Continuing on from yesterday’s post about the anti-tax shelter rider that is buried in the Health Care Reform Bill, you might ask, why do we need tax shelter reform? Let San Francisco tax attorney Robert L. Sommers explain on his Son of Boss website
[Son of Boss] uses the infamous son of Boss tax shelter as a tool to explain how our income tax code is manipulated by some of the sharpest and most devious minds in the country. At its core, the son of Boss tax shelter involves the same concept employed by other tax shelters to reduce or eliminate capital gains: the creation of an artificial tax loss to offset a taxable gain. What sets the son of Boss tax shelter apart is the magnitude of tax dollars lost to the U.S. Treasury, as well as the tortured logic of its creators. Understanding how the son of Boss transaction distorts economic reality offers an insight into how tax shelters work, as well as how the dysfunctional nature of our current tax code provides the opportunity to attain such illogical results.
Here is the basic pattern contained in the son of Boss type tax shelters. These transactions reduce or eliminate capital gains by creating artificial capital losses. Although the pattern is simple, it is obfuscated with mounds of paperwork, intricate financial instruments and virtually incomprehensible tax code provisions.
From RLStax comes the handy Son of Boss diagram. In short, the artificial capital losses reduces their tax burden – but they never actually lost money at all. This means the country as a whole gets screwed because it loses tax revenue. The numbers on the diagram are small, $20,000 or so. Multiply by a hundred or a thousand or more, add in many more entities sluicing money around the world (Hi Ireland, thanks so much for being a “tax haven” and allowing corporations to pass through billions to avoid taxes) and you get an idea of the scope of the tax haven and tax shelter manipulations happening now.
This of course means the rest of us have to pay more and it undermines democracy as well.
Individuals and companies all have to pay taxes. But some of the world’s wealthiest individuals and multinational companies, able to afford ingenious lawyers and accountants, have figured out ways to avoid paying enormous amounts of taxes. While we can get into serious trouble for avoiding taxes, even facing jail in some countries, some companies seem to be able to get away with it. In addition, if governments need to, they tax the population further to try and make up for the lost revenues from businesses that have evaded the tax man (or woman).
Our system now is manipulated and gamed by amoral lawyers, accounting firms, and banks so the already wealthy can avoid paying taxes. This is done with the full cooperation of Congress, many of whom are wealthy themselves (what a coincidence!)
We need real tax shelter reform. The anti-tax shelter rider in the HCR bill is a major step in the right direction.