An
unintended tax break has cost the U.S. government as much as $100 billion from
the wealthiest Americans since the year 2000.
According
to a new report by Bloomberg News, filings by the Securities and Exchange
Commission revealed that hundreds of business executives, including Mark
Zuckerberg of Facebook and Sheldon Adelson of Las Vegas Sands Corp., have
exploited an estate tax loophole originating from a law passed by Congress in
1990.
“It’s very
common,” said former Aetna Inc. CEO John Rowe, who also used similar tactics,
to Bloomberg.“It’s become standard practice in estate planning.”
Since
federal law imposes a 40 percent tax on assets that the wealthy leave their
families, many have been able to avoid the estate tax by establishing Walton
grantor retained annuity trusts, or GRATs. By quickly funneling money into and
out of trusts – which are set to revert back to the trust’s creator rather than
their family, and, thus become tax exempt – wealthy Americans are able to
direct excess earnings to heirs without incurring the consequences of the
estate and gift tax.
“You can
certainly say we can’t let this keep going if we’re going to have a sound
system,” Richard Covey, the lawyer who discovered the loophole and essentially
invented the tax shelter, said to Bloomberg.
According
to professor Edward McCaffery of the University of Southern California’s Gould
School of Law,GRAT and other tax-evasion strategies reduce the estate tax to a
voluntary system
The estate
tax was originally created back in 1916 and applied to hefty fortunes at the
time of an individual’s death. In 1984, Covey discovered a way around the law
by creating trusts in the name of a wealthy individual’s children and using the
extra income generated to pay down the estate tax.
In 1990,
Congress passed a law barring this practice, leading Covey to uncover another
loophole that lead to the creation of GRAT. The IRS fought this technique in
U.S. Tax Court in 2000, but lost since the law itself didn’t specifically
prohibit the practice.
Efforts to
fix the system since have stalled. President Barack Obama and his allies have
suggested eliminating or shrinking the loophole, but their attempts have gone
nowhere among opponents who believe the estate tax shouldn’t exist at all.
Meanwhile, Senate and House committees claiming to work on comprehensive tax
reform bills have, so far, sidestepped the estate tax situation altogether
“From the
Republican side of the aisle, you’re committed to killing the thing,” McCaffery
told Bloomberg. He also said that other Democrats are reluctant to spend their
political capital on an issue that only applies to a small number of people.
The fact
that the people it does affect are typically wealthy campaign donors makes it
an even tougher issue to rectify, since they want to keep the loophole exactly
where it is.
Still, as
Covey recalled the sheer amount of money that’s gone untaxed by the government
since the first appearance of GRAT, he can’t help but be shocked.
“It boggles
the mind,” he said.
Related Articles:
 |
| Offshore Secrets |
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.