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kallend

How to encourage tax cheating by the very wealthy

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Just stop auditing them.

https://www.newsweek.com/government-just-admitted-it-doesnt-really-try-collect-rich-peoples-taxes-1577610

By some estimates, the wealthiest 1 percent of Americans manage to avoid paying about a quarter-trillion dollars of owed taxes every single year. Now, new government data show that audits of the super-rich and large corporations have hit a new low, leaving billions of dollars of uncollected taxes at precisely a moment when lawmakers say new revenue is needed to fund infrastructure and climate investments.

...

"The IRS now audits those who make $20,000 at about the same rate as the top 1 percent, even though the vast majority of unpaid taxes are attributable to wealthy tax cheats," 

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I’d say it’s entirely consistent, if your goal is more to punish the guilty and not to recover the funds. A true capitalist would be far more interested in recovering maximum funds, I’d think. 
Wendy P. 

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15 minutes ago, wmw999 said:

I’d say it’s entirely consistent, if your goal is more to punish the guilty and not to recover the funds. A true capitalist would be far more interested in recovering maximum funds, I’d think. 
Wendy P. 

The IRS estimates that each $ spent in enforcement returns $6 in otherwise unpaid taxes.

The GOP systematically reduced IRS funding for many years, when it held the power of the budget.

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Meanwhile the IRS, has caused me grief THREE TIMES over the last dozen years! Two of those were audits, for no apparent reason. I had not made made any unauthorized deductions, and I did not owe them any money.

The third (last year) was a doozy; They demanded that I prove my identity. Now they have a website just for this purpose, but apparently my case raised such huge red flags that I was not allowed to use it. No, they demanded I make a phone call directly to one of their people. Have you ever tried to call in and speak to an IRS agent? It took many hours over two days to reach one. 

At the end of a lengthy call, they decided I really was who I claimed to be. So I just had to ask them: Do you guys really have an ongoing problem with people sending in tax payments for other people?  I had not had a refund in years, but had just sent in a big tax payment for 2019, and was sending in quarterly estimated payments for 2020.

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3 hours ago, wmw999 said:

I’d say it’s entirely consistent, if your goal is more to punish the guilty and not to recover the funds. A true capitalist would be far more interested in recovering maximum funds, I’d think. 
Wendy P. 

Hi Wendy,

In the 1986 tax legislation overhaul bill, Sen Bob Packwood (R-OR), head of the Senate committee writing the legislation, put in just a couple of lines to benefit a campaign donator.  She was a wealthy Texan, who benefitted to the tune of about $500,000 because of this.  She was the only person in the US who benefitted from it.

Jerry Baumchen

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I've always wondered what the increase in revenue would be and how much the tax rates would be lowered if people "followed the rules."

If no one cheated. If no one claimed more charitable donations than they actually gave, reported tip income, didn't inflate business expenses and hide revenue, if the home repair and fix-it people claimed all revenue, and the list goes on. 

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13 minutes ago, billeisele said:

I've always wondered what the increase in revenue would be and how much the tax rates would be lowered if people "followed the rules."

If no one cheated. If no one claimed more charitable donations than they actually gave, reported tip income, didn't inflate business expenses and hide revenue, if the home repair and fix-it people claimed all revenue, and the list goes on. 

Let's start with a little truth and reconciliation. You first.

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12 hours ago, billeisele said:

I've always wondered what the increase in revenue would be and how much the tax rates would be lowered if people "followed the rules."

If no one cheated. If no one claimed more charitable donations than they actually gave, reported tip income, didn't inflate business expenses and hide revenue, if the home repair and fix-it people claimed all revenue, and the list goes on. 

What's the motivation for being honest if the probability of being audited is negligibly small?

The Congress, which has been bought and paid for by the very wealthy, has clearly drafted the tax laws with its paymasters as the beneficiaries.

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12 hours ago, billeisele said:

I've always wondered what the increase in revenue would be and how much the tax rates would be lowered if people "followed the rules."

Would be interesting indeed.  However, two points:

1) Following the rules is seen as "stupid."  Witness a recent president who, when asked why his claimed billions in income resulted in no taxes, said "because I'm smart."  No one wants to be "stupid."

2) Even while following the rules there are an infinite number of tax dodges that work and are not against the law.  You generally need a lot of money to pursue them, but once you are at that level, it's pretty straightforward.

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59 minutes ago, kallend said:

What's the motivation for being honest if the probability of being audited is negligibly small?

The Congress, which has been bought and paid for by the very wealthy, has clearly drafted the tax laws with its paymasters as the beneficiaries.

What? If entitlement of the wealthy was challenged by investigation and enforcement? If the use of lawyers in courts by the wealthy. To wear down the limited funding of the IRS to use the courts to pursue delinquents and tax cheats. Was finally brought to an even balance.

First we have trusts: "Jeffrey Epstein signed new will to shield $577m fortune days before death. Financier created trust fund in new will two days before suicide. Experts say prying open fund will be difficult for accusers"

"The sex-trafficking scandal surrounding the late Jeffrey Epstein already has tarnished the reputations of prominent politicians, businessmen, and the British royal family. Now it’s casting a dark shadow on an estate tax-avoidance strategy popular among Wall Street CEOs and tech entrepreneurs.

The strategy exploits a loophole that Congress unintentionally left open when it passed provisions related to grantor retained annuity trusts, or GRATs, in 1990. Use of these trusts already has cost the IRS—by one estimate—well over $100 billion in just the last two decades. A recent filing with the Securities and Exchange Commission by the private equity firm Apollo Global Management reveals that the firm’s longtime CEO, Leon Black, relied on Epstein’s assistance to extract more than $500 million of tax savings from GRATs."

Finally we have trump: How the Trump Family Used GRATs for Massive Tax Savings

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More:

https://news.yahoo.com/richest-americans-dont-report-least-054441854.html

 

The top 1 percent of U.S. households don't report about 21 percent of their income, and a big slice of that — 6 percentage points — is from sophisticated tax-avoidance strategies that aren't detected in spot IRS audits, The Wall Street Journal reports. The top 0.1 percent of households may hide nearly twice the amount of income projected by conventional IRS methodologies, the researchers found.

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5 minutes ago, JerryBaumchen said:

Hi Phil,

Definitely not the 'big people':  Average corporate tax rate plunged by more than half after GOP overhaul - POLITICO

Jerry Baumchen

Thats actually a famous quote by one of trump's best friends. Leona Helmsley, from NY,NY together with her husband were billionaires. She had her house renovated and stiffed the contractors. The contractors squawked and the IRS got involved. She was renovating her personal residence and an apartment. Billing the work to a business.

In the end she got, about 12 years, served four(guessing here) plus community service. But in the end her employees did the community service.

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I'd be OK with simplifying the structure and decreasing the tax rate for small businesses. As in actual small businesses -- up to 50 employees (or some other reasonable number probably less than that), with net income (after materials and wages) of less than some other reasonable number.

And an even more radical and simplified one for even smaller -- 1-3 employees, less than $100,000 after wages of non-ownership employees. Yeah, that leaves family eligible, but there's lots of room for discussion.

Wendy P.

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3 hours ago, wmw999 said:

I'd be OK with simplifying the structure and decreasing the tax rate for small businesses. As in actual small businesses -- up to 50 employees (or some other reasonable number probably less than that), with net income (after materials and wages) of less than some other reasonable number.

And an even more radical and simplified one for even smaller -- 1-3 employees, less than $100,000 after wages of non-ownership employees. Yeah, that leaves family eligible, but there's lots of room for discussion.

Wendy P.

And you would be right, family workers or not. Below a certain level they are putting the money into the economy in some way. Let that be and look at the big players.

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3 hours ago, Phil1111 said:

"Only little people pay taxes"

Bill wants to be perceived as smart and engaged but his list of avoided answers has me thinking he's just another right wing true believer with a small pond local history of heroism against liberals. Bravely, he posts here but I'm thinking he'll soon depart unsatisfied.

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4 hours ago, wmw999 said:

I'd be OK with simplifying the structure and decreasing the tax rate for small businesses. As in actual small businesses -- up to 50 employees (or some other reasonable number probably less than that), with net income (after materials and wages) of less than some other reasonable number.

And an even more radical and simplified one for even smaller -- 1-3 employees, less than $100,000 after wages of non-ownership employees. Yeah, that leaves family eligible, but there's lots of room for discussion.

Wendy P.

I definitely agree. But you got me thinking, what exactly is a small business? According to the SBA they are much larger than the numbers you give as an example. Some are defined by revenue alone, some by number of employees. It’s interesting to see the breakdown.

https://www.fundera.com/blog/sba-definition-of-small-business#what

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56 minutes ago, murps2000 said:

I definitely agree. But you got me thinking, what exactly is a small business? According to the SBA they are much larger than the numbers you give as an example. Some are defined by revenue alone, some by number of employees. It’s interesting to see the breakdown.

https://www.fundera.com/blog/sba-definition-of-small-business#what

Hi murps,

Re:  what exactly is a small business

Back in the 60's, American Motors, convinced the federal gov't ( SBA ) that since they were the smallest US automaker, they should be categorized as a small business.  Because of this, many US gov't agencies drove American Motor's cars for quote a few years; they could get a 6% edge on their bids due to being the only US automaker that was a small business.

American Motors Corporation - Wikipedia

Jerry Baumchen

 

 

 

 

 

 

 

 

 

 

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We all kind of know one when we see one, but the dividing line is tough, and varies with industry, market, and location. Also with era. It's changed over the years, too -- when most businesses served people in a single town, they were pretty small. Might need to be a timeliness component, too.

Wendy P.

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Not just people. Zoom increased their profits by something like 4,000% but pays nothing in federal income taxes.

1% in savings due to research and development credits. 99% in savings by paying $302 million in stock options.

Of the taxes it did pay (0.8% effective tax rate) about 50% was foreign taxes (28% effective tax rate)

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On 3/22/2021 at 11:31 AM, billvon said:

Would be interesting indeed.  However, two points:

1) Following the rules is seen as "stupid."  Witness a recent president who, when asked why his claimed billions in income resulted in no taxes, said "because I'm smart."  No one wants to be "stupid."

2) Even while following the rules there are an infinite number of tax dodges that work and are not against the law.  You generally need a lot of money to pursue them, but once you are at that level, it's pretty straightforward.

So 

1) yes, there are plenty of legal ways to avoid paying taxes. Anyone that uses those rules is not cheating.

For instance, with a sole proprietorship of LLC, one can write off equipment investment, and so many other things. Those write offs reduce taxes. In some cases one can divert "profits" to a retirement account and essentially have zero taxable income. Anyone that has the ability to do that and doesn't, could be seen as stupid.


Some say that the most important company asset is a good tax accountant.

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10 minutes ago, billeisele said:

1) yes, there are plenty of legal ways to avoid paying taxes. Anyone that uses those rules is not cheating.

The problem is that many of those ways are not quite legal - but are not illegal, either.

For example, let's say you create a 501c3 private foundation, intended to run a museum.  The museum is in a building you purchase.  You have a few things on exhibit, all relatively cheap art that you like.  You also have a back room with an entertainment space where you hold parties for donors, who are all your friends, and who rarely donate.  Big TV, an open bar, stripper poles.  The money in this foundation pays for the purchase of the property, utilities, for catering supplies for your parties, and for travel expenses that allow to fly first class all over the world to buy art you like.  You contribute your ordinary pay check to this foundation, and thus deduct all your income.

That is all technically legal.  It is also a way to party and travel all over the world tax free.  You can't get away with this, of course, unless you have those clever accountants you mention.  But if you are making $500K a year, the $185,000 you save on taxes pays for a lot of creative accounting.

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(edited)
On 3/23/2021 at 12:48 PM, SkyDekker said:

Not just people. Zoom increased their profits by something like 4,000% but pays nothing in federal income taxes.

1% in savings due to research and development credits. 99% in savings by paying $302 million in stock options.

Of the taxes it did pay (0.8% effective tax rate) about 50% was foreign taxes (28% effective tax rate)

They reported W2 wages for the employees that exercised those stock options. Deduction matched with taxable income. There are far more outrageous areas of the tax code.

 

Edited by DougH

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