June 8, 2021
The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax - Jesse Eisinger, Jeff Ernsthausen, and Paul Kiel, ProPublica:
ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.
If ProPublica really obtained this much personally-identifiable tax information from IRS files, it is the most shocking and egregious breach of IRS confidentiality in memory.
ProPublica uses the confidential data to apply a made-up measure of income:
To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period.
The venerable "Forbes change in wealth tax base." Of course. What shocking secrets did the wealthy use to pay a low rate?
Their wealth derives from the skyrocketing value of their assets, like stock and property.
So they don't pay income tax to fluctuations in value that have never been considered taxable income. The monsters.
What tax do they pay on actual, you know, taxable income? Jeff Bezos, they say, paid $973 million on $4.22 billion of "total income reported" - it is not clear if this is gross income, adjusted gross income, or taxable income from the article. That's about a 23% effective rate, which is what you would expect from a top-bracket taxpayer with mostly capital gain income. Michael Bloomberg paid about 29% of whatever income base ProPublica uses. Elon Musk pays just under 30%.
The article means to shock us by saying how little tax was paid on unrealized gains, as if that is some sort of mysterious loophole for the ultra-wealthy. It really is just a feature of every major income tax around the world. Some advanced economies - Belgium and Switzerland, for example - don't even tax capital gains when realized, let alone unrealized gains.
The real scandal is that ProPublica apparently obtained IRS records with individual tax data. This should prompt an immediate investigation by the Treasury Inspector General for Tax Administration and the Department of Justice. It also calls into question additional funds for IRS data gathering and enforcement. If the IRS can't protect the information it already has, it doesn't need any more confidential financial data.
What We Know About the G-7’s Global Corporate Tax Proposal - Sam Schechner, Richard Rubin, and Theo Francis, Wall Street Journal ($):
One major part of the proposal would upend a longstanding principle of international taxation.
That principle said corporate profits should be taxed where value is generated, which traditionally was where businesses had a physical presence. The rule was easier to follow when profit flowed from factory floors instead of patents and other highly mobile intellectual property.
Wyden Predicts Long Road Ahead for Global Tax Agreement - Jad Chamseddine and Doug Sword, Tax Notes ($):
Besides persuading numerous countries to agree on a global minimum tax, there are questions about whether an agreement could be reached in Congress through reconciliation and only need a simple majority, or if it would need to pass the two-thirds threshold required of treaties. “These are all questions that lawyers are now immersed in,” Wyden said.
Getting it done in London - Bernie Becker, Politico. "Here’s the thing about a global tax deal — some country is going to have to be the first one to actually vote it into law."
Ireland, loved by Biden, is obstacle to tax deal - Naomi Jagoda, The Hill. "A global minimum tax rate of 15 percent would have a significant impact on Ireland and its 12.5 percent rate, making it an attractive country for many multinational companies to set up offices."
How Biden Would Tax Capital Gains At Death - Howard Gleckman, TaxVox:
In effect, Biden would tax the appreciated value of unsold assets held by some wealthy decedents upon the owner’s death (or when assets are given away during life). These unrealized gains would be taxed as if they had been sold at death or when transferred.
However, while Biden would make no direct changes to the estate tax, his proposed tax at death would effectively lower the current estate tax exemption ($11.7 million in 2021, with any excess taxed at a maximum 40 percent rate).
Biden Retroactively Doubles Capital Gain Tax But Keeps $10M Benefit - Robert Woods, Forbes ($). "Is there any good news in this? The qualified small business stock provision that has been the darling of the tech industry for decades is slated to be quietly left alone. You can get up to $10M tax free that way, or in some cases conceivably even more if you are able to creatively leverage the limit with family."
Your Government Received Millions from the American Rescue Plan Act, Now What? - Eric Berman, Eide Bailly. "Governments have been receiving so much money, they may forget that each federal act may have different allowable costs..."
Proposed Fix to IRS Penalty Approval Rules Gets Mixed Reviews - Kristen Parillo, Tax Notes ($)"
“Maybe instead of worrying about how it shouldn’t have to require supervisory approval, the IRS should be worrying about why its managers aren’t properly overseeing the correct imposition of penalties,” [former IRS Taxpayer Advocate Nina] Olson said.
Elizabeth Warren's Plan To Close the 'Tax Gap' Doesn't Add Up - Eric Boehm, Reason. "Despite lawmakers' eagerness to scoop up more revenue without having to increase tax rates, the estimates offered in Warren's plan are far out of line with official projections about the size of the so-called 'tax gap' and the amount of revenue that can be captured with additional enforcement."
June 15 is Tax Day, take two, for millions of filers - Kay Bell, Don't Mess With Taxes. "That mid-June day is the annual deadline for millions of U.S. taxpayers who are living outside the country. That includes members of the armed forces stationed abroad."
Is Residence-Based Taxation Compatible With Progressive Idealism? - Robert Goulder, Tax Notes Opinions. "It’s as if progressive liberalism suffers from tunnel vision when it comes to perceptions of need. You can point out that expats, as a group, are being unfairly treated under current law. The response from progressives is to fixate on income level or wealth status."
A Closer Look at Eliminating the AMT - Alex Muresianu, Tax Policy Blog. "In the Tax Foundation’s new Options for Reforming America’s Tax Code 2.0, there are several options that would simplify the tax code, including eliminating the alternative minimum tax (AMT). While this move would remove a source of complexity, policymakers should also consider reforming the deductions that created a justification for the AMT in the first place."
FBAR Civil Willful Penalty Sustained Against Long Time Accountant and Tax Preparer Who Claimed He Did Not Have Time to Read the Schedule B Instructions - Jack Townsend, Federal Tax Crimes. $753,000, in round numbers. Makes it worth reading the instructions occasionally.
Related: Offshore Voluntary Disclosure.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.