Paul L. Caron
Dean




Tuesday, August 15, 2017

Bloomberg: Trump's Ownership Structure Likely Saved 'Tens Of Millions' In Obamacare Taxes

Bloomberg BusinessweekBloomberg Businessweek:  Trump’s Web of Companies May Have a Way to Avoid the Obamacare Tax, by Lynnley Browning & John McCormick:

Behind the stainless steel and glass of Chicago’s Trump International Hotel & Tower lies a skeleton of 180,000 cubic yards of high-performance concrete. Below that, 57 rock caissons, some as thick as 10 feet and as long as 80 feet, anchor the skyscraper to the ground and bedrock. The building’s ownership structure is complex, too.

A limited liability company owns the building, and then another company owns that owner — followed by three more that own the owner’s owner, according to the latest federal financial disclosure from President Trump. Other companies appear to handle specific tasks, managing the building’s commercial, residential, and hotel businesses. And then there are companies that own those companies. The trail ends at the Donald J. Trump Revocable Trust, which collects income from the president’s worldwide businesses for his benefit. A flowchart of the structure “would go from the ceiling of a ballroom to the floor,” says Ronald Wiener, a tax lawyer specializing in partnerships.

Trump

The arrangement is not unusual among people who own their own large businesses, and it may have helped Trump avoid a specific federal tax on tens of millions of dollars in income from the Chicago property. Similar structures may provide the same benefit across Trump’s global holdings, all perfectly legally. This might be the best part, from the president’s perspective: The tax in question was created by the 2010 Affordable Care Act — or, as Trump has called it, the “Obamacare nightmare.”

It’s “smart planning,” says Michael Kosnitzky, a tax partner at Pillsbury Winthrop Shaw Pittman who reviewed some of the ownership structures Trump has disclosed. While evidence is far from complete, available documents suggest Trump may have legally avoided $1.2 million in taxes on the Chicago hotel alone over just two years. Similar savings from many other properties could amount to tens of millions of dollars.

All the companies in these structures are pass-through entities, meaning they don’t pay income taxes themselves but pass earnings to their owners, who’re then responsible for the taxes — unless those owners are themselves pass-through entities.

Somewhere along this chain, Trump employs a particular kind of pass-through structure — an S corporation — in a way that almost certainly gives him a multimillion-dollar tax benefit, Kosnitzky says. Other tax experts, including Wiener, agree that Trump has probably avoided paying many millions of dollars in “net investment income tax,” a 3.8 percent levy that applies to the highest earners. ...

Now that he’s president, Trump says he no longer has an active management role in the 500 or so companies listed on his disclosure; he retained his ownership stake via his trust but stepped down from all leadership roles. In other words, he’s become a passive investor — perhaps making him liable for the investment tax, according to Martin McMahon Jr., a retired tax law professor from the University of Florida. (Or maybe not: IRS rules allow investors to use prior years’ experience to bolster claims for “active” status even in years when they’re inactive.)

The question will be moot if the investment tax is repealed. Congress has failed to deliver on Trump’s larger goal for Obamacare. But even without a full repeal, a one-page outline of the administration’s tax policy goals this year targeted one particular piece of the law: “Repeal the 3.8% Obamacare tax that hits small businesses and investment income,” it said.

https://taxprof.typepad.com/taxprof_blog/2017/08/bloomberg-trumps-ownership-structure-likely-saved-tens-of-millions-in-obamacare-taxes.html

Tax | Permalink

Comments

That was an odd article. The NIIT is based on the nature of the activity, not the corporate identity of the recipient. He could have all those activities in one partnership, and he still wouldn't pay NIIT.

Posted by: jpe | Aug 17, 2017 8:39:03 AM