Thursday, November 8, 2012
- Bloomberg, Boehner Would Accept New Revenue Under ’Right Conditions’
- Mother Jones, John Boehner's Desperate Bluff on Taxes
- NBC News, Boehner Offers Tax Talks, but Outline Is Vague
- New York Times, Boehner Strikes Conciliatory Tone in Talk of Fiscal Cliff
- Politico, Boehner ‘Ready to be Led’ on Taxes
- Wall Street Journal, Reading the Tea Leaves on Boehner’s Opening Tax Bid
- Washington Post, Boehner Opens Door to ‘New Revenue,’ to Halt Debt
- Washington Times, Boehner: GOP Willing to Accept New Tax Revenue
Wednesday, November 7, 2012
Barack Obama’s biggest test on tax policy will come even before his second term starts Jan. 20. The president wants to use an end-of-year showdown with Congress to force higher taxes on top earners and fulfill a promise from his 2008 and 2012 campaigns. To succeed, he will have to risk raising taxes for everyone or persuade Republicans to drop their demand to extend expiring tax cuts for all income levels. ...
Obama wants to take advantage of the leverage gained from his victory and his veto power to pursue a “grand bargain” that would avert the so-called fiscal cliff and employ a combination of tax increases and spending cuts to reduce future budget deficits. ...
In a speech yesterday as the Republicans neared clinching House control, Speaker John Boehner said the election wasn’t a “mandate for raising tax rates.” Boehner’s emphasis on “tax rates” as opposed to “taxes” indicates that the party may pursue policies that would curtail tax breaks to pay for keeping rates where they are now. Republican congressional aides told Bloomberg News Oct. 19 that they were designing options that would achieve those goals if the politics move in that direction.
Douglas Holtz-Eakin, a former director of the Congressional Budget Office, predicted that as in 2010, Obama will initially to extend all the tax cuts to prevent economic harm and later will seek higher taxes on top earners. ... Other pieces of Obama’s tax policy aren’t directly tied to the fiscal cliff. The president wants to cap tax breaks for high earners, including the deduction for charitable contributions and the exclusion of municipal bond interest. He has offered a series of miscellaneous policy changes, including taxing the carried interest of private equity managers as ordinary income, instead of at the lower capital gains rate, and removing about $4 billion a year in tax breaks from the oil and gas industry.
- CNN, Boehner Lays Down a Marker on Taxes
- The Hill, Boehner: GOP House Majority Means 'No Mandate' for Tax Hikes
- Huffington Post, Boehner Acceptance Speech: Voters Said 'No' To Raising Tax Rates
Tuesday, October 23, 2012
- 677 New Loudon Corp. v. New York Tax Appeals Tribunal, No. 157 (NY Oct. 23, 2012)
- ABA Journal
- Associated Press
From the dissent:
The ruling of the Tax Appeals Tribunal, which the majority upholds, makes a distinction between highbrow dance and lowbrow dance that is not to be found in the governing statute and raises significant constitutional problems. I therefore dissent. ...
Like the majority and the Tribunal, I find this particular form of dance unedifying -- indeed, I am stuffy enough to find it distasteful. Perhaps for similar reasons, I do not read Hustler magazine; I would rather read the New Yorker. I would be appalled, however, if the State were to exact from Hustler a tax that the New Yorker did not have to pay, on the ground that what appears in Hustler is insufficiently "cultural and artistic." That sort of discrimination on the basis of content would surely be unconstitutional. It is not clear to me why the discrimination that the majority approves in this case stands on any firmer constitutional footing.
Thursday, July 19, 2012
Mr. Romney would be well advised to simply cough up a decade's worth of returns. In all likelihood, the only thing he's hiding is more of the sophisticated tax avoidance that he's already demonstrated and that rich people engage in every day. Laudable? No. But not illegal, either. ...
Depending on what is in Mr. Romney's unreleased returns, further tax disclosure might be uncomfortable for him or downright deadly. But it won't be nearly as deadly as the weeks of bashing that he can expect from critics if he continues to stonewall on full disclosure. ...
Legally, candidates are entitled to their tax privacy. But politically, privacy is a relic of the past....
And there may be a silver lining to disclosure for Mr. Romney. If he can survive the firestorm of ginned-up outrage that's sure to follow a major release, then a newly inaugurated President Romney might be well positioned to lead the charge for real tax reform. If only an ardent anticommunist like Nixon could go to China, then maybe only a pro-business Republican with lots of experience in legally avoiding taxes can get American taxpayers out of the Caymans.
Wednesday, January 4, 2012
Three Swiss Bankers Indicted for Helping U.S. Taxpayers Hide $1.2 Billion From the IRS in Offshore Accounts
The U.S. Attorney for the Southern District of New York yesterday announced the indictment of three Swiss bankers with Wegelin & Co. for conspiring with U.S. taxpayers to hide more than $1.2 billion in assets from the IRS.
- U.S. Attorney press release
- Financial Times
- New York Post (headline: "Swiss Bankers Had Fondue For Brains")
- New York Times
- Wall Street Journal
(Hat Tip: Ann Murphy.)
Monday, January 2, 2012
The National Assembly has passed a bill on the introduction of a 38% tax rate on the highest income bracket of 300 million won (259,000 dollars) or more. The bill was approved in a plenary session on Saturday, just 10 minutes before the start of the New Year.
The parliamentary strategy and finance committee concluded revision of the Income Tax Act by putting the brakes on a planned tax cut for the rich by curbing the reduction of the tax rate on such people.
Mindful of votes ahead of April`s general elections, however, ruling and opposition party lawmakers revived the so-called Korean Buffett tax at the last minute. Not only the government but also Park Geun-hye, chairwoman of the ruling Grand National Party`s emergency committee, opposed the bill but to no avail.
Certain members of the opposition claimed that the tax hike is a mere formality since it is applied only on 0.17% of income earners. Yet others warn that the decision has reversed tax policy from cuts to hikes and that this will fundamentally shake up national tax policy going forward.
Sunday, January 1, 2012
UK Uncut, Reflections on the Report on Tax Dodging:
A respected cross-party parliamentary committee released a damning report into dodgy tax deals struck between big business and bosses at HM Revenue and Customs (HMRC). It has made headlines, not just in the Guardian, but in the Daily Mail, the Sun, the Telegraph and as the leading story on the BBC Today Programme.
Friday, December 30, 2011
David van den Berg (Tax Analysts), Occupy Groups Would Face Burdens, Get Benefits From Tax Exempt Status, Practitioners Say, 2011 TNT 250-2 (Dec. 29, 2011):
Some of the Occupy groups that have sprouted nationwide have taken steps toward becoming nonprofit organizations -- something that would impose several requirements on the groups but would also provide some benefits, practitioners told Tax Analysts.
Through large protests and public encampments, the Occupy groups have attempted to raise awareness about what they consider corporate greed and income inequality. So far, some Occupy organizations, including those in Portland, Ore., and Atlanta, have registered as nonprofits with their appropriate state agencies. On its website, the Occupy organization in Wilmington, N.C., said it has "voted to file" for section 501(c)(3) status.
The main advantage of tax exemption for the Occupy groups would be the ability to directly receive tax-deductible contributions, said Lloyd Mayer, a professor at the University of Notre Dame. But he isn't sure that matters to the Occupy groups. "Given the grass-roots nature of the movement, I am not sure how much their supporters need that incentive in order to be enticed into giving," Mayer said. "It appears inconsistent with the general character of these groups for them to seek such status and the organizational and operational restrictions that come with it." ...
Ofer Lion, of Mitchell Silberberg & Knupp LLP, said it makes sense for the groups to form as 501(c)(3) organizations, and that the Occupy groups could be "good" 501(c)(3)s engaged in issue advocacy. But a reluctance to appoint leaders may be one reason why more Occupy groups haven't sought exempt status, he said.
"Assuming that Occupy Denver or any of the other Occupy movements forms and is housed in a corporate nonprofit. Then there are often requirements as to how many directors there are, what officers are required, and I'm pretty sure that the president or CEO cannot be a dog," Lion said. "It may be that the corporate form -- that is the traditional method for nonprofits -- is not really in line with their structure, and so the two don't mesh." ...
Occupy Wall Street, the most well-known of the Occupy movements, is taking a different approach. The Alliance for Global Justice, a 501(c)(3) organization based in Washington, is serving as the fiscal sponsor for Occupy Wall Street.
According to the Alliance's website, its duty as sponsor is to collect and process all of Occupy Wall Street's donations and pass on the money to Occupy Wall Street. The Alliance must include Occupy Wall Street's financial reporting with its own when filing a Form 990, "Return of Organization Exempt from Income Tax," and the Alliance is accountable legally and financially to prove all of Occupy Wall Street's financial expenditures are in accordance with IRS rules for exempt organizations, according to a statement on the Alliance's website. ...
This model is a good one for Occupy Wall Street, Lion said. In many cases, there's no need for a nonprofit to form as its own corporation and file an exemption application. What it really needs to do is get its program going and succeed at it, he said. "Then, to the extent they want to go out on their own and leave the umbrella of their fiscal sponsor, that makes a lot more sense than wasting a lot of time and resources on formation when they're not really ready for it."
All Tax Analysts content is available through the LexisNexis® services. Prior TaxProf Blog coverage:
- Deductibility of Donations to Occupy Wall Street (Oct. 31, 2011)
- Accountants: Occupy Wall Street Needs Your Help (Dec. 22, 2011)
Friday, November 25, 2011
Does Apple really pay its fair share of U.S. taxes?
In a Nov. 3 report, Citizens for Tax Justice estimated that Apple paid an average effective U.S. tax rate of 31% between 2008 and 2010. That is close to the ostensible corporate income tax rate of 35%. Out of 280 companies in the study, only 49 had a higher effective tax rate than Apple.
Various bloggers and columnists seized on the report to put Apple on another pedestal, praising it as one of the few tech giants paying its fair share of U.S. taxes.
But in an overlooked report published in the journal Tax Notes in August, economist Martin Sullivan said Apple is no better than other multinationals that have been "painted as corporate tax dodgers by major media outlets."
He said that "despite outward appearances, Apple enjoys enormous foreign tax benefits, just as GE and Google do. By taking advantage of lax U.S. and foreign tax laws, Apple has been able to book a large share of its foreign profits in low-tax jurisdictions and greatly reduce its tax liability in the United States and other major countries where it conducts most of its real business activity."
He estimated that by shifting profits overseas, Apple is costing the U.S. government more than $1 billion a year.
Tuesday, August 30, 2011
- Wall Street Journal editorial, Buffett's Latest Tax Break: Once Again He Foils the IRS:
For a guy who spends a lot of time advocating for higher taxes, Warren Buffett does a remarkably good job of minimizing his own corporate tax bill. This is all to the good for Mr. Buffett and his fellow Berkshire Hathaway shareholders, who no doubt can invest the money more wisely than the federal government is likely to do.
Mr. Buffett's recent decision to invest in Bank of America represents another tax-avoidance triumph for the Berkshire chief executive. U.S. corporations are subject to a top federal income tax rate of 35%, the second highest in the world. But the Journal's Erik Holm notes that Mr. Buffett and the Berkshire bunch won't pay anything close to that on their investment in BofA preferred shares.
That's because corporations can exclude from taxation 70% of the dividends they receive from an investment in another corporation. This exclusion is intended to prevent double- or even triple-taxation as money is earned by one company, paid to another company and then ultimately paid out to shareholders. The policy makes sense; we only wonder why the exclusion isn't 100%.
With the 70% exclusion for Mr. Buffett and his fellow shareholders, Berkshire will enjoy an effective tax rate of 10.5% on the $300 million in dividends it will receive each year from Bank of America.
We're tempted to suggest that Mr. Buffett should do what he might call the patriotic thing and volunteer Berkshire to pay the full 35% rate as a good corporate citizen. But even if Mr. Buffett won't say it, most Americans know that more jobs will be created if the money is deployed by the Berkshire bunch than by the Beltway boys.
An editorial in today’s Wall Street Journal says that “Berkshire Hathaway will enjoy an effective tax rate of 10.5% on the $300 million in dividends it will receive each year from Bank of America.” That statement is incorrect.
Virtually all of the stocks that Berkshire owns are held in its property-casualty subsidiaries, and that will be the case with the Bank of America preferred.
The tax treatment for dividends paid by U.S. corporations to property-casualty insurance companies was materially changed by a law passed in 1986. The changes were described in detail in the chairman’s letter included in Berkshire’s 1986 annual report.
A minor change in rate was made in 1993. Since that time dividends that insurers receive from U.S. companies incur an effective tax rate of 14.175%. For Berkshire, that rate will apply to dividends it receives from Bank of America.
- The Blaze, How Much is Buffett’s Berkshire Hathaway Back-Tax Bill Exactly? About $1 Billion
- Bloomberg, Walsh Says Buffett Call to Tax Rich ‘Disingenuous’
- Chicago Now, Warren Buffett: Tax Shirker and Hypocrite
- CNN, Buffett: WSJ Wrong About BoA Dividends
- Forbes, Warren Buffett Gets Special Tax Breaks And So Does Your Grandma
- Going Concern, Berkshire Hathaway: Wall St. Journal Is Wrong About Our Taxes on BoA Deal
- Huffington Post, Warren Buffett's Berkshire Hathaway Owes Taxes Going Back to 2002
- Huffington Post, Why Wait to be Taxed?
- New York Post editorial, Warren Buffett, Hypocrite
- NewsBusters, Warren Buffett's Company Hasn't Paid All Taxes Owed In Years, Media Mum
- The Street, Buffett Denies Tax Dodge on BofA Deal
- WSJ Dealbook, Warren Buffett’s Bank of America Deal Comes With Tax Break
Tuesday, June 21, 2011
The Supreme Court handed down its decision on whether the million and a half women who think they have been discriminated against by the corporate giant because of their gender can bring a class action suit. [Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (June 20, 2011).]
As might be expected in this age of corporatism, the corporate giant won. Women will have to pursue their own individual cases--making it much easier for the corporate giant to simply wait them out rather than settle, and making it much harder for the woment to hire the kind of top-notch attorneys (like the corporation can hire) to fight their case for them. In other words, making it much much easier for the corporate giant to get away with breaking the law in its business practices on a routine basis without having to pay for it. ...
Even in academe, men tend to get equity pay raises (big ones) because they play the "game" of pretending that they are going to take a job somewhere else. Women tend not to, because women tend to be honest about their permanence or impermanence in a place. So men get a "retention" raise and women don't. And men tend to start out higher anyway, because of the years of male dominance, and the tendency of the existing status quo to be reinforced by the male deans and male associate deans and male senior professors.
So what's the answer here? Maybe we need some radical left thinking to counter the radical right fringe element that has almost taken over the country. How about these ideas--many using tax policy to turn around the corporatist agenda? ...
- Congress could consider instituting a tax penalty on firms for gender or ethnicity or age discrimination in wages. ...
- Congress could institute an excise tax on corporations with more than $100 million in income annually, to go into a fund to pay the legal expenses of employees in those firms bringing individual suits against the firms for violating any civil or union rights.
- Congress could institute a variable corporate rate structure through a rate surcharge for corporations that relates to their record in paying their average workers an equitable salary by having the corporate tax rate increase when the compensation of top managers increases more rapidly than the compensation of the average worker, and a corporate tax rate decrease when the compensation of the average worker increases more rapidly than the compensation of the top managers.
Monday, June 20, 2011
Some of the nation’s largest corporations have amassed vast profits outside the country and are pressing Congress and the Obama administration for a tax break to bring the money home. Apple has $12 billion waiting offshore, Google has $17 billion and Microsoft, $29 billion.
Under the proposal, known as a repatriation holiday, the federal income tax owed on such profits returned to the United States would fall to 5.25% for one year, from 35%. In the short term, the measure could generate tens of billions in tax revenues as companies transfer money that would otherwise remain abroad, and it could help ease the huge budget deficit.
Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy, and they promoted the proposal as “the next stimulus” at a conference last Wednesday in Washington. “For every billion dollars that we invest, that creates 15,000 to 20,000 jobs either directly or indirectly,” Jim Rogers, the chief of Duke Energy, said at the conference. Duke has $1.3 billion in profits overseas.
But that’s not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage. Though the tax break lured them into bringing $312 billion back to the United States, 92% of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.
(Hat Tip: Ann Murphy.)
Update: Dan Shaviro (NYU), Banana Republic Watch
Sunday, June 5, 2011
- Taxing Twitter (Feb. 14, 2011)
- San Francisco to Impose 1.5% Tax on Stock Options (Feb. 19, 2011)
- 1.5% Tax on Stock Options May Drive High Tech Firms Out of San Francisco (Mar. 25, 2011)
- Twitter Tax Cut (Apr. 20, 2011)
Friday, June 3, 2011
With today's indictment of John Edwards on charges that he violated campaign-finance laws by accepting $925,000 from donors to conceal an extramarital affair with Rielle Hunter and resulting pregnancy, one element sure to be central to his defense is that his major donor treated the payments as gifts and reported them on gift tax returns. From the Los Angeles Times:
The money came from two Edwards supporters — his national campaign finance chairman, Fred Baron, who died in 2008, and banking heiress Rachel "Bunny" Mellon, who is 100. ... Mellon provided about $700,000. ... According to Mellon's attorney, she gave the money to Edwards as a personal gift and filed a gift tax return.
See also Huffington Post, DOJ is Wasting Time and Money on Edwards Case: "Edwards' lawyer says that one of the donors, the heiress Bunny Mellon, considered this money a personal gift to Edwards and filed a gift tax return." For more on today's developments, see::
- ABA Journal
- ABC News
- The Hill
- Los Angeles Times
- New York Times
- Wall Street Journal
- Wall Street Journal Law Blog
- Washington Post
Tuesday, May 24, 2011
When members of the House Budget Committee gathered over sandwiches to meet with the leaders of President Barack Obama’s debt commission in Washington, former Senator Alan Simpson delivered a warning. “If you are in thrall to Grover Norquist,” the Wyoming Republican who co-led the debt panel said he told the group in February, “this country hasn’t got a prayer.”
There may be enough congressional Republicans enthralled with Norquist, a small-government advocate who has spent the last quarter-century pressing lawmakers to sign a pledge never to raise taxes, to kill any comprehensive, bipartisan deal to rein in the $14.3 trillion national debt, say current and former members of Congress. "Until Republicans are more afraid of the deficit than they are of Grover Norquist, we’re going to have a problem,” said Representative Christopher Van Hollen of Maryland, the top Democrat on the Budget Committee.
Norquist, 54, president of Americans for Tax Reform, says he has secured written pledges from 40 of the 47 Republicans in the Senate and 233 of 240 party members in the House. More than 1,300 state-level legislators, governors and even auditors have also signed, Norquist said. That includes Wisconsin Governor Scott Walker, Texas Governor Rick Perry and Ohio Governor John Kasich, all Republicans, he said.
Those who sign gain from Norquist’s support. Those who break the promise risk his wrath.
Wednesday, May 18, 2011
- Bloomberg, Free Money Claim Roils Dispute on One-Time U.S. Offshore Tax Holiday
- Bloomberg, IRS Fails to Collect $305 Million Tax on Overseas Contractors
- Bloomberg, Labor Unions, Nonprofits Seek Curbs on Corporate Tax Breaks
- Christian Science Monitor, Many Industries Reap Tax Breaks. Is Picking on Big Oil Unfair?
- Citizens for Tax Justice, Corporate Tax Reform: Consumer Groups, Labor Unions, Faith-Based Groups at Odds with Obama on Goals
- CNN, Forget the Gas Tax -- A Driving Tax May be Next
- Forbes, Tax Defense: "I Have ADD"
- The Hill, Unions to Lawmakers: Take Away Corporate Tax Expenditures to Pay Down Deficit
- Mauled Again, Three Alarming Tax-Related Articles
- New York Daily News, The Millionaire's Tax is Dead!
- Tax Policy Blog, S. 940. The Latest Example of Tax Policy-as-Political-Weapon
- Tax Vox, Too Many Cooks on Tax Policy?
- Time, Why Doesn't Amazon Collect Sales Tax? The Constitution, That's Why
- Weekly Standard, Taxing The Rich? Obama Is All Talk
Wednesday, May 11, 2011
The most unavoidable things in life, the saying goes, are death and taxes.
But that didn’t stop tax lawyer Paul Daugerdas [right, featured in The American Lawyer December 2003 cover story, Helter Shelter]and others from trying to offer wealthy clients a way out of taxes, said assistant U.S. Attorney Nanette Davis, in her closing argument Tuesday of the 10-week tax fraud trial of Daugerdas and four others.
Daugerdas, you recall, ran a lucrative tax practice at the former Dallas firm Jenkens & Gilchrist, but the firm and Daugerdas’s career imploded after he was charged with selling fraudulent tax shelters. ...
Daugerdas’ lawyer Chris C. Gair, of Jenner, noted: “Daugerdas is a tax lawyer. It’s his job to interpret the Internal Revenue Code, to advise his clients and to do his best to help those clients pay the least amount of taxes they lawfully can.”
- ABA Journal, Aggressive Tax Lawyer or Criminal? Jury to Decide re 2 Ex-Jenkens & Gilchrist Partners
- Bloomberg, Tax-Shelter Lawyers Acted in Bad Faith, Prosecutor Argues
- Forbes, Tax Shelters on Trial – BDO and Deutsche Bank Pushed Products
Monday, May 9, 2011
Politicians don't want to tell you, so we will: Tax revenues are coming back smartly now that the economy is growing. California recently discovered $2 billion in unexpected tax revenue, even as Governor Jerry Brown promotes a referendum to raise taxes. Connecticut has raised its revenue estimates by $465 million, even as Governor Dannel Malloy signed the largest tax increase in state history last week.
The revenue revival is also helping the federal fisc, with overall receipts rising by $110 billion, or 9.1%, in the first seven months of fiscal 2011. The biggest news is the increase in individual income tax receipts, which rose to $630 billion from $501 billion, or 25.9%, from October through April.
Sunday, May 1, 2011
That's how Connecticut's Democratic Governor Dannel Malloy describes himself in contrast to New Jersey Governor Chris Christie, and we'd have to say he's right. Nutmeg State residents will pay for the appellation.
Whereas Mr. Christie has vetoed tax increases, cut spending and is trying to reform public pensions, Mr. Malloy wants to close the Connecticut budget deficit with a huge tax hike and the legislature in Hartford may approve it as early as next week. It's worth exploring Connecticut's tax gamble, not least because it is so at odds with the fiscal strategy that most Republican Governors and New York Democrat Andrew Cuomo are employing to repair their state finances.
The Yankee Institute, a free market think tank, counts some two dozen new taxes in Mr. Malloy's budget. ... He also wants to kick every Connecticut worker with earnings above $50,000 into a higher tax bracket. Those who make more than $500,000 would see their tax rate rise to 6.7% from 6.5%. Even that's not enough for Democrats in the legislature who want to raise it to 7%. ...
This is what always happens when a state introduces an income tax: A gusher of new revenue leads to higher spending, which leads the politicians to demand higher rates; rinse the taxpayers and repeat. What started in Connecticut as a 4.5% top marginal rate is now 6.5%, and yet the state is still running a $3.5 billion deficit. As the nearby table shows, state spending growth has far exceeded gains in median income since the income tax was introduced. Spending growth also roughly doubled the increase in population plus inflation (about 72%) over the period. ...
Connecticut is adopting the Illinois model of raising taxes on everyone to avoid serious spending restraint or pension reform. When these tax increases prove not to be enough, Mr. Malloy will propose another one. A state that was once the Northeast refuge from high tax New York, New Jersey, Rhode Island and Massachusetts is fast becoming another slow growth, union-dominated, job-shedding imitation.
Saturday, April 30, 2011
The founder of the Bose Corporation, a privately held company that makes high-end audio products, has donated the majority of the company to the Massachusetts Institute of Technology, the university said Friday. But Amar G. Bose ... placed some unusual restrictions on the Bose shares he donated to the university. While the shares give the university majority ownership, they are nonvoting and thus confer no control over the company and its operations. Nor can MIT sell the shares. It will receive dividends from Bose. ...
[S]ome tax experts said the gift and the lack of detail about it raised questions. “We don’t know much about the terms of this gift, but it seems like it clearly falls into a gray area that has been of concern to Congress,” said Dean Zerbe, national managing director of the tax consulting firm Alliantgroup. ... Roger Colinvaux, an associate law professor at Catholic University and previously a staff member of the Congressional Joint Committee on Taxation, also said the gift raised questions for him. “If the shares truly can’t be sold so that there is some restriction on the university’s ability to transfer stock, then it would suggest it is a contribution of partial interest only, which would not be deductible as a charitable contribution,” said Mr. Colinvaux, who recently published an article in The Florida Tax Review that argues that the laws governing charity are outdated and inadequate. But Erik Dryburgh, a nonprofit lawyer, said he did not see a problem with the gift. “On its face, I don’t see the abuse or potential abuses that were present in some of the more abusive gift transactions we saw in the past,” Mr. Dryburgh said.
Mr. Zerbe and Mr. Colinvaux, though, said the gift brought to mind various tax shelters involving charities that came under scrutiny during the time they worked in Congress. [MIT] denied that Dr. Bose’s gift was similar to those tax strategies. ... Most of the tax shelters cited by Mr. Zerbe and Mr. Colinvaux involved an elaborate strategy where privately held companies gave nonvoting shares to a charity and then, after a period of time, bought them back. The transactions attracted the attention of regulators puzzled by why donors would give nonprofit groups nonvoting shares, whose value — and thus potential for tax deduction — is limited by their nonvoting nature.
In 2003, the Senate Permanent Subcommittee on Investigations looked into such transactions and found that in some cases, they were an elaborate way of using a charity’s tax-exempt status to erase tax liabilities for the other shareholders of the company involved.
A charity involved in such a tax strategy would receive income from the company in proportion to the size of its holdings of nonvoting stock. But while that income was taxable, it was not distributed to the charity and stayed at the company to be reinvested. The charity did not owe taxes on the income, anyway, because it was tax-exempt. Later, the charity would sell the nonvoting shares back to the company at fair market value, and the company would distribute the income, tax-free, that had been associated with those shares among its other shareholders.
In other, similar cases, charities that received nonvoting stakes in privately held companies through gifts of stock used large losses they had incurred on unrelated businesses to offset taxes for other shareholders. Mr. Dryburgh wrote a paper on that type of tax shelter. In 2004, the IRS listed as “restricted” such transactions and denied deductions associated with them.
(Hat Tip: Bob Kamman.) BNA reported yesterday that the IRS is increasing audit scrutiny of unrelated business income loss deductions by colleges and universities.
Friday, April 8, 2011
Budget stalemate has many on Capitol Hill crunching numbers. With any new budget, taxes may be the real third rail of politics. Can the U.S. solve its fiscal woes without more revenue?
For generations, Republicans have resisted tax increases. As far back as the 1920s, conservative Treasury Secretary Andrew Mellon was arguing that "high rates of taxation do not necessarily mean large revenue to the government, and … more revenue may actually be obtained by lower rates."
But in recent years, the aversion to taxes has become more deeply ingrained. It is more than a policy preference, more than a tenet in a party platform. For many Republican officeholders, raising taxes is a subject they simply won't broach anymore – period. If there is a third rail of politics today, it might not be Social Security. It might be tax increases.
Raising more revenue is not a part of the negotiations going on over the current budget impasse in Washington that is bumping up against a Friday deadline. Nor are tax increases part of the 10-year budget blueprint released this week by Rep. Paul Ryan (R) of Wisconsin, which would cut nearly $6 trillion in spending over the next decade and reshape how Washington works. In fact, Mr. Ryan proposes lowering corporate and upper-income tax rates.
The antitax ethos has been shaped by both politics and principle. To tax opponents, the overall tax burden is still needlessly high – the US corporate tax rate, for example, is one of the highest in the industrialized world – suppressing the activity of businesses and individuals who would otherwise use those resources to stimulate the economy and create more jobs. They say higher taxes would just feed an already bloated government that is getting inexorably bigger by the day. As the nation once again grapples with staggering deficits and some $14 trillion in debt, the real problem, they insist, isn't a lack of revenue. It's too much government spending. ...
To critics, however, the refusal to even consider raising taxes is threatening the nation's financial future. Democrats and many independent analysts argue that the debt problem is just too big to be tackled through spending cuts alone, and that any eventual solution must involve higher revenues.
Yet budget negotiations of the sort George H.W. Bush presided over in the early '90s – in which Democrats pushed for higher taxes and Republicans pushed for spending cuts and they met somewhere in between – don't seem to exist anymore. Instead, lawmakers get locked into intractable standoffs in which they can agree on only a smattering of minor spending cuts, while putting off resolving the deeper economic problems. "We've sort of lost the capacity to raise taxes under any circumstances," says Joseph Thorndike, director of the Tax History Project at Tax Analysts, a nonprofit group in Falls Church, Va. "And as long as tax increases are off the table, then spending controls are off the table, too. There's no happy ending to this story."
Monday, April 4, 2011
(Hat Tip: Bob Kamman.)
Even the IRS acknowledged that former television news anchor Anietra Hamper kept meticulous records of the clothes and other items she bought for business use.
But detailed receipts weren’t enough. An IRS audit — and a tax judge — concluded that nearly all the business expenses that Hamper listed as deductions on her 2005-08 federal income-tax returns were invalid, and they slapped her with a bill for nearly $20,000.
“I would hate for anyone else to go through this,” said Hamper, 38, who decided to share her story as a tale of caution during tax season.
For years, Hamper had deducted the cost of the clothing she wore on air and for business functions, as well as other expenses she incurred while working as an anchor for WCMH-TV (Channel 4) and WBNS-TV (Channel 10) in Columbus.
Other TV anchors told her they did it, and professionals who prepared her taxes over the years told her it was fine. ...
Hamper thought her deductions were legitimate, so she took the case to U.S. Tax Court, where she explained the deductions to a judge last fall. The judge ruled against her in late February and ordered her to pay $16,492 in back taxes, plus a penalty of $3,298.
“The general rule is that, where business clothes are suitable for general wear, a deduction for them is not allowable,” the judge wrote. Most professionals, the decision said, “typically do not wear their business clothes for private or personal wear,” yet they cannot deduct the cost of those clothes.
The judge also ruled that most other items Hamper used as deductions were personal, not business, expenses. They included contact lenses that helped her read the teleprompter, makeup, haircuts, manicures, teeth whitening and subscriptions to magazines and newspapers.
The decision doesn’t surprise Donald B. Tobin, associate dean of the Ohio State University Moritz College of Law. Tobin teaches a class on federal income-tax law and uses the case of a saleswoman at a high-end clothing store as an example. In that case, the saleswoman argued that she had to wear clothing from the store while she worked, but that she never would have worn it otherwise, so she deducted the cost as a business expense. The IRS disallowed the deduction. “It only cares about whether you can use it, not if you actually do use it,” Tobin said. ...
She’s not ... happy about a New York Daily News story about the tax-court decision in her case. The story, which traveled around the world, listed thong underwear among the items she deducted.
Friday, April 1, 2011
(Hat Tip: Ed Kleinbard.)
General Electric went into full public-relations pushback mode after The New York Times’s damaging story Friday on how it avoids paying U.S. corporate income taxes. But in doing so, the company, unable to get its own story straight, just compounded the damage.
First, its response on its GE Reports website, where it calls the Times piece a “particularly distorted and misleading account,” is chock full of red herrings and straw men. Let’s take these one by one. ...
America's most successful multinationals make great products and offer superior services. But they have another, less enviable quality in common -- they have become world leaders in tax avoidance. General Electric's global effective tax rate for 2010 was 7.4%. Pfizer's was 11.9%; Cisco came in at 17.5%. The nominal U.S. corporate tax rate is 35%.
Each company has its own tax story, but all -- like other multinationals -- have for years relied heavily on low-taxed foreign income to drive down their worldwide tax obligations, including those of their U.S. businesses.
American multinationals claim they are taxed on their worldwide income, but in reality the "active" income they earn through foreign subsidiaries is not taxed in this country until the cash is repatriated. In addition, financial accounting practices (the lens through which we view these firms because their tax returns are not public) permit a company not to book any U.S. tax liability on foreign earnings if the firm states that the income is "indefinitely invested" abroad.
General Electric has $94 billion in indefinitely reinvested earnings. The total for corporate America is more than $1 trillion.
If the story was simply that U.S. firms have successfully expanded into international markets and are paying taxes abroad at lower rates, one could argue that there is no U.S. tax mischief afoot. But these are not the facts.
Tax collectors in the U.S. and in high-tax foreign countries are the direct victims of the tax avoidance, but we all suffer from the resulting budget deficits and distorted investment decisions that firms make as a result of their ability to generate what I call "stateless income" -- income derived from selling goods and services in a high-tax country but that, through internal tax legerdemain, surfaces in a low-taxed affiliate. ...
It's true that the U.S. corporate tax rate, at 35%, is too high relative to its economic peers, about 28% on average. (Click here for data on the 31 member states of the OECD; the 28% figure is an unweighted average of the larger OECD members. Click here for the "BRICs" and other non-OECD countries.) But the solution is not to reward U.S. multinationals for concocting and implementing worldwide tax-minimization schemes.
The only feasible solution is to lower the U.S. rate to a level comparable with global norms and to pay for the reduction in part by introducing worldwide tax consolidation for U.S. firms, just as they today consolidate their worldwide operations for financial accounting purposes.
Thursday, March 31, 2011
General Electric Co. (GE)’s tax rate will rise this year and beyond after $32 billion of losses absorbed by the company’s financial-services business pushed down rates in 2008 and 2009, Chief Executive Officer Jeffrey Immelt said. “We got socked with losses during that time,” Immelt said yesterday in a speech at Rice University in Houston. “Our tax rate is going to be much higher in 2011 and the future.”
The New York Times reported March 24 that GE had a tax bill of zero in 2010, an assertion that the Fairfield, Connecticut- based company said on its website is misleading, in part because of its characterization of tax rebates, benefits and so-called tax loss-carryforwards. The complexity of the U.S. tax system needs to change, Immelt said.
“Rarely does business speak with one voice, but they do on taxes,” Immelt said. “Our system is old, it’s outdated, it’s complicated -- and all of us are for closing the loopholes. Absolutely, a lower corporate tax rate, and a territorial system, just like our global competitors have.”
- GE, GE’s Response to the New York Times
- GE, GE and Taxes
- GE, More on GE and Taxes
- New York Times, GE's Response on Taxes
- Wall Street Journal editorial, GE-Whizzes: Everyone's Looking for an Edge on Taxes Bailed
- Accounting Today, GE: Bringing Creative Tax Strategies to Light
- Forbes, GE Auditor KPMG: Supporting Their Tax Strategy For 102 Years
- Tax Research UK, GE Capital - $5.1b of US Profits - and Not a Penny of US Tax to Pay
- Washington Post, On NBC, the Missing Story About Parent Company General Electric
Wednesday, March 30, 2011
Tuesday, March 29, 2011
Can a wild wig and a bushy mustache be packaged and called an Albert Einstein costume? According to Hebrew University of Jerusalem and its American marketing agent, the answer is no — at least not without permission. The university says that when it inherited Einstein’s estate, the bequest included ownership of Einstein’s very identity, giving it exclusive legal control over who could use Einstein’s name and image, and at what cost.
Einstein is not the only example. While we might think of people like the Rev. Dr. Martin Luther King Jr., George Patton, Rosa Parks, Frank Lloyd Wright and Babe Ruth as part of our cultural heritage, available for all to use, the identities of each of them, and thousands more, are claimed as private property, usable only with permission and for a fee.
This phenomenon is fairly recent — and it’s getting out of control. ... Today the right of publicity clearly allows people to control the commercial use of their names and images during their lives. What happens after death is much murkier.
Throughout much of the world, the right of publicity ends at death, after which a person’s identity becomes generally available for public use. In the United States, however, this issue is governed by state laws, which have taken a remarkably varied approach. ...
The economic value of a dead celebrity’s image imposes another cost as well. Namely, rights of publicity, like all other property interests, are subject to estate taxes at their highest market value. This means that even if heirs choose not to market a person’s identity (perhaps to protect their loved one’s dignity), they nonetheless must pay taxes on the right. In some cases, that could compel heirs to market their loved ones’ identity in order to pay the taxes associated with it. Paradoxically, the values would likely be highest for those individuals who most coveted their privacy while alive (think J. D. Salinger). ...
Congress should step in and enact a federal right of publicity. In doing so, it should establish clear First Amendment protections and set forth a relatively short term for the right of publicity to survive death (perhaps 10 years). Most important, the law should provide a mechanism that allows people to opt out of marketing their identities after death. After all, sometimes the dead should be allowed to simply rest in peace.
Saturday, March 26, 2011
Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.
New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets. [click on chart to enlarge]...
As they've grown, the incomes of the wealthy have become more unstable. Between 2007 and 2008, the incomes of the top-earning 1% fell 16%, compared to a decline of 4% for U.S. earners as a whole, according to the IRS. Because today's highest salaries are usually linked to financial markets—through stock-based pay or investments—they are more prone to sudden shocks. The income swings have created more extreme booms and busts for state governments. ...
Tax experts say the problems at the state level could spread to Washington, as the highest earners gain a larger share of both national income and the tax burden. The top 1% paid 38% of federal income taxes in 2008, up from 25% in 1991, and they earned 20% of all national income in 2008, up from 13% in 1991, according to the Tax Foundation. "These revenues have a narcotic effect on legislatures," said Greg Torres, president of MassINC, a nonpartisan think tank. "They become numb to the trend and think the revenue picture is improving, but they don't realize the money is ephemeral."
Kicking the addiction has proven difficult, since it's so fraught with partisan politics. Republicans advocate lowering taxes on the wealthy to broaden state tax bases and reduce volatility. Democrats oppose the move, saying a less progressive tax system would only add to growing income inequality. [click on chart to enlarge]
Wall Street Journal, The Battle Over the Millionaire's Tax, By Robert Frank & Laura Saunders:
In the partisan fight over taxing the rich, state "millionaire's taxes" have emerged as the latest and most hotly contested battleground.
In New York, New Jersey, Maryland, Oregon and California, state governors are at war with legislatures over taxing their state's highest earners to plug revenue gaps. Advocates of the taxes say that with the wealthy riding the recovery of stock markets and global growth, and with less fortunate Americans facing unemployment and a housing slump, the top earners can best afford to foot the government's bills. Opponents say the taxes amount to a redistribution of wealth and encourage runaway government spending.
Polls show that many voters support taxing the top 1% or 2% of earners in each state. ... Yet so far, the calls for hiking taxes on top earners have fallen flat at governor's offices and state legislatures. ...
Though attractive to voters and many Democratic politicians, millionaire's taxes carry risks. Because the incomes of top earners are the most volatile, such taxes are among the most unstable sources of state revenue. ... Some also argue that special taxes on the wealthy can drive the highest-earners to lower tax states.
Friday, March 25, 2011
A rare provision in San Francisco’s business tax code that taxes companies when employees cash in their stock options has caused a stir in this hotbed of fledgling tech companies.
Remarkably, few companies even knew about the tax, which has been in effect for seven years. But since city officials offered Twitter a payroll-tax break as an incentive for it to remain in San Francisco (the company is considered likely to go public soon), the stock-option provision has suddenly come under intense scrutiny.
A number of other booming companies, including Zynga, the maker of online games and one of the city’s fastest-growing firms, have threatened to leave the city unless they receive similar payroll-tax exemptions before going public. ...
Because of the dearth of I.P.O.’s inside the city limits in the last decade, the stock-option tax has gone under radar until now. Businesses, city officials and even seasoned tax lawyers are confounded. “Nobody ever talked about this because nobody’s really tested these issues before,” said Thomas H. Steele, a partner in Morrison & Foerster’s San Francisco office, specializing in state and local tax.
- The Bay Citizen, Following Twitter, Zynga Now Threatening to Leave San Francisco; City Officials Stunned by Demand for Waiver on Tax of Employee Stock Options
- Forbes, Zynga Threatens to Leave S.F. for the Valley Over Tax Issue
- MarketWatch, Zynga ‘Encouraged’ by San Francisco Talks; Company Eyes Other Locations as Twitter Poised to Get Tax Break
- San Francisco Chronicle, Twitter Tax Break Moves Forward
- TaxProf Blog, Taxing Twitter (Feb. 14, 2011)
- TaxProf Blog, San Francisco to Impose 1.5% Tax on Stock Options (Feb. 19, 2011)
Tuesday, March 22, 2011
Google received questions from the SEC in December about earnings in other countries that may have reduced the company’s tax bill, according to regulatory filings released today. SEC officials asked Google for “disclosures to explain in greater detail the impact on your effective income tax rates and obligations of having proportionally higher earnings in countries where you have lower statutory tax rates,” according to a Dec. 2 letter.
Friday, March 18, 2011
- Atlantic, GOP Bill Would Force IRS to Conduct Abortion Audits, by Garance Franke-Ruta
- Bloomberg, Appliance Tax Credit for Whirlpool, GE Gets Higher Price Tag, by Richard Rubin
- Bloomberg, Camp’s Push for Lower Rates Forces Deduction Choice, by Richard Rubin
- Bloomberg, Technology Companies Lobby for Lower Corporate Taxe Rates, by Alison Fitzgerald
- Broadway World, Love, Sex and the IRS Opens
- Business Week, Apple, Google May Profit on a Tax Holiday, by Peter Coy & Jesse Drucker
- CBS MoneyWatch, Avoid These Tax Return Errors That Trigger an IRS Audit, by Ray Martin
- Citizens for Tax Justice, Tax Justice Digest
- CNN, Why Taxes Can be Patriotic, by Nicolaus Mills
- Forbes, IRS Wins Big In Six Year Audit Push, by Robert W. Wood
- Forbes, What's Your IRS Audit Risk?, by Robert W. Wood
- MarketWatch, Estate Tax Tips for Singles
- Mother Jones, The Limits of Tax Jihadism, by Kevin Drum
- New York Times, A Few Tax Tips for the Elderly, by Patrick Egan
- New York Times Editorial, Amazon v. the States
- tax.com, Presidents Paying Taxes, Abraham Lincoln Edition, by Joseph J. Thorndike
- tax.com, Tax Minutia Gone Crazy, Chapter 1099, by David Cay Johnston
- Wall Street Journal, A Matter of Trust: Giving Away a Home, by Anne Tergesen
- Wall Street Journal, E-File of Else: What's New for Tax Season?, by Laura Saunders
- Washington Post, Social Spending v. Corporate Tax Cuts, by Ezra Klein
On today's Fresh Air, Bloomberg News reporter Jesse Drucker, who has written extensively about corporate tax-dodging, explains how companies like Google, Pfizer, Lilly, Oracle, Facebook and Microsoft have managed to reduce their tax rates by hundreds of millions — and in some cases, billions — of dollars by taking advantage of offshore tax havens.
- Fox News, Pastor Accused of Denying Communion to Churchgoers Who Didn't Give Tax Refunds
- Jonathan Turley, Pay and Pray: Pastor Accused of Withholding Communion After Parishioners Refuse To Hand Over Their Tax Refunds
Thursday, March 17, 2011
- House Ways & Means Committee, Subcommittee on Select Revenue Measures, Hearing Announcement
- House Ways & Means Committee, Subcommittee on Select Revenue Measures, Testimony of Thomas A. Barthold Chief of Staff, Joint Committee on Taxation
- Accounting Today, Congress Deliberates on Taxes and Abortions
- Bloomberg, Abortion Foes Collide With Tax Obstacle in Attempt to Cap Federal Funding
The aim of this proposal is to significantly reduce the administrative burden, compliance costs and legal uncertainties that businesses in the EU currently face in having to comply with up to 27 different national systems for determining their taxable profits. The proposed Common Consolidated Corporate Tax Base (CCCTB), would mean that companies would benefit from a "one-stop-shop" system for filing their tax returns and would be able to consolidate all the profits and losses they incur across the EU. Member States would maintain their full sovereign right to set their own corporate tax rate. The Commission estimates that, every year, the CCCTB will save businesses across the EU €700 million in reduced compliance costs, and €1.3 billion through consolidation. In addition, businesses looking to expand cross-border will benefit from up to €1 billion in savings. The CCCTB will also make the EU a much more attractive market for foreign investors.
(Hat Tip: Omri Marian.)
Tuesday, March 15, 2011
9,700 other Ohio taxpayers also received letters promising inflated tax refunds The Department of Taxation blames a "software error."
My colleague Kevin D. Williamson has a piece today about how hard it would be to close the $1.1 trillion budget gap by taxing “the rich.” I spent some time this weekend going through more detailed IRS data, and they support his conclusion.
Liberals believe, more or less, that once someone’s income reaches the “rich” threshold, they have little right to keep any additional dollars they make. Starting with that assumption, I set out to find how much “extra” money people really have. You can see my results here.
The best numbers I could find came from IRS returns in 2008. ... [T]he cutoff the IRS uses is $200,000. ... The first question is: How much do these folks make in total? The answer is about $2.5 trillion. If we wanted, we could stop here: You’d need to grab almost half that to finance the deficits Obama’s talking about.
Monday, March 14, 2011
According to the petitioner, the respondent "was convicted of conspiring with others to create and implement illegal tax shelters for clients of Ernst & Young as well as for his own personal tax benefit. This scheme included making false statements and providing false documents to the IRS as well as understating his personal income." Further, the respondent "was convicted of filing a fraudulent U.S. Individual Income Tax Return, Form 1040, which substantially understated his taxable income." The respondent does not object to this description of the offense, but points out that he "was not convicted of filing a false tax return which substantially understated his taxable income. Rather, the tax evasion counts of [the] conviction[s] related to the tax returns of clients of . . . Ernst & Young." Further, the respondent consents to his name being stricken from the roll of attorneys.
See Legal Profession Blog, Disbarred For Tax Shelter Advice.
Sunday, March 13, 2011
Shaw said the IRS audited the alliance's tax returns for 2008 and 2009 and disallowed all of its business deductions. She said that although dispensaries throughout the state are being audited by the IRS, the alliance is the first to be told it can't deduct business expenses. "Every dispensary in the nation, past, present and future is dead if this is upheld," Shaw said. ...
Shaw said the IRS disallowed her deductions — for buying marijuana, hiring employees, securing office space and more — based on § 280E of the federal tax code, which states that no deduction shall be allowed for any business trafficking in controlled substances.
Under federal law, marijuana is classified as a schedule I controlled substance, a category of drugs not considered legitimate for medical use — despite voters' 1996 approval of Proposition 215, which legalized the use of marijuana for medical purposes in California.
(Hat Tip: Bob Kamman.) The title is courtesy of Country Joe and the Fish:
Don't bogart that joint, my friend
Pass it over to me.
Don't bogart that joint, my friend
Pass it over to me.
Monday, March 7, 2011
A range of economists have come to Capitol Hill to sing the praises of a value-added tax (VAT), but their song is falling on deaf ears.
While some elected officials have pledged to keep an open mind about the VAT, many lawmakers from both parties remain far from convinced, with concerns ranging from how regressive VATs can be to the prevalence of consumption taxes elsewhere in the world. ...
At a string of congressional hearings and think-tank events over the last month or so, economists with experience at the highest levels of government — including in Republican White Houses — have showered kind words on the VAT. The tax’s efficiency, they have said, comes because it does not particularly penalize savings and makes what is subject to taxation less of an opinion, among other reasons. ...
Economists who favor introducing the VAT as part of a reform of the tax code realize it would have an uphill climb in Congress, though they continue to stress that consumption taxes are a much more resourceful way to collect revenue than taxing areas like income.
(Hat Tip: Bryan Weng.)
You've probably never heard of these write-offs, but they could save you a lot of money and make your April easier. Why send the IRS any more than you need to?
Sunday, March 6, 2011
It's official: A type of trust used by the wealthy to shelter assets from estate taxes for hundreds of years, or even forever, is under fire.
The proposal, which first appeared a few weeks ago on a hit list of estate provisions in President Obama's 2012 budget, would limit tax-free "dynasty trusts" to 90 years.
The chances of passage are practically zero this year, say experts. But taxpayers should know that the idea is in play—and act accordingly. As proposed, the change would apply to new trusts or additions of money to existing ones, but not to those already funded.
Bottom line: If you are considering setting up a dynasty trust, move swiftly. ...
Dynasty trusts have gathered steam since the 1986 tax overhaul installed the current version of the "generation-skipping tax." This levy imposes taxes that would be avoided if taxpayers left assets to heirs who are more than one generation below. ... Dynasty trusts push [the] generation-skipping tax exemption to the max, putting the exempted amount beyond the reach of estate taxes for the life of the trust. That, in turn, means the heirs don't have to "spend" their own exemptions on those assets. These trusts are now allowed in 23 states and the District of Columbia (see table), to the delight of companies that charge fees to manage them. Taxpayers don't have to live in a state to put a trust there.
To enable these trusts, most of the states allowing them had to get rid of an old common-law principle called the "rule against perpetuities," which allowed trusts to exist only for about 90 years. The Obama administration proposal would reinstate this old principle in a way by removing the federal tax exemption after 90 years. So the trust can go on indefinitely, but the exemption can't....
Opponents of dynasty trusts often object to them on policy grounds. Prof. Ray Madoff of Boston College Law School fears they will help create a new aristocracy with access to tax-free, creditor-proof wealth. She also worries they benefit bankers as much as families: "Bankers are using these trusts as a decoy to line their own pockets."
States That Allow Dynasty Trusts: Alaska, Delaware, District of Columbia, Idaho, Illinois, Kentucky, Maine, Maryland, Michigan, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Wisconsin, Wyoming
Friday, March 4, 2011
Whirlpool Corporation recorded $18 billion in global sales and $619 million of earnings in 2010 but won't pay anywhere near the U.S. statutory tax rate of 35% on those profits. Its effective tax rate will be 0%.
As Bloomberg first reported last week, Whirlpool has stockpiled more than $500 million in tax credits for making energy-saving "energy star" appliances—washers, dryers, refrigerators and so on. The firm gets a production tax credit of up to $200 per refrigerator, $75 per dishwasher, and $225 per washer and dryer. General Electric has also collected about $200 million of these credits.
Think of these energy efficiency tax carve-outs as a version of the earned income tax credit for corporate America. Except Whirlpool and GE aren't poor.
The deal gets sweeter. Those credits can be carried over from one year to the next for up to 20 years. Whirlpool is collecting so many credits that it may not have to pay a dime of corporate income tax for years. The lost revenue from GE and Whirlpool alone far exceeds the $78 million revenue "cost" over 10 years that Congress's Joint Committee on Taxation predicted for the credits. ...
Special favors like these also create a business constituency against tax reform that would benefit the overall economy. Whirlpool carries its $500 million of unused tax credits as an asset on its balance sheet, so cutting tax rates shrinks the book value of that asset. "This is why so many companies actually oppose lowering tax rates," says Scott Hodge, president of the Tax Foundation.
The White House claims to want to reduce corporate tax rates in a "revenue neutral way" by closing loopholes. Yet it's hard to take that commitment seriously when its new budget proposes to extend the green-credit windfall for another year. Whirlpool is one more case study in the case for corporate tax reform.
- Tax Policy Blog, Cash for Washers and Dryers Undermines Corporate Tax Reform
Thursday, March 3, 2011
If the claims by the IRS are true, Ambac has managed to pull off something that Lehman Brothers could not: force the government to provide a bailout. Ambac got its bailout by receiving more than $700 million in tax refunds that the IRS now argues were unwarranted.Ambac slide
- Bloomberg, Bankrupt Ambac Fights U.S. Tax Collectors in Three Courts
- Wall Street Journal, IRS Seeks Federal Court Ruling Over Ambac Back Taxes
Wednesday, March 2, 2011
Imagine a parallel universe where the Great Crash of 2008 was followed by a Tea Party of a very different kind. Enraged citizens gather in every city, week after week—to demand the government finally regulate the behavior of corporations and the superrich, and force them to start paying taxes. ... As people see their fellow citizens acting in self-defense, these tax-the-rich protests spread to even the most conservative parts of the country. ...
Instead of the fake populism of the Tea Party, there is a movement based on real populism. It shows that there is an alternative to making the poor and the middle class pay for a crisis caused by the rich. It shifts the national conversation. Instead of letting the government cut our services and increase our taxes, the people demand that it cut the endless and lavish aid for the rich and make them pay the massive sums they dodge in taxes.
This may sound like a fantasy—but it has all happened. The name of this parallel universe is Britain. ...
American citizens should ask themselves: I work hard and pay my taxes, so why don’t the richest people and the corporations? Why should I pick up the entire tab for keeping the nation running? Why should the people who can afford the most pay the least? If you’re happy with that situation, you can stay at home and leave the protesting to the Tea Party. For the rest, there’s an alternative. For too long, progressive Americans have been lulled into inactivity by Obama’s soaring promises, which come to little. As writer Rebecca Solnit says, “Hope is not a lottery ticket you can sit on the sofa and clutch, feeling lucky…. Hope is an ax you break down doors with in an emergency.” UK Uncut has just shown Americans how to express real hope—and build a left-wing Tea Party.
Enjoying record profits and taxpayer-funded bailouts as the economy slowly recovers from a financial crisis, nearly two-thirds of US corporations don't pay any income taxes, instead opting to abuse tax loopholes and offshore tax havens. According to this study from the non-partisan Government Accountability Office, 83 of the top 100 publicly traded corporations that operate in the US exploit corporate tax havens. Since 2009, America’s most profitable companies such as ExxonMobil, General Electric, Bank of America and Citigroup all paid a grand total of $0 in federal income taxes to Uncle Sam. Tax havens alone account for up to $1 trillion in tax revenue lost every decade, money that could be invested in K-12 education, colleges, public health, job creation and hundreds of other worthy public programs.
If we pay our taxes, why don’t they? If corporations profit here, shouldn't they pay here?
It’s time for ordinary Americans to fight back and demand an end to the corporate tax avoidance. Join US Uncut and together let's make corporate tax avoiders pay.
(Hat Tip: Jeremy Bearer-Friend.)
Friday, February 25, 2011
The Obama administration is seeking to widen the scope of its proposal to overhaul the corporate tax code, urging Congress to also change rules that allow some businesses to take advantage of tax laws governing individuals.
U.S. Treasury Secretary Timothy Geithner told the Senate Finance Committee Feb. 15 that Congress should “revisit” long- standing rules that give businesses a choice of paying taxes as a corporation or through a structure such as a partnership through which they can report business income on individual tax returns.
The recommendation, which Geithner repeated in a meeting with reporters this week at Bloomberg News in Washington, would affect income earned by the nation’s largest law firms, investment partnerships and so-called S corporations. It would more than double, to about $3 trillion, the amount of business income potentially affected by tax-law changes.
On Schedules A of her Federal income tax returns for the years at issue, petitioner claimed deductions for unreimbursed employee business expenses of $20,713, $18,604, $22,602, and $21,759, for 2005, 2006, 2007, and 2008, respectively. ....
During the years at issue petitioner was employed as a morning and noon television news anchor. As a television news anchor petitioner is required to maintain a specified professional appearance as described in the Women's Wardrobe Guidelines (guidelines). The guidelines provide that the "ideal in selecting an outfit for on-air use should be the selection of 'standard business wear', typical of that which one might wear on any business day in a normal office setting anywhere in the USA." ... The general guideline is that petitioner maintain a professional and conservative appearance. ...
Although a business wardrobe is a necessary condition of employment, the cost of the wardrobe has generally been considered a nondeductible personal expense pursuant to § 262. The general rule is that where business clothes are suitable for general wear, a deduction for them is not allowable. Such costs are not deductible even when it has been shown that the particular clothes would not have been purchased but for the employment. .
There are recognized exceptions to the general rule where, for example, the clothing was useful only in the business environment in which the taxpayer worked. The rules for determining whether the cost of clothing is deductible as an ordinary and necessary business expense are: (1) The clothing is required or essential in the taxpayer's employment; (2) the clothing is not suitable for general or personal wear; and (3) the clothing is not so worn.
During the years at issue petitioner purchased clothing for her position as a news anchor. She wears her business clothing only at work and maintains her business clothing separately from her personal clothing. She explained that the requirement to wear conservative clothing makes her business clothing unsuitable for everyday wear.
Petitioner purchased most of her business clothing and accessories from typical clothing stores such as Nordstrom's, Kohl's, Victoria's Secret, Macy's, Old Navy, JCPenney, Sportmart, Casual Corner, DSW, Ann Taylor Loft, Dick's Sporting Goods, Marshall's, Charlotte Russe, and other local clothing stores.
Petitioner's clothing purchases for work consisted of such items as traditional business suits, lounge wear, a robe, sportswear, active wear, lingerie, cotton bikini and cotton thong underwear, and evening wear. She also deducted expenses for an Ohio State jersey, jewelry, bedding, running and walking shoes, and dry cleaning costs.
Petitioner used a self-described criterion for determining whether a clothing expense was deductible. She would ask herself "would I be buying this if I didn't have to wear this" to work, "and if the answer is no, then I know that I am buying it specifically" for work, and therefore, it is a deductible business expense.
Hynes v. Commissioner [74 T.C. 1266 (1980)], involved a taxpayer in circumstances very similar to petitioner's. The taxpayer in Hynes worked as a television news anchor and deducted business expenses for wardrobe, laundry and dry cleaning, haircuts and makeup, hotels and meals, and car expenses and depreciation. The taxpayer purchased a particular wardrobe that was restricted in terms of color and pattern that he was able to wear on the air. The Court reasoned that the restriction on the taxpayer's selection of business attire, however, was not significantly different from that applicable to other business professionals who must also limit their selection of clothing to conservative styles and fashions. The Court further reasoned that the fact that the taxpayer chose not to wear the business clothing while away from the station did not signal that the clothing was not suitable for private and personal wear. ...
Similarly, petitioner does not satisfy the requirement that her clothing not be suitable for everyday personal wear. Although she is required to purchase conservative business attire, it is not of a fashion that is outrageous or otherwise unsuitable for everyday personal wear. Given the nature of her expenditures, it is evident that petitioner's clothing is in fact suitable for everyday wear, even if it is not so worn. Consequently, the Court upholds respondent's determination that petitioner is not entitled to deduct expenses related to clothing, shoes, and accessory costs, as these are inherently personal expenses. Additionally, because the costs associated with the purchase of clothing are a nondeductible personal expense, costs for the maintenance of the clothing such as dry cleaning costs are also nondeductible personal expenses.
[The court also denied her claimed deductions for business gifts, cable television, car expenses, cell phone, contact lenses, cosmetics, gym memberships, haircuts, Internet access, makeup, manicures, meals, self-defense classes, satellite radio, subscriptions to newspapers and magazines (Cosmopolitan, Glamour, Newsweek, and Nickelodeon), and teeth whitening.]
- Daily Mail, TV News Anchor Lands in Tax Court After Trying to Claim Her Cotton Thongs and Gym Classes as 'Business Expenses'
- New York Daily News, Sad Thong Song: Ex TV Anchor Anietra Hamper Loses Tax Case After She Tried to Expense Thongs, More
- Tax Update Blog, Hey, It's Not Cheap to Look Good on HDTV
The U.S. Treasury is giving up $14 billion in tax revenue because of a sweetheart deal it's giving General Motors.
The automaker is expected to post its first profitable year since 2004 when it reports fourth-quarter results on Thursday. But GM won't have to worry about being hit with a big tax bill because billions in previous losses will provide shelter for years to come.
That break will reduce GM's U.S. tax bill by an estimated $14 billion in the coming years, and its global taxes by close to $19 billion, according to a company filing. ...
While it's unclear why GM was allowed to carry over its losses, some experts insist that GM got preferential treatment.
"A lot of things were done differently here," said Heidi Sorvino, head of the bankruptcy practice at Lewis Brisbois Bisgaard & Smith. She said that the tax break was just another example of how GM's bankruptcy process was unlike any previous bankruptcies.
Officials with the Treasury Department and GM insist that the tax break was not special treatment, and that any company going through bankruptcy could have gotten the same breaks.
Treasury spokesman Mark Paustenbach said GM's ability to hang onto the tax breaks it had before bankruptcy "depends on the application of long-standing tax rules to GM's particular facts. The Treasury Department did not publish any guidance during the economic downturn that changed these rules either in general or for corporations that received government assistance."
- GM's Special $45 Billion NOL Provides Lucrative Tax Shelter (Nov. 3, 2010)
- GM's Tax Shelter Not Available to Other Car Makers (or Other Taxpayers) (Aug. 1, 2009)
(Hat Tip: David Herzig.)
Monday, February 21, 2011
When you handed over your coupon, did the merchant collect tax from you? Did he calculate the tax based on the full face value of your purchase, or the discounted amount you paid for it? Did he force you to ante up any tax in cash, or did he allow you to apply your coupon towards the full bill, including tax?
These aren’t academic questions–the answers could affect the attractiveness of Internet-based social coupon programs to consumers, merchants, and state tax collectors. Ultimately, the question of how social coupons should be taxed is likely to end up in court. ...
In case you’ve missed this latest craze, in a typical deal you might pay $50 with your credit card to Living Social or Groupon over the Internet, and get via email a link to a coupon worth $100 at a local shop. (The social part comes in because in some cases the deal only goes through if a certain number of folks buy it. Plus, there are often incentives for referring your friends.) Neither coupon site collects taxes when you make your purchase and they warn their vouchers can’t be used for sales taxes or tips—unless the merchant allows otherwise. Groupon states in its Merchant Self-Service Agreement that the merchant “shall be responsible for paying all sales and use taxes related to the goods and services described in the offer.”
But just what are those? Spokesmen for tax administrators in three of the nation’s five most populous states—California, Florida and Illinois– told Forbes they expect merchants to collect sales tax on the face value of what you buy. In other words, they want their cut on $100 even though you only paid $50 and the local merchant collected maybe $25. By contrast, if a store printed up its own half-off coupon and allowed you to buy an $100 item for $50, the tax men would only tax the $50 you forked over. ...
There’s a nice irony here: If the states can legally charge sales tax on the full face value of the Groupon, this could be a rare case in which they get a windfall (as opposed to losing gobs of tax revenue) from e-commerce. They lose out from Internet shopping because web powerhouse Amazon.com, among others, doesn’t’ collect sales taxes from the residents of most states.
Earlier this month, Microsoft borrowed $2.25 billion in unsecured debt. What in the world possesses a company with $40 billion in cash and short-term securities to go out and borrow money?
Rock-bottom interest rates are one reason. But the bizarre, byzantine U.S. tax code seems to be another. ... [L]ike many purportedly cash-rich companies, Microsoft can't bring home much of its cash without writing a fat check to the IRS.
Politicians have been carping about the more than $2 trillion in cash sitting idle in corporate coffers even as unemployment remains high. But much of that cash isn't in the U.S.; it is abroad. And it isn't likely to come back home unless U.S. tax laws change.
David Zion, a tax and accounting analyst at Credit Suisse, estimates that the companies in the Standard & Poor's 500-stock index have "north of $1 trillion" in undistributed foreign earnings, or profits that have been parked overseas to avoid U.S. tax. ...
U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries. They get a credit for any taxes paid to foreign governments—but, since the corporate-tax rate in the U.S. is one of the world's highest, most companies are in no rush to bring the money back onshore. By keeping those earnings abroad, U.S. companies can indefinitely defer their day of reckoning with the IRS.
That can put firms in the peculiar position of having tons of cash offshore that they might need but can't use at home without taking a tax hit.
The U.S. is the only major country that taxes foreign earnings of its own companies this way.
[I]n this case, it isn't just management that is making companies sit on too much cash. It is tax policy, too. Congress and the White House are discussing whether the U.S. should follow the rest of the world and stop taxing repatriated offshore earnings from companies that already have paid taxes to foreign governments. Some gnarly technical details will have to be worked out if the repatriation tax is to be reduced or eliminated.