Swartz: ”No New (York) Taxes”

Former Tyco CFO borrowed money from the company's NYC relocation loan program, and accepted a ''tax gross-up'' to cover Big Apple expenses, but say...
Stephen TaubFebruary 25, 2004

Former Tyco International CFO Mark Swartz testified that he did not file New York State income tax returns in 1995, 1996, and 1997, even though his family lived in New York City and he worked there for part of the time.

On Monday, Swartz said he was a resident of New Hampshire, where Tyco was based during those years. Note that the “Live Free or Die” state has no income tax.

Swartz stated that he spent less than 30 percent of his working time in Tyco’s New York office. Problems emerged for the ex-CFO, however, when, during cross-examination, he admitted borrowing money from Tyco’s New York City relocation loan program — and accepting a cost-of-living and salary increase called a “tax gross-up” — to cover the higher living expenses and taxes in New York.

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“You took benefits under the relocation program, but you did not relocate your residence?” Manhattan Assistant District Attorney Marc Scholl asked, according to the Associated Press. “That is correct,” Swartz replied.

Swartz said he used money from the relocation program and from another program called the Key Employee Loan Program to invest in real estate in New York City and New Hampshire. Tyco never did move its headquarters to New York from Exeter, New Hampshire, because a large number of top employees balked at the move. (Tyco has been nominally based in Bermuda since its 1997 combination with ADT Ltd., a British company chartered on the island since 1984. According to the Associated Press, Tyco’s operations headquarters are now in West Windsor, New Jersey.)

Even though Swartz didn’t consider himself to be living in New York for tax purposes, he still used Tyco’s tuition-reimbursement plan to send his children to school in the Big Apple. He also participated in a program that permitted Tyco executives to buy more than one residence with relocation loans, according to the report.

Swartz admitted he spent weekdays in New Hampshire and weekends in New York City with his family.

Further, Swartz said he never noticed that $12.5 million in compensation was missing from his W-2 tax form for 1999. According to the report, the W-2 shows the former finance chief earned $10.6 million but omitted a $12.5 million loan forgiveness that Swartz accepted as part of a bonus he earned.

“Did you not know early in 2000,” Scholl reportedly asked, “that more than half of your income from 1999 was missing” from the tax form? “I do not recall ever looking at my W-2 until 2002,” Swartz reportedly responded.

Swartz and his former boss, Dennis Kozlowski, are on trial for allegedly stealing $170 million by hiding unauthorized pay and secretly forgiving loans. They also allegedly earned another $430 million from Tyco stock by lying about the company’s finances from 1995 to 2002.