Thursday, July 12, 2018
Bloomberg, Tax Loophole From 1960s Could Let Wealthy Tap 21% Corporate Rate:
An obscure tax provision [§ 962] from the 1960s that was left untouched by President Donald Trump’s overhaul could let wealthy individual investors seize for themselves the largest corporate tax cut in U.S. history.
The measure — signed into law by President John F. Kennedy — was designed to prevent Americans from indefinitely shielding themselves from taxes by keeping investments offshore. It forced them to pay taxes annually on these investments, but gave them the option to have that income taxed at the corporate rate instead of at individual rates.
But that all changed in December, when Trump’s tax law slashed the corporate rate to 21 percent — 16 percentage points lower than the top federal individual income tax rate.
“It’s almost never been used until now,” said David S. Miller, a tax attorney with Proskauer Rose LLP in New York. “As far as I can tell, we just forgot about it.”
Since Trump signed the tax legislation, accountants, attorneys and the Internal Revenue Service have spent months attempting to discern its implications. One reason for the struggle is that rather than replace old tax laws with a new regime, Republicans grafted the new law onto decades of old regulations, leading to unintended consequences. Tax professionals say they think the offshore loophole could help wealthy Americans who have investments that yield interest, rent or royalties defer millions of dollars in taxes.