporations - Accenture, Tyco, Foster Wheeler and McDermott International - are incorporated in a tax haven country. (40) The four accounted for about $2.7 billion of contracts in FY2001. Accenture, for instance, has over $1 billion in federal contracts ($278 million in 2001 alone, according to the GAO), including a five-year contract to revamp the IRS's own web site. Accenture paid just 7 percent of its profits in taxes worldwide from 1997 to 2000. (41)

A number of companies that have received large contracts for military support and the reconstruction of Iraq after the war are among those with the large number of offshore tax havens - including Halliburton (#8) and Fluor (#20).

Halliburton's close ties to Vice President Cheney, the company's former CEO has raised serious concerns about the granting of no-bid contracts to the company. (42)

Under Vice President Dick Cheney's tenure as CEO, the number of offshore tax havens at Halliburton grew from 9 to 44. During that same period, its taxes shrank from $302 million to a $85 million tax refund (1999).

Four companies that have non-weapons contracts with the Departments of Defense or Homeland Security have "relocated" offshore to avoid paying corporate income taxes. These include Cooper Industries ($55 million in savings per year), Global Crossing, Ingersoll-Rand ($40 million to $60 million) and Tyco International ($400 million). (43) Global Crossing's connections to the current administration include Richard Perle, who resigned as Chairman of the Defense Policy Board upon revelations that he was being paid by the company to lobby the Pentagon on their behalf. Perle is still a member of the Board.

Senator Mark Dayton introduced S. 134, the Wellstone Memorial Renegade Corporation Act in honor of the late Senator Paul Wellstone (D-MN), who was the first to try to close the loophole on giving government (homeland security) contracts to corporations that have moved offshore. Although the measure was unanimously endorsed during a Senate floor vote on the Homeland Security Act, it was later scuttled behind closed doors in a House-Senate conference committee. "It's the kind of hypocrisy that Paul Wellstone deplored, which is to say one thing and then do exactly the opposite," Dayton said. (44)

Recommendations:

1) CLOSE THE OFFSHORE REINCORPORATION LOOPHOLE. Companies that move their headquarters offshore in name only should be taxed as if they are still incorporated in the U.S.

2) INCREASE DISCLOSURE. The secrecy surrounding corporate tax-reduction strategies should be eliminated. Investors have a right to a clearer picture of the financial health of a company's core business, while all citizens have a right to understand how much corporations are paying in taxes.

3) STOP GIVING CONTRACTS TO TAX TRAITORS. Bar companies that have moved offshore from receiving taxpayer money in the form of government contracts.

4) ELIMINATE AUDITOR CONFLICTS. The loopholes in the Sarbanes-Oxley Accounting Reform Act and SEC regulations that continue to allow auditing firms to be paid to provide tax strategy consulting to their audit clients should be closed.