Vanguard "has operated as an illegal tax shelter for nearly 40 years, providing services to [its] funds at prices designed to avoid federal and state income tax, sheltering hundreds of millions of dollars of income annually, avoiding approximately
"It is also important to note that Vanguard operates under a unique mutual structure and has a long history of serving the best interests of its shareholders. We believe that this case is without merit, and we intend to defend the matter vigorously."
Efforts to contact
Danon's attorney explained why the case was filed in
The case was unsealed by Danon after the
In an interview with The Inquirer, Danon, a 1998 magna cum laude graduate of
Danon said other Vanguard principals who disagreed with the company's tax position had also left Vanguard.
Danon has also talked with
In the lawsuit, Danon details his allegation that Vanguard has been illegally avoiding taxes.
Section 482 of the Internal Revenue Code, and most state's laws, require that transactions between related companies take place at the same price as if the companies were unrelated.
Instead, Danon contends, Vanguard provides services to its mutual funds "at artificially low, 'at-cost' " prices. "As a result, Vanguard shows little or no profit and pays little or no federal or state income tax despite managing funds with nearly
This is illegal for the same reason rich people are not allowed to sell property to their children at artificially low prices to avoid inheritance taxes, the lawsuit says. It is a "bedrock tax principle" and what lawyers call "black-letter law," generally accepted by lawyers and courts, the suit adds.
Danon also alleges that "Vanguard knowingly and fraudulently failed to report and pay taxes on its
The reserve is under
Vanguard's no-tax structure has enabled the company to underprice competitors and grow faster than other companies, the lawsuit argues. Vanguard has been the leader in low-cost mutual funds, it adds, because "it has flouted tax rules."
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