As I posted last month, Blackstone Group's CEO Stephen Schwarzman gave an interview to the Wall Street Journal with a compelling theme -- Schwarzman is the Napoleon of private equity. Napoleon-watch tracks his moves on the business battleground.

The New York Times reports that Blackstone Group LP (NYSE: BX) is making things tough for itself and its peers in the eyes of Congress. That's because Blackstone used a loophole to avoid paying tax on $3.7 billion -- most of which was raised in its IPO last month.

Although they will initially pay $553 million in taxes, Blackstone's partners will get that back, and $200 million more, from the government over the long term. In a nutshell, the partners used the writeoff of goodwill -- the difference between the book value and market value of an asset -- to shield their gain from tax.

The details are rather complex but fiendishly clever:

• the Blackstone partners paid a 15% capital gains rate on the shares of Blackstone's management company they sold last month in the IPO
• Blackstone then arranged to get deductions for itself for the $3.7 billion worth of goodwill at a 35% rate. They taxed low and deducted high.
• The deductions must be spread out over 15 years. And the original Blackstone partners are getting just 85% of the tax savings, leaving the other 15% to outside investors. The deductions on the $3.7 billion to the partners are $1.1 billion over 15 years.
• If these tax savings were paid as a lump sum this year, the partners would get $751 million, which is $198 million more than the taxes the partners will pay on the $3.7 billion of goodwill.

These guys didn't get to be billionaires for nothing. Meanwhile my proposal for putting half their pay in escrow for 10 years to cover the costs of bad deals is gaining tiny amounts of support.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Blackstone.

I ran across a rather interesting article on The New York Times website today discussing a new way that the IRS is planning on creating their tax laws. The direction in which they are headed in creating their new laws just may surprise you.

It seems as though the same people that get paid each year by citizens looking to avoid paying their taxes are going to be asked to help the IRS come up with their new laws. Is it just me, or does this seem a bit strange? As it is the government is already pretty lousy at collecting what is coming to them, I can only imagine what the impact of having tax lawyers write new laws will have on the situation.

I read an article a few days ago that discussed the difference in taxes owed and taxes collected by the American government. According to this report (using 2001 figures), the annual gap between what tax payers owe and what is actually paid is around $300 billion. That is a pretty hefty chunk of change. The article puts it in pretty good perspective pointing out that this gap could cover the federal deficit for a year, or pay for actions in Iraq and Afghanistan for 2007 and 2008.

Now the IRS is going to let tax lawyers work on new tax laws. An interesting decision in my book. These are the same people that make a living helping people avoid paying their taxes. Does this really make sense?