Tax Loopholes

[anon50325502]

The term, “Tax loopholes,” is often used on this forum and cited as a way to reduce the deficit and ensure everyone is paying their, “Fair share.”

I think when the term is used it’s mostly a talking point, but that isn’t to say loopholes don’t exist or that the tax code is perfect. This thread is designed to at the very least enlighten me on the subject, but really to discuss what people here feel are loopholes in the current system, how to close them, and the ramifications of said closure.

[countingbeans]

This should be interesting.

[smh23]

Good idea for a thread. Interested to hear what Beans has to say.

I’ve been told that one of the more egregious loopholes involves a ?variable prepaid forward contract,? which allows individuals to give large, concentrated stock holdings to investment banks in return for cash. The money delivered to the lender is not taxed as capital gains. The Wall Street Journal reported a while back that this practice allowed billionaire Billy Joe McCombs to report a $9.8 million dollar loss on his 2010 tax return despite having earned $259 million from a variable prepaid contract.

[anon50325502]

[quote]countingbeans wrote:
This should be interesting.[/quote]

That’s my thought exactly. I see, “Tax Loopholes,” written in every thread the debt comes up in, but have yet to read an example.

I’m pretty sure most people have no idea what they are talking about, not that I’m an expert at all. Quite the opposite actually.

[countingbeans]

[quote]smh23 wrote:
Edit: Beans is already here, and waiting to pounce it seems[/quote]

haha

Not pounce. I will comment on things as it goes but I am very interested in what people see as a loophole and what they don’t.

I’m not going to spit in anyone’s corn flakes.

[anon50325502]

[quote]smh23 wrote:
Good idea for a thread. Interested to hear what Beans has to say.

I’ve been told that one of the more egregious loopholes involves a ?variable prepaid forward contract,? which allows individuals to give large, concentrated stock holdings to investment banks in return for cash. The money delivered to the lender is not taxed as capital gains. The Wall Street Journal reported a while back that this practice allowed billionaire Billy Joe McCombs to report a $9.8 million dollar loss on his 2010 tax return despite having earned $259 million from a variable prepaid contract.[/quote]

Hmmm, I’m not familiar with variable prepaid foward contracts. Investopedia, no idea how good a source it is, is saying any loss would be absorbed by the brokrage entity. I’ll have to read more about the situation.

Good start though!

What Is a Variable Prepaid Forward Contract?

Edit: So it would seem the issue is that tax is deferred until the transfer of stock actually occurs. Which makes sense from an accounting stand point (matching principle). I’m not sure, while not knowing a lot about it, that I’d call it a loophole. Tax is deferred, but has to eventually be paid. I’ll admit it’s an earnings management issue though.

[anon50325502]

What Is a Variable Prepaid Forward Contract?

Here’s a good article on variable prepaid foward contracts. It seems like a risk management tool with tax benefits than a tax loophole.

“Some executives also use this transaction as a way to defer taxes. The argument being that the transaction isn’t complete until the shares have been handed over, so taxes on all that cash that was handed out when the deal was stuck aren’t due for years. The IRS may frown on this aspect of the transaction, but that hasn’t stopped some executives from engaging in the behavior.”

[H_factor]

This really isn’t difficult:

A 1959 reform to Florida?s property tax codes dramatically lowered the rates for ?agricultural? land in order to encourage more farmers to work within the urban-sprawl-ridden state. However, a loophole in the law meant that anyone could legally qualify their land as farmland by stocking it with a few cows. As a result, the Walt Disney Corporation and Florida?s other major landowners have found a way to collectively dodge $950 million a year in county taxes by hiring ?Rent-a-Cow? ranchers to let their livestock graze on soggy lots and acres of carefully-mowed grass.

A 2008 reform to the federal bailout legislature, known as TARP, included a very generous tax break for the owners of NASCAR?s racing tracks. Instead of writing off the costs of their ?motorsports facilities? over the 39 years that the government estimates it will take for the tracks to depreciate, NASCAR owners are allowed to write off their properties in seven. Thanks to the accelerated depreciation, track owners dodge a collective $40 million in federal taxes every year.

According to reports from the Washington State Department of Revenue, tax breaks for wealthy corporations have skyrocketed from $20 billion per year in 2000 to $50 billion per year in 2010.

ExxonMobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.

Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.

Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.

I just picked a few from googling that took like 15 seconds. I’d also like to see us end most subsidies. A ton of waste especially in farm subsidies and giving people money.

[H_factor]

[quote]H factor wrote:
This really isn’t difficult:

A 1959 reform to Florida?s property tax codes dramatically lowered the rates for ?agricultural? land in order to encourage more farmers to work within the urban-sprawl-ridden state. However, a loophole in the law meant that anyone could legally qualify their land as farmland by stocking it with a few cows. As a result, the Walt Disney Corporation and Florida?s other major landowners have found a way to collectively dodge $950 million a year in county taxes by hiring ?Rent-a-Cow? ranchers to let their livestock graze on soggy lots and acres of carefully-mowed grass.

A 2008 reform to the federal bailout legislature, known as TARP, included a very generous tax break for the owners of NASCAR?s racing tracks. Instead of writing off the costs of their ?motorsports facilities? over the 39 years that the government estimates it will take for the tracks to depreciate, NASCAR owners are allowed to write off their properties in seven. Thanks to the accelerated depreciation, track owners dodge a collective $40 million in federal taxes every year.

According to reports from the Washington State Department of Revenue, tax breaks for wealthy corporations have skyrocketed from $20 billion per year in 2000 to $50 billion per year in 2010.

ExxonMobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.

Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.

Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.

I just picked a few from googling that took like 15 seconds. I’d also like to see us end most subsidies. A ton of waste especially in farm subsidies and giving people money. Luckily the super wealthy can pay people to find these things and the US government has a tax code of billions of words to find plenty of them. Nothing complicated about it at all!

[SteelyD]

There are no ‘tax loopholes’, only poorly thought out and written tax laws.

Businesses and people are smarter than ‘government’.

[countingbeans]

[quote]H factor wrote:
This really isn’t difficult:

I just picked a few from googling that took like 15 seconds. [/quote]

Well, bad laws are not loopholes, and half of what you copypasted has so little detail in it is propaganda at this point.

The last handful of quotes need to list why they got the refunds, etc. Otherwise it is rhetoric at best.

[countingbeans]

[quote]SteelyD wrote:
There are no ‘tax loopholes’, only poorly thought out and written tax laws.

Businesses and people are smarter than ‘government’.[/quote]

This pretty much sums up the issue really well.

But, like I said, it is interesting to see what is concidered a loophole.

[H_factor]

[quote]countingbeans wrote:

[quote]H factor wrote:
This really isn’t difficult:

I just picked a few from googling that took like 15 seconds. [/quote]

Well, bad laws are not loopholes, and half of what you copypasted has so little detail in it is propaganda at this point.

The last handful of quotes need to list why they got the refunds, etc. Otherwise it is rhetoric at best.[/quote]

Finding the specifics would take forever and would be almost impossible for a poster to do. Not to mention a lot of how people/companies get away with stuff is NOT by making it public and easy to find on a google search. I’m sure I could do it, but I’d rather you tell me why you DON’T have a problem with some of the stuff I posted instead of wanting me to find the specific reasons why it happens.

[jjackkrash]

I’ve never really understood what’s so magical about a “flat tax” if its based on income. The problem is and always has been defining “income” unless you are just going to tax the gross receipts, which has its own problems. In other words, what expenses or depreciation are “legitimate” to define what a “profit” is has always been the debate, and those problems don’t go away just because you call a tax a “flat tax.”

[H_factor]

[quote]countingbeans wrote:

[quote]H factor wrote:
This really isn’t difficult:

I just picked a few from googling that took like 15 seconds. [/quote]

Well, bad laws are not loopholes, and half of what you copypasted has so little detail in it is propaganda at this point.

The last handful of quotes need to list why they got the refunds, etc. Otherwise it is rhetoric at best.[/quote]

The bad laws are to show the problems inherent in the system as convoluted as ours. Most of the poor stuff in our tax code probably wasn’t written so it could be exploited (maybe some has), but it certainly has. The Florida law is a perfect example. The idea that very smart or super wealthy people/corporations aren’t getting out of a lot by manipulating the system is laughable, but maybe we are arguing different things?

[anon50325502]

[quote]H factor wrote:

[quote]countingbeans wrote:

[quote]H factor wrote:
This really isn’t difficult:

I just picked a few from googling that took like 15 seconds. [/quote]

Well, bad laws are not loopholes, and half of what you copypasted has so little detail in it is propaganda at this point.

The last handful of quotes need to list why they got the refunds, etc. Otherwise it is rhetoric at best.[/quote]

Finding the specifics would take forever and would be almost impossible for a poster to do. Not to mention a lot of how people/companies get away with stuff is NOT by making it public and easy to find on a google search. I’m sure I could do it, but I’d rather you tell me why you DON’T have a problem with some of the stuff I posted instead of wanting me to find the specific reasons why it happens. [/quote]

Aren’t the specifics kind of important? I can say, “We need to cut cost.” That’s not exactly going to get the job done.

[countingbeans]

[quote]H factor wrote:
but I’d rather you tell me why you DON’T have a problem with some of the stuff I posted instead of wanting me to find the specific reasons why it happens. [/quote]

Well the statements about the large companies with large profits are missing a lot of key information to determine whether what the journalist is reporting is even accurate, whether it is explained very simply and is infact fair, or if the company is in fact “abusing” a poorly written law.

There are 3 types of income

1. Financial Statement Income
2. Taxable Income
3. Cash Flows

You can have a million dollar gain in 1, a half a million dollar loss in 2, and be cash broke all at the same time, and it is all very legit.

So if the reporter is trying to say Company A made 10 billion under #1, and received a tax refund, they are comparing apples to pears.

The other side is the reporter doesn’t mention what the previous years income/loss was. A company may have 10 billion in income this year, but if they posted 11 billion in tax losses over the last 5 years, they will have a net loss of 1 billion on this years return and get a refund of any money put in.

As for rebates, these could be any number of refundable credits, some of whom are very good ideas and promote activities in buisness that benefit society as a whole.

So it comes down to detail when you start talking about who made what and paid in how much in taxes.

[H_factor]

[quote]usmccds423 wrote:

[quote]H factor wrote:

[quote]countingbeans wrote:

[quote]H factor wrote:
This really isn’t difficult:

I just picked a few from googling that took like 15 seconds. [/quote]

Well, bad laws are not loopholes, and half of what you copypasted has so little detail in it is propaganda at this point.

The last handful of quotes need to list why they got the refunds, etc. Otherwise it is rhetoric at best.[/quote]

Finding the specifics would take forever and would be almost impossible for a poster to do. Not to mention a lot of how people/companies get away with stuff is NOT by making it public and easy to find on a google search. I’m sure I could do it, but I’d rather you tell me why you DON’T have a problem with some of the stuff I posted instead of wanting me to find the specific reasons why it happens. [/quote]

Aren’t the specifics kind of important? I can say, “We need to cut cost.” That’s not exactly going to get the job done. [/quote]

Why you think me or any other poster is going to be able to do this is beyond me. If I was a master of the tax code and could figure out how so many companies get away with these type of refunds and what not I certainly wouldn’t be posting about it on T-Nation. I’d be rolling around in money (by helping these companies) and of course getting a much bigger refund than I normally do. It’s fine for you to ask the question, but expecting anyone to be able to tell you that happens to post in PWI is probably a stretch.

[H_factor]

[quote]countingbeans wrote:

[quote]H factor wrote:
but I’d rather you tell me why you DON’T have a problem with some of the stuff I posted instead of wanting me to find the specific reasons why it happens. [/quote]

Well the statements about the large companies with large profits are missing a lot of key information to determine whether what the journalist is reporting is even accurate, whether it is explained very simply and is infact fair, or if the company is in fact “abusing” a poorly written law.

There are 3 types of income

1. Financial Statement Income
2. Taxable Income
3. Cash Flows

You can have a million dollar gain in 1, a half a million dollar loss in 2, and be cash broke all at the same time, and it is all very legit.

So if the reporter is trying to say Company A made 10 billion under #1, and received a tax refund, they are comparing apples to pears.

The other side is the reporter doesn’t mention what the previous years income/loss was. A company may have 10 billion in income this year, but if they posted 11 billion in tax losses over the last 5 years, they will have a net loss of 1 billion on this years return and get a refund of any money put in.

As for rebates, these could be any number of refundable credits, some of whom are very good ideas and promote activities in buisness that benefit society as a whole.

So it comes down to detail when you start talking about who made what and paid in how much in taxes.[/quote]

Lol at thinking any of these companies have had tax losses. Are you really trying to argue that gaming the system doesn’t happen by politicians and large corporations in a huge manner? I can’t give you all the specifics, but it’s obvious it’s happening all the time and everyone knows it. Why do you think “tax reform” is fought against tooth and nail by big moneyed interests or setup so they can game it? Everyone agreed we needed to reform the big banks, but read about how any progress attempting to be made was thrown out by big money.

[countingbeans]

[quote]H factor wrote:

The bad laws are to show the problems inherent in the system as convoluted as ours. Most of the poor stuff in our tax code probably wasn’t written so it could be exploited (maybe some has), but it certainly has. The Florida law is a perfect example. The idea that very smart or super wealthy people/corporations aren’t getting out of a lot by manipulating the system is laughable, but maybe we are arguing different things? [/quote]

I don’t disagree. While I don’t buy “manipulating” in every case I’m not arguing with your larger point, just pointing out detailed issues with some of the examples.

Yes the Florida example is a great case of a poorly written law that people jump on.

The NASCAR one cracks me up. I largely see it as a bullshit change, and would love to see the rational behind it, depreciation has long been the first thing the government fucks with to manipulate revenues and actions.