Wealth And Windfall Taxes: Still Not Ready For Prime Time

One sign that post-COVID-19 normalcy is slowly coming to the tax world is that tax authorities are increasingly being accused of launching or seeking unwarranted investigations of taxpayers. Eighteen months or even a year ago, when liquidity was paramount during the height of the pandemic lockdowns, tax authorities across the world quietly backed away from tax enforcement, giving taxpayers some grace in a difficult time. But in some countries, the grace period appears to be over.

In New Zealand, the Inland Revenue Department is seeking contact information for high-net-worth individuals so it can follow up with inquiries about their financial affairs. That hasn’t been received well by the New Zealand Taxpayers’ Union, which recently accused the department of conducting fishing expeditions that could keep the rich from moving to or investing in New Zealand.

In the United States, the Biden administration received significant blowback when it released a bank reporting proposal that would have obligated financial institutions to report data on business and personal accounts with over $600. A second iteration that would have increased the reporting threshold to $10,000 didn’t fare much better. The idea was ultimately cut from a massive budget package winding its way through the government.

The South African Revenue Service, which recently beefed up its high-net-worth unit, is reportedly assigning specific staff to each high-net-worth taxpayer to engage in ongoing dialogue, reminiscent of private banking relationships, according to a report in South Africa’s BizNews.

Overall, this activity is a sign that governments are beginning to shift to the pandemic recovery phase instead of remaining in the pandemic emergency phase. Recent budget and legislative proposals issued in various countries back this up.

Yet the tax transition to recovery has not been as smooth or decisive as previous phases: It has been more hesitant and cautious because policymakers continue to grapple with taxpayer trust issues and slow economic recovery. This is particularly true with excess profits (windfall taxes) and wealth taxes, both of which have generated a lot of discussion.

Where Are We Now?

As a refresher, tax responses to the COVID-19 pandemic have generally followed three phases. The first was about liquidity and enabling taxpayers to keep cash on hand. Many tax administrations achieved this by allowing deferred tax payments, issuing faster tax refunds, increasing business deductions, and allowing taxpayers to shift losses to other years. In that phase, taxing authorities relieved taxpayer burdens and scaled back on enforcement.

The second phase was about maintaining liquidity and starting to ease into restructuring, which requires a careful balance between maintaining taxpayers’ access to cash and instating gradual and reasonable tax increases that do not impede growth or anger taxpayers.

Finally, there is what the World Bank calls phase 3: resilient recovery. This phase is about trust. According to the World Bank, if taxpayers think their lawmakers have been evenhanded and fair over the course of the pandemic by providing adequate relief when needed, then this phase’s needed tax hikes and tax base expansions will have the greatest likelihood of public acceptance.

Windfall Taxes Are Still Rare

At the beginning of the COVID-19 pandemic, many questioned whether countries should rely on windfall taxes to pay for pandemic-related support and recovery. There has been a lot of debate, but few takers. Malaysia stands out as one of the first countries to adopt a pandemic-related windfall tax.

Malaysia

COVID-19 battered Malaysia’s economy. In 2020 the country suffered a 5.6% decline in GDP — its worst economic contraction since the Asian financial crisis of 1997. The good news is that the economy is expected to steadily recover over the next year as part of the overall global economic recovery. But riding these economic coattails may not be enough for Malaysia, which has struggled with chronically low tax revenue collection.

In the run-up to the country’s October budget release, Deputy Finance Minister Yamani Hafez bin Musa said the government was considering a number of tax measures to fund recovery, “including taxing the profits on stock investments and imposing higher tax rates on a one-off basis on companies that generated extraordinary profits during the COVID-19 pandemic,” he said.

The government made good on that promise October 29 when it released a souped-up $80 billion budget, its largest ever, which features a controversial one-time windfall profit tax. Effective 2022 corporations will pay a 33% corporate tax rate on profits over MYR 100 million (about $24 million). The first MYR 100 million will be taxed at the regular 24% corporate tax rate. The government expects that a few hundred companies will cross the windfall threshold.

Malaysia did not arrive at this decision lightly, but there is precedent. Crude palm oil producers have been subject to the Windfall Profit Levy Act (Act 592) since 1999. The act imposes a tax on profits exceeding a crude palm oil market price of MYR 2,500 per ton for Malaysia’s peninsula and MYR 3,000 per ton for the states of Sabah and Sarawak.

Since its inception, the tax has generated MYR 4.1 billion in revenue, so expanding it and imposing it on other sectors was not a giant leap and reflects feedback garnered from various stakeholders.

Underscoring that strategy, the government refrained from hiking the windfall profit tax on crude palm oil producers. Instead, it increased the profit threshold by MYR 500 for peninsular Malaysia and Sabah and Sarawak, according to Finance Minister Tengku Zafrul Aziz.

But the initial response from industry was one of general displeasure; the country’s benchmark stock index, the FTSE Bursa Malaysia KLCI, fell 2% on the announcement, and some economists are warning that consumers will bear the cost of the tax. All told, Malaysia presents a case study for other countries considering similar measures.

Canada

In Canada, the manufacturing and extractives industries — mining, quarrying, and oil and gas extraction — performed handsomely in 2020. If the government imposed an excess profits tax on large companies that performed the best during the pandemic, they would bear the largest burden, according to data from Canada’s parliamentary revenue estimator.

The country’s New Democratic Party, which sits to the left of the ruling Liberal Party, has been the most consistent advocate for an excess profits tax.

In April New Democratic Party member of Parliament Peter Julian asked the Office of the Parliamentary Budget Officer to estimate how much an excess profit tax on the most profitable companies during the pandemic would raise, using the country’s previous World War II-era excess profits tax as a model.

When Canada imposed an excess profits tax during WWII, it calculated the average yearly profits that companies earned between 1936 and 1939 and levied a 100% tax on anything exceeding that figure. Using that formula, the parliamentary budget officer investigated what would happen if Canada, which has a 15% corporate tax rate, doubled the rate on excess profits.

Excess profits would be those made in 2020 by firms that earned over C $10 million in revenue for at least one year between 2016 and 2020 and exceeded their expected 2020 profits, which the office calculated using each company’s average profit margin between 2014 and 2019.

If Canada followed this formula, it could raise C $7.9 billion, according to the office’s estimates. That said, there’s very little indication that an excess profits tax is on the table. The measure wasn’t included in the country’s 2021 budget, released in April.

It was resurrected as a campaign point during the September general election, but the New Democratic Party, which has long held a minority of seats in Parliament, underperformed in the election. Prime Minister Justin Trudeau instead wants to rely on increased tax enforcement on businesses and the wealthy and to raise corporate tax rates on large financial institutions to 18%.

United Kingdom

Before COVID-19 became a worldwide pandemic, the U.K. Labour Party suggested the country should implement a windfall profits tax on oil companies. As the pandemic progressed, other stakeholders issued broader calls for a general business windfall tax.

In March the House of Commons Treasury Committee briefly analyzed the idea of a business windfall tax in a sprawling report, “Tax After Coronavirus,” that considered the country’s options for both COVID-19 recovery and general tax reform. Lawmakers asked private industry and civil society about the feasibility and wisdom of a windfall tax and emerged from the discussion skeptical about the future of a U.K. tax.

“There are downsides to a windfall tax, including its potentially retrospective nature. There would also be complexities, including the difficulties of identifying sectors to which any such tax should apply, ensuring that such a tax is fairly targeted at firms which have benefited excessively within those sectors, and identifying the element of a firm’s profits which could be reasonably attributed to excessive profits generated by the pandemic,” the report said.

The committee thought a windfall tax would be troublesome, but it also left the door open, adding that it might not “be impossible to introduce a windfall tax in certain circumstances in the future, if that was the political choice made.”

Wealth Taxes Gain More Traction

During the COVID-19 pandemic the ultrawealthy flocked to Singapore from all around the world, seeking a sophisticated, low-tax refuge in a time of chaos. But they wound up bringing chaos of their own, driving real estate prices to all-time highs amid a frenzy to put down roots.

According to Bloomberg, Singaporean authorities have been quietly asking high-net-worth individuals and the business community their opinions on wealth taxation. On one hand, the government is loath to disrupt the multimillionaire pilgrimage, but on the other hand, growing wealth inequality within the country may require creative wealth taxation, according to the head of Singapore’s central bank.

That creativity could arrive in the form of a property gains tax or inheritance tax — neither of which Singapore has — according to Ravi Menon, managing director of the Monetary Authority of Singapore. He shied away from proposing a net wealth tax, which historically has not performed well around the world.

In early November MP Jamus Lim offered the first concrete proposal: a graduated net wealth tax between 0.5 and 2% imposed on individual net worth in excess of SGD 10 million (about $7.4 million). Net wealth above SGD 10 million and up to SGD 50 million would be taxed at 0.5%, and wealth above SGD 50 million and up to SGD 1 billion would be taxed at 1%. Anything above SGD 1 billion would be assessed at 2%.

Latin America has embraced wealth taxation more than any other region during the pandemic, with several countries, including Bolivia and Argentina, introducing or expanding wealth taxes.

The next country to watch in the region is Colombia. In April lawmakers there introduced, as part of a broader tax reform package, legislation for a one-off wealth tax that would apply a 1% tax on net assets over the equivalent of $1.3 million and 2% on net assets over the equivalent of $4 million. The tax would apply in 2022 and 2023. However, the reform package was subsequently revised following public protest, and the wealth tax component was omitted. It is unclear where the idea stands.

Meanwhile, Belgium thought the COVID-19 pandemic presented a good opportunity to resurrect its controversial wealth tax on securities accounts. A securities tax was scrapped in 2019 after a Belgian high court found that it violated EU legal principles of equality and nondiscrimination and deemed it unconstitutional.

The country’s Constitutional Court found that the 0.15% tax contained some discriminatory exclusions, like real estate certificates, without a solid justification. The court also found that the tax applied unequally because individuals who own a share of an account can potentially avoid the tax if their share exceeds €500,000.

This time around, Belgium is applying a blanket tax on all securities accounts worth over €1 million — unlike the previous version, there are no exemptions. The government says the proceeds will be used to fund healthcare, but it remains to be seen whether this new provision will also be subject to legal challenge.

In the United Kingdom, the House of Commons Treasury Committee explicitly rejected the idea of an annual wealth tax, citing design and administration challenges as well as the fact that several other countries have abolished their wealth taxes because of administrative difficulties. As for a one-off wealth tax, the committee didn’t fully write off the idea, noting that “it could be used to raise significant revenue.”

The idea of a one-off tax has been floating around ever since a group of economists from the London School of Economics and Political Science and the University of Warwick formed an independent wealth tax commission to evaluate the country’s revenue-raising options. In a December 2020 report they estimated the country could raise £260 billion over five years if it taxed individual wealth over £500,000 at a 1% rate and would raise £80 billion if it taxed wealth over £2 million.

There are design concerns with that proposal. It would likely hit middle-income earners because “wealth” for purposes of the tax would include main home values. There also are concerns over retrospectivity.

Beyond that, some worry that a one-off wealth tax would simply open a Pandora’s box if the tax is imposed and succeeds because the government could very well impose it again. For now, wealth tax conversations in the United Kingdom remain academic: The measure failed to make it into the U.K. annual budget, released October 27.

A similar phenomenon happened in Germany when the center-left Social Democratic Party, which won a plurality in the country’s recent parliamentary election, vowed to resurrect the country’s wealth tax, which had been struck down over constitutionality concerns. But because the Social Democratic Party lacks a governing majority, it is seeking a coalition with two other parties — the Alliance 90/The Greens and the Free Democratic Party — and has decided to abandon the wealth tax to make a coalition possible. So it remains an academic topic, perhaps to be resurrected at a later date.

I am a contributing editor for Tax Notes International, where I write weekly analysis on various international tax topics including European tax developments, the digital economy, base erosion and profit shifting, and tax transparency. I also write for the Tax Analysts blog. I am passionate about the intersection of tax, law, and journalism, and I look for the accessible and interesting angle in tax. Before joining Tax Analysts I was a managing editor for Thomson Reuters in New York and a senior tax reporter for Law360. I have a BA from the University of Pittsburgh and a JD from Columbia Law School.

Source: Wealth And Windfall Taxes: Still Not Ready For Prime Time

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IRS Announces 2022 Tax Rates, Standard Deduction Amounts And More

The Internal Revenue Service has announced annual inflation adjustments for tax year 2022, meaning new tax rate schedules and tax tables and cost-of-living adjustments for various tax breaks. Most numbers are up more than in recent years because of higher inflation. Note, these numbers, for the tax year beginning January 1, 2022, are what you’ll use to prepare your 2022 tax returns in 2023. (You can find the numbers and tables to prepare your 2021 tax returns here.)

If you don’t expect your income or life to change significantly—by getting married or starting a gig job, for example—you can use the new numbers to estimate your 2022 federal tax liability. If you’re expecting major changes, make sure you check your tax withholding and/or make quarterly estimated tax payments.

All the details on tax rates are in Revenue Procedure 2021-45. We have highlights below. We also cover the new higher retirement accounts limits for 2022.

There’s one big caveat to these 2022 numbers: Democrats are still trying to pass the now $1.85 trillion Build Back Better Act, and the latest (November 3) legislative text includes income tax surcharges on the rich as well as an $80,000 cap—up from $10,000—for state and local tax deductions. Earlier versions included cutting the estate tax exemption in half and increasing capital gains taxes. So stay tuned.

2022 Tax Bracket and Tax Rates

There are seven tax rates in 2022: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here’s how they apply by filing status:

2022 Standard Deduction Amounts 

The standard deduction amounts will increase to $12,950 for individuals and married couples filing separately, $19,400 for heads of household, and $25,900 for married couples filing jointly and surviving spouses.

The additional standard deduction amount for the aged or the blind is $1,400 for 2022. The additional standard deduction amount for increases to $1,750 for unmarried aged/blind taxpayers.

The standard deduction amount for 2022 for an individual who may be claimed as a dependent (including “kiddies”) by another taxpayer cannot exceed the greater of $1,150 or the sum of $400 and the individual’s earned income (not to exceed the regular standard deduction amount).

Personal Exemption Amount

The personal exemption amount remains zero in 2022. The Tax Cuts and Jobs Act suspended the personal exemption through tax tax year 2025, balancing the suspension with an enhanced Child Tax Credit for most taxpayers and a near doubling of the standard deduction amount.

Alternative Minimum Tax Exemption Amounts

Here’s what the alternative minimum tax (AMT) exemption amounts look like for 2022, adjusted for inflation:

Kiddie Tax 

A child’s unearned income is taxed at the parent’s marginal tax rate; that tax rule has been dubbed the “kiddie tax.” The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary. For example, unearned income includes dividends and interest, inherited Individual Retirement Account distributions and taxable scholarships.

For 2022, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,150 or (2) the sum of $400 and the individual’s earned income (not to exceed the regular standard deduction amount).

If your child’s only income is unearned income, you may be able to elect to include that income on your tax return rather than file a separate return for your child. This is allowed for 2022 if the child’s gross income is more than $1,150 but less than $11,500. But the tax bite may be less if your child files a separate return.

Capital Gains Tax

Capital gains tax rates remain the same for 2022, but the brackets for the rates will change. Here’s a breakdown of long-term capital gains and qualified dividends rates for taxpayers based on their taxable income:

Section 199A deduction (also called the pass-through deduction)

As part of the Tax Cuts & Jobs Act, sole proprietors and owners of pass-through businesses are eligible for a deduction of up to 20% to lower their tax rate for qualified business income. Here are the threshold and phase-in amounts for the deduction for 2022:

Federal Estate Tax Exemption

The federal estate tax exemption for decedents dying in 2022 will increase to $12.06 million per person or $24.12 for a married couple.

Gift Tax Exclusion

The annual exclusion for federal gift tax purposes jumps to $16,000 for 2022, up from $15,000 in 2021.

Further Reading:

IRS Announces Higher 2022 Retirement Account Contribution Limits For 401(k)s, Not IRAs

Follow me on Twitter or LinkedIn.

I cover personal finance, with a focus on retirement planning, trusts and estates strategies, and taxwise charitable giving. I’ve written for Forbes since 1997. Follow me on Twitter: @ashleaebeling and contact me by email: ashleaebeling — at — gmail — dot — com

Source: IRS Announces 2022 Tax Rates, Standard Deduction Amounts And More

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Corporate Taxes Poised to Rise After 136-Country Deal

 
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Nearly 140 countries agreed Friday to the most sweeping overhaul of global tax rules in a century, a move that aims to curtail tax avoidance by multinational corporations and raise additional tax revenue of as much as $150 billion annually.

But the accord, which is a decade in the making, now must be implemented by the signatories, a path that is likely to be far from smooth, including in a closely divided U.S. Congress.

The reform sets out a global minimum corporate tax of 15%, targeted at preventing companies from exploiting low-tax jurisdictions.

Treasury Secretary Janet Yellen said the floor set by the global minimum tax was a victory for the U.S. and its ability to raise money from companies. She urged Congress to move swiftly to enact the international tax proposals it has been debating, which would help pay for extending the expanded child tax credit and climate-change initiatives, among other policies.

“International tax policy making is a complex issue, but the arcane language of today’s agreement belies how simple and sweeping the stakes are: when this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living, or scale a business,” Ms. Yellen said.

The agreement among 136 countries also seeks to address the challenges posed by companies, particularly technology giants, that register the intellectual property that drives their profits anywhere in the world. As a result, many of those countries established operations in low-tax countries such as Ireland to reduce their tax bills.

The final deal gained the backing of Ireland, Estonia and Hungary, three members of the European Union that withheld their support for a preliminary agreement in July. But Nigeria, Kenya, Sri Lanka and Pakistan continued to reject the deal.

The new agreement, if implemented, would divide existing tax revenues in a way that favors countries where customers are based. The biggest countries, as well as the low-tax jurisdictions, must implement the agreement in order for it to meaningfully reduce tax avoidance.

Overall, the OECD estimates the new rules could give governments around the world additional revenue of $150 billion annually.

The final deal is expected to receive the backing of leaders from the Group of 20 leading economies when they meet in Rome at the end of this month. Thereafter, the signatories will have to change their national laws and amend international treaties to put the overhaul into practice.

The signatories set 2023 as a target for implementation, which tax experts said was an ambitious goal. And while the agreement would likely survive the failure of a small economy to pass new laws, it would be greatly weakened if a large economy—such as the U.S.—were to fail.

“We are all relying on all the bigger countries being able to move at roughly the same pace together,” said Irish Finance Minister Paschal Donohoe. “Were any big economy not to find itself in a position to implement the agreement,  that would matter for the other countries. But that might not become apparent for a while.”

 

Congress’ work on the deal will be divided into two phases. The first, this year, will be to change the minimum tax on U.S. companies’ foreign income that the U.S. approved in 2017. To comply with the agreement, Democrats intend to raise the rate—the House plan calls for 16.6%—and implement it on a country-by-country basis. Democrats can advance this on their own and they are trying to do so as part of President Biden’s broader policy agenda.

The second phase will be trickier, and the timing is less certain. That is where the U.S. would have to agree to the international deal changing the rules for where income is taxed. Many analysts say that would require a treaty, which would need a two-thirds vote in the Senate and thus some support from Republicans. Ms. Yellen has been more circumspect about the schedule and procedural details of the second phase.

Friction between European countries and the U.S. over the taxation of U.S. tech giants has threatened to trigger a trade war.

In long-running talks about new international tax rules, European officials have argued U.S. tech giants should pay more tax in Europe, and they fought for a system that would reallocate taxing rights on some digital products from countries where the product is produced to where it is consumed.

The U.S., however, resisted. A number of European governments introduced their own taxes on digital services. The U.S. then threatened to respond with new tariffs on imports from Europe.

The compromise was to reallocate taxing rights on all big companies that are above a certain profit threshold.

Under the agreement reached Friday, governments pledged not to introduce any new levies and said they would ultimately withdraw any that are in place. But the timetable for doing that has yet to be settled through bilateral discussions between the U.S. and those countries that have introduced the new levies.

Even though they will likely have to pay more tax after the overhaul, technology companies have long backed efforts to secure an international agreement, which they see as a way to avoid a chaotic network of national levies that threatened to tax the same profit multiple times.

SHARE YOUR THOUGHTS

Do you agree with the global minimum tax on corporations? Why or why not? Join the conversation below.

The Organization for Economic Cooperation and Development, which has been guiding the tax talks, estimates that some $125 billion in existing tax revenues would be divided among countries in a new way.

Those new rules would be applied to companies with global turnover of €20 billion (about $23 billion) or more, and with a profit margin of 10% or more. That group is likely to include around 100 companies. Governments have agreed to reallocate the taxing rights to a quarter of the profits of each of those companies above 10%.

The agreement announced Friday specifies that its revenue and profitability thresholds for reallocating taxing rights could also apply to a part of a larger company if that segment is reported in its financial accounts. Such a provision would apply to Amazon.com Inc.’s cloud division, Amazon Web Services, even though Amazon as a whole isn’t profitable enough to qualify because of its low-margin e-commerce business.

The other part of the agreement sets a minimum tax rate of 15% on the profits made by large companies. Smaller companies, with revenues of less than $750 million, are exempted because they don’t typically have international operations and can’t therefore take advantage of the loopholes that big multinational companies have benefited from.

Low-tax countries such as Ireland will see an overall decline in revenues. Developing countries are least happy with the final deal, having pushed for both a higher minimum tax rate and the reallocation of a greater share of the profits of the largest companies.

 
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Green Tax Break Syndicated Easements Face IRS Scrutiny

Jack Fisher has raised hundreds of millions of dollars pitching investors on real estate development projects that were never built. Fisher, an accountant-turned-developer, promoted projects such as the Preserve at Venice Harbor, near Hilton Head, S.C., where marketing illustrations showed houses on canals that evoked the famous Italian city. Instead of developing the land, he recruited investors to elaborate deals that provided them charitable tax deductions in return for donating easements for conservation.

The Internal Revenue Service, however, suspects the deals may amount to tax fraud. Fisher is at the center of a criminal probe related to these syndicated conservation easements, according to people familiar with the details, who requested anonymity to discuss a confidential matter. The investigation has already led to tax conspiracy charges against three accountants who worked with him.

A syndicated conservation easement gives dozens of investors in partnerships three choices: to build a specific development project; to hold on to the land and build later; or to donate an easement to a land trust or government, promising to forgo development. The third option entitles investors to charitable tax deductions, based on the appraised value of the land, that can be worth four or five times their investment.

Easements have been used—legitimately, and mostly by family partnerships and individuals like farmers—for decades as part of a federal push to preserve more than 30 million acres of land. Those aren’t the focus of an IRS crackdown. Instead, it’s going after promoters like Fisher who sell deals through brokers, accountants, lawyers, and tax preparers, and who market the projects that generate large tax deductions. The IRS has made these an enforcement priority, suing some promoters to shut them down and criminally investigating others.

California conservation lawyer Misti Schmidt says a typical syndicated easement used by wealthy investors is an “ugly tax-shelter scheme” that relies on grossly overvalued appraisals. “There’s so much money to be made, they just keep doing it,” says Schmidt, a partner at Conservation Partners.

Those appraisals are at the center of the legal fight around syndicated easements. Before an easement donation is made, an appraiser assigns it a value based on its highest and best use. That number is then used to calculate the tax deductions. The IRS often argues that those appraisals vastly inflate the development potential of a property, and that promoters use those valuations to market lucrative tax deductions.

Two of Fisher’s associates, the brothers Stein and Corey Agee, pleaded guilty in December to conspiring to promote fraudulent tax breaks and are cooperating with prosecutors. Although Fisher wasn’t charged or named in the Agee cases, he’s referred to as Promoter A in court documents, the people familiar with the details say. Documents reviewed by Bloomberg confirm Fisher’s role in the deals. Lawyers for Fisher didn’t respond to emails and phone calls seeking comment.

In the Stein Agee case, prosecutors say the deals were “illegal tax shelters that allowed taxpayers to buy tax deductions,” according to the charges. Appraisals were “falsely inflated,” while the conservation option was “always a foregone conclusion.” Many investors signed up after the tax year in which easements were donated, prosecutors say, even though the IRS allows deductions only in the same year a donation is made. Promoter A and others had investors backdate checks and agreements, according to the charges.

“Promoter A’s tax shelters resulted in a massive evasion of taxes,” the charges state. In all, more than 1,500 investors received $1.2 billion in fraudulent tax deductions, prosecutors said. At one point, Promoter A told Stein Agee that he met with several co-conspirators to make sure they were on the “same page” about late investments, according to the charges. Promoter A proposed that Agee could falsely suggest that backdated checks weren’t deposited because they were “lost” on someone’s desk. Lawyers for the Agees declined to comment.

Nationwide, the IRS has challenged $21 billion in tax deductions claimed for syndicated easements from 2016 to 2018, saying it’s auditing 28,000 taxpayers. Former President Donald Trump has donated several easements, including two under scrutiny by New York state authorities.

“The IRS fully supports the benefit of legitimate conservation easements around this country,” IRS Commissioner Charles Rettig told Congress in March. “It has done tremendous things for farmers and others. Our problem is with the abusive syndicated easements.”

The IRS crackdown comes amid a battle in Congress that pits conservation groups and national appraisal organizations against promoters of syndicated easements. Conservation groups want legislation that would bar investors from claiming deductions worth more than two and a half times their initial investment. Promoters have been blocking that fix for years.

“The IRS’s current take-no-prisoners litigation strategy is also going after minor technical flaws that arise in all easements, not just syndications,” says Schmidt, the conservation lawyer. “Legitimate easements are now getting disallowed.”

Fisher, who’s in his late 60s, grew up on a small-town farm in Marshall, N.C., and still speaks in a soft Southern drawl. The son of a truck driver and homemaker, he graduated with a degree in accounting from nearby Mars Hill College in 1974 before joining the IRS. Fisher then became a certified public accountant, worked for Price Waterhouse, and joined a firm that moved him to Atlanta to work with the National Football League’s Falcons.

Later, he took a job at an accounting firm with the Agee brothers’ father, Edward Agee. “I got a lot of good experience,” Fisher testified at a trial after a real estate broker sued him, claiming the developer owed him a commission. Fisher said he met people who “could refer you to business: bankers and things like that.”

He got into development by auditing construction companies, and later began assembling his own investment deals, founding Preserve Communities about two decades ago.

Fisher was adept at raising money, says Anthony Antonino, a real estate consultant who helped with the sale of 800 acres in North Carolina for $14.75 million to entities controlled by Fisher and a wealthy investor. “Jack knows where the money’s at, and he knows how to get it,” Antonino says.

Some of Fisher’s wealthy investors were involved in equestrian events, say people familiar with the matter. His family owned a 40-acre show stable in Alpharetta, Ga., according to a 2013 story in the Atlanta Journal-Constitution. His then-wife, Libba, and two of their children won several titles competing in elite hunter and jumper events, according to records maintained by the U.S. Equestrian Federation.

He was a hands-on developer, says Mark Brooks, a civil engineer who helped Fisher build projects. “He was out there walking the roads and figuring out site lots,” Brooks says. “He was real proud when he did the developments. He felt he was doing things to help out Madison County, which was a pretty poor county.”

He also branched out to the Western U.S., buying a 1,088-acre ranch near Reno, Nev. In late 2018 a Georgia corporation Fisher formed donated an easement covering 812 acres to the North American Land Trust. Investors got $51.2 million in deductions, according to court filings. They put up $10 million, his partner told planners in Nevada’s Washoe County.

Months later, Fisher pursued permission to develop 38 homes on land not covered by the easement. He showed up at a rural advisory board meeting in July 2019 wearing a cowboy hat and flanked by ranch hands, according to a resident. When pressed, Fisher backed down.

“We have no plans to do anything with that property other than to make it part of the ranch,” Fisher said at the recorded meeting. In the face of stated opposition by planners, he withdrew his application.

The Agee brothers, whose father died in 2009, helped promote some of Fisher’s deals. At the proposed Preserve at Venice Harbor development, $179.8 million in tax deductions were claimed by the 390 investors who chose a conservation easement instead of building homes, court documents show. That was more than four times what they put in.

By 2018, less than two years after the IRS began targeting syndicated easements as tax shelters, Fisher was under investigation, the people with knowledge of the matter say. “You have to be very, very careful that these look like real estate investments as compared to, you know, basically a tax shelter,” Promoter A told an agent posing as an investor, according to the charges against Stein Agee.

Fisher continued to work with the Agees through last year, the people say. In November, Promoter A left a handwritten note for Stein Agee saying he’d been “cleaning up the books,” the charges state. About the same time, a video was uploaded to the Preserve Communities Vimeo account.

Fisher talks about his career while viewers see images of forests, mountains, and rivers, and of Fisher himself sitting on a deck, and then feeding a horse. “I hope the people who live in our communities gain a greater connection to nature, to slow down in life, to realize what’s really important,” he says. “We only have so many years here on the planet, and feeling good about what you’ve done with your life.”

— With assistance by Kaustuv Basu, Neil Weinberg, and Elise Young

By: David Voreacos

Source: Green Tax Break Syndicated Easements Face IRS Scrutiny – Bloomberg

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What did the American Taxpayer Relief Act of 2012 do

Corporate Top Tax Rate and Bracket

The limitations for business-related entertainment expenses are lifted off for 2021 taxes and beyond

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Average tax refund slips to $2,913 in 2011

Possible Federal Tax Refund Due to the Earned Income Credit

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Crypto Investors Get Ready for More Taxes But Clearer Rules

Sure, you might have to actually pay U.S. taxes on those crypto trades. But at least it will be easier to figure out how much you owe.

A new push by Congress to require crypto brokers to report transactions to the Internal Revenue Service could create some unwelcome tax bills but could clarify rules for traders and users of Bitcoin and other digital tokens, potentially strengthening the system in the long run, people in the industry say.

The new rules — a last-minute addition to the $550 billion bipartisan infrastructure package now being considered by the U.S. Senate — would also force businesses to disclose trades of digital assets of more than $10,000. The provisions are designed to raise $28 billion.

The measures add to increased scrutiny the IRS has recently applied to traders of Bitcoin, Ethereum and other digital assets. The agency has promised it will issue new rules that clarify how those virtual currencies should be taxed.

People who trade digital currencies must pay income taxes on any gains, even if some crypto investors have been ignoring their tax obligations. But even for those who want to follow the law, it can be difficult to keep track of what’s owed.

Filing taxes on crypto trades can create huge headaches, especially for those who conduct multiple transactions each year. While traditional stock brokerages are already required to send detailed tax forms to clients, crypto exchanges aren’t. Even if firms wanted to help their clients file taxes, it’s not always clear how to do that under the current regulations.

In addition, tax obligations can pop up in surprising places. People who use digital currencies to pay for things — like, say, a Tesla, or a pizza — are supposed to pay taxes on any increase in value of the crypto they spend. It’s a key difference between using digital “currencies” and actual, fiat currencies such as the U.S. dollar to conduct commerce.

Andrew Johnson, a project manager at a large national bank, has invested tens of thousands in crypto and uses a dedicated service to figure out what he owes in taxes. He’s been using CoinTracker, which he learned about though a YouTube channel that he trusts.

“Most would benefit from a tracking service to help with taxes,” he said. “For me, I decided it was worth the cost to not have to manually track all the trades I did — which could take hours or days.”

Read more from Bloomberg Opinion: How Can I Lower My Taxes on Bitcoin?

Cryptocurrency exchanges and others in the industry have raised concerns that the U.S. Senate is rushing the rules into effect without consulting them first.

Some wondered whether the new rules and regulatory attention would encourage mainstream investors to join the space — or hurt the appeal of cryptocurrencies by killing its anything-goes ethos.

“Some portion of crypto investors may start to have second thoughts about the tax consequences,” said Michael Bailey, director of research at FBB Capital Partners. “It’s almost like crypto is a really fun party, but it’s getting late and a few people are starting to look at their watches as they think about the next morning.”

For years, the IRS has been warning taxpayers to report cryptocurrency transactions on their tax returns. More recently, the agency has made clear that fighting tax evasion through digital currencies is a top priority.

The IRS has started collecting vast amounts of data on blockchain transactions, has subpoenaed crypto exchanges and worked on coordinating enforcement with foreign governments. Last year, the IRS added a yes-or-no question to the front page of the 1040 income tax form asking whether filers had sold or exchanged virtual currencies.

The jurisdiction of U.S. law enforcement only reaches so far, and crypto traders who prize secrecy could flee to offshore exchanges, or take other measures to avoid being spotted by the IRS. However, the U.S. has already shown it can crack down on foreign tax evasion by, for example, forcing banks in Switzerland and elsewhere to divulge details on American clients.

Even if parts of the crypto universe remain hidden, it may be difficult to move those assets onshore and turn them into legitimate wealth.

“If a U.S. taxpayer is into crypto for the ability to underreport income from sales or transfers, chances are someone in a chain somewhere may have to disclose it,” said Julio Jimenez, an attorney who is principal in the tax services group at Marks Paneth LLP.

All this isn’t necessarily a bad thing for law-abiding investors in digital assets if they end up with clearer rules and easier-to-understand annual statements from crypto firms.

“I think it will have a positive effect on the industry,” said Brett Cotler, an attorney at Seward and Kissel LLP in New York who specializes in blockchain and cryptocurrency. While exchanges and fintech firms that deal in digital currencies may have to spend money upgrading reporting and compliance systems, it will improve customer service, he said.

Johnson, the crypto trader, said he thinks the new rules will help legitimize the crypto ecosystem and foster international growth.

“While at its heart, crypto assets have been a means of moving value outside of government-controlled rails, I still understand the need for regulation in the crypto space in order for wider adoption to take place,” he said.

— With assistance by Natasha Abellard, and Laura Davison

By ,  , and

Source: Bitcoin (BTC): What Is Impact of Government Plan to Tax Crypto Trades? – Bloomberg

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