More Taxpayers are Abandoning the U.S.

This article was published in the Thursday, November 14, 2013 issue of the Wall Street Journal and can be found at :

http://online.wsj.com/news/articles/SB10001424052702304243904579195923107439130

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This article focused on the number of U.S. citizens that have renounced their citizenship during the current year. Laura Saunders, the author’s article, claims a 33% increase over 2011, when 1,781 citizens revoked their citizenship. This year, over 2,369 Americans have left the country. According to Freddi Weintraub, partner at Fragomen Worldwide, “nothing has changed in immigration law that would make people want to renounce”. He is implying that ex-patriots who have renounced have largely done so as a result of anticipated tax hikes in the United States.

What I think would have been interesting is if an analysis could be conducted to determine any correlation between higher income individuals and renouncing their citizenship with the U.S. This article is suggesting that individuals are doing so in anticipation of tax cuts expiring, so one would naturally wonder if these are high-income individuals. 

I’d also be interested in seeing which countries these citizens are fleeing to. One could also make the assumption that they are leaving the country for more tax-friendly places, but is that actually the case? 

These are questions that I would like to see answered in connection with this article; I believe it would be interesting to see if any correlation exists between the above two assumptions. 

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Clock is Ticking on Some Major Tax Breaks

This article appeared in the Tuesday, October 29th issue of the Wall Street Journal and can be found at http://blogs.wsj.com/cfo/2013/10/29/clock-is-ticking-on-some-major-tax-breaks/ .

“As Congress prepares to resume budget debate, executives fret about fate of R&D credit, rule of shifting foreign profits.”

tax breaks wordpress

This article focuses on Congresses debate over 55 federal tax breaks that are set to expire at the end of this year. Three tax breaks seem especially pertinent to major corporations: a tax credit for investing in R&D, a “look through rule” that allows corporations to transfer profits between offshore subsidiaries tax-free, and a bonus depreciation provision that allows companies to depreciate one half of their equipment additions in the first year.

I especially liked this article because it incorporated a lot of topics that were discussed in class: Senate Finance committee, House Ways and Means Committee, tax rates, and how some corporations take strategic tax planning measures in order to pay little to no taxes.

R&D Credit

It has been estimated that the cost to the Federal Government of extending the R&D credit would be about $1.43 billion per year, or a total of $14.3 billion over 10 years. A corporate controller from an equipment manufacturing plant in Minnesota said that they spend about $30 million per year on R&D that would certainly be sent overseas where the effective tax rates are lower, should the credit expire. This particular company would lose about $800,000 in credits, but some larger corporations would obviously be set to lose much, much more.

Bonus Depreciation

Many corporations enjoy the bonus depreciation tax break that lets them depreciate one half of their fixed asset additions in the year in which they were acquired. The measure lets corporations lower their taxable income which in turns lowers their corporate tax rate. Another provision set to expire, for example, allows restaurants and retailers to write off improvements to rental properties over 15 years. Allowing these provisions to expire would cost corporations $4.7 billion over the next decade.

Compromise

The great debate here occurs between the Senate Finance Committee and the House Ways and Means Committee. Finding common ground between the two houses requires a lot of give and take; on one hand, they need to find a way to finance their budgets (taxes), but on the other hand have to remain fair to corporations, some of which who are already struggling to make a profit or increase their profits year-over-year. This was an eye opening article and made me realize that nothing is cut and dry when it comes to tax legislation; both parties need to be considered and the best available option should be decided upon.

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Swiss Banker Arrested In Italy in U.S. Tax Case

This article appeared in the Monday, October 21, 2013 issue of the Wall Street Journal and can be found at http://online.wsj.com/news/articles/SB20001424052702303902404579148131700296404

RAOUL WEIL, STEUERFLUCHT,

This article focused on Raoul Weil, a former top official at Switzerland’s UBD AG. He was arrested in Italy on a request from U.S. authorities. An extradition treats exists between Italy and the United States that permits extradition for crimes that are illegal in both countries.

Indictment

According to the indictment, Mr. Weil aided wealthy U.S. clients of the bank in hiding billions in assets within the Swiss bank. Weil hid assets to the tune of $20 billion USD from over 20,000 U.S. clients from the Internal Revenue Service. When reached for comment, a UBS spokesperson said that Mr. Weil was relieved from his position at UBS when the indictment was handed out.

UBS at Fault

In 2009, UBS admitted to aiding U.S taxpayers in hiding money overseas. They paid $780 million and handed over 4,400 taxpayers who engaged in tax evasion in order to avoid criminal charges. Since then, more than 38,000 U.S. taxpayers who had money hidden in offshore accounts have stepped forward and entered into an IRS amnesty program. The IRS has collected more than $5.5 billion as a result of this program and expects an additional $5 billion more in the coming years. In connection with this, more than 120 U.S. based financial advisers have been criminally charged in association with these offshore accounts. A large number of these advisers had been managing accounts with UBS.

The problem with these offshore accounts is that the money is being sheltered from taxation by the Internal Revenue Service. Swiss banks have been facing increasing pressure from U.S. regulatory authorities, and as a result these banks are telling clients that their information could soon be disclosed to the IRS.

If convicted, Raoul Weil faces up to five years in prison and a $250,000 fine for the tax evasion crimes.

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Norway Tax Breaks Lift Tesla Sales

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The Tesla Model S was the highest selling car in Norway in September, capturing 5.1% of all new car sales. The electric car company headed by South African born Elon Musk was able to lead the market by a combination of favorable tax breaks from the government and astronomical gas prices.

Most Americans aren’t familiar with the value added tax that is prevalent in Europe. A value added tax is a form of consumption tax and in Norway it stands at 25%. This is especially important considering the Model S can cost upwards of $80,000-90,000 ($20,000-22,500 saved). Lawmakers in Norway have chosen to waive the value added tax as well as a registration tax on all electric vehicles, saving owners many tens of thousands of dollars. Another factor to consider is that gas costs the equivalent of $9.60 per gallon in Norway, and with the Tesla being an all-electric vehicle, owners could again save thousands of dollars on fuel costs over the course of a year.

Electric cars in Norway are exempt from having to pay tolls, another form of a consumption tax. They are also granted access to bus lanes on Oslo’s major highways to avoid congestion and traffic. These tax exemptions are subsidized by a $750 billion fund that is possibly the largest in the world of its kind.

Electric cars are certainly the way of the future when it comes to automobiles. They produce less carbon emissions and are better for the environment. Norway’s government is setting a precedent by providing incentive for purchasing an electric vehicle and other European countries are already looking to mimic some of these tax-friendly policies.

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How Twitter Insiders Cut Their Taxes

http://online.wsj.com/article/SB10001424052702304500404579127283687636364.html twitter tax

It’s no secret that Twitter is planning to IPO soon. This article, which appeared in the Saturday, October 12 issue of the Wall Street Journal, profiles three of Twitter’s top executives: Chairman Jack Dorsey, Chief Executive Officer Richard Costolo, and Evan Williams- the company’s largest individual shareholder. Each of the three live in California (where there is no estate tax) and have been making strategic estate-planning moves in preparation of the initial public offering. Three different methods of tax planning were utilized: grantor-retained annuity trusts, gift trusts, and single-member limited liability companies.

Grantor-retained Annuity Trusts

Grantor retained annuity trusts can be utilized to transfer the gains on an asset from one person to another with little to no tax liability. Mr. Dorsey and Mr. Williams both set up their trusts back in 2010 when Twitter’s stock was worth less than $2 per share. Mr. Dorsey placed 2.4 million of his shares in the trust while Mr. Williams contributed 8.9 million shares to his trust. Nowadays, the stock is estimated to IPO at $28 per share. Since the appreciation of these shares is virtually tax-free, the two could have avoided over $113 million in taxes.

Gift Trusts

Last year Mr. Costello set up the Lorin Costolo 2012 Gift Trust for his wife, which took advantage of favorable gift-tax laws. The shares were given to his wife when they were valued around $18, so 273,000 shares were given to maximize the gift-tax exemption of $5.12 million.

Single-member Limited Liability Companies

Mr. Williams holds 44.3 million shares in a single-member limited liability company called Obvious LLC. Instead of simply giving his children shares of Twitter, he has transferred the shares to this LLC and given them an interest in the company. Using $1 million worth of shares as an example, Mr. Williams will save his children approximately $140,000 in taxes by giving them an interest in Obvious LLC. 

These are just a few examples of ways in which executives plan to avoid a large tax liability when their company is set to IPO.

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