Tangible property regulations year-end deadline

The recently-issued tangible personal property regulations spend a couple of hundred pages attempting to make clear what expenditures with respect to tangible property can be deducted and which must be capitalized. As the tax community looks forward to a lot of extra work to cope with this "clarification," there is one election that may reduce the administrative burden very considerably. The election, a so-called "de minimis" election for certain property acquisitions, generally allows the taxpayer to treat the acquisitions the same for tax and book purposes.

As detailed by TaxGroup Partners, the election can be made after the end of the year, but in a fairly spectacular trap for the unwary, it is permitted only if the taxpayer has established certain policies before the beginning of the year. That means a lot of taxpayers must take action before 31 December 2013. If you are one of them (or know one of them), the time to start thinking about the election is now.

Attacking capital gains treatment for private equity carried interests -- or not

Although the case of Sun Capital Partners III v. New England Teamsters was decided a few months ago, its implications are still percolating into public discourse. The New York Times reminds us that if a private equity investor is engaged in a "trade or business" for pension purposes, it may be engaged in a trade or business for income tax purposes. If it is engaged in a trade or business, its carried interest profits are taxable as ordinary income instead of capital gains.

That is consistent with my long-held view that the government could attack capital gains treatment of carried interests without new legislation if it chose to do so. The most interesting part of the article is its near-prediction that the government will not choose to do so. The article suggests that the reason the government will not pursue the additional taxes is that it is scared to take on well-funded taxpayers (which is unfortunately credible). The reason may equally likely be a combination of anti-tax policy and regulatory capture, in which the government's policy makers have simply decided that they do not wish to impose additional taxes upon private equity.

Raoul Weil arrested in Italy

Raoul Weil has been arrested in Italy on U.S. tax charges. He was a high executive of UBS and is accused of participating in UBS' abetting its clients' evasion of U.S. taxes. This raises two reactions:

1. Why did he go on vacation in a country that extradites to the United States? It seems careless. Of course, he may know something we don't: it will be interesting to see whether the Italians actually end up extraditing him.

2. The only true immunity from prosecution at this point lies in being a high executive of a U.S. bank.

Presumably the U.S. government has a full set of cooperating witnesses lined up to testify against Mr. Weil, but there may be significant questions about U.S. legal liability for conduct taking place elsewhere. It is not clear that a Swiss banker, operating in Switzerland, has an obligation to help the United States enforce its tax laws.

A fairly normal enforcement decision

The always observant Felix Salmon notes yet another case in which the government (in this case the SEC) is vigorously pursuing an individual while the institution that apparently actually created the problem is left undisturbed. He suspects that the government is targeting the individual because he cannot afford to fight the case. That is unfortunately normal, and not only for the SEC. Taxpayers without very deep pockets should beware of it.

Possibly meaningless changes in Irish tax law

Various news outlets are reporting that Ireland has changed its tax law, but there is doubt whether it will actually result in international businesses' paying more tax globally. Apparently it will still be possible for a company incorporated in Ireland to recognize all of its income in a no-tax jurisdiction such as Bermuda.

That leaves two questions: why would Ireland change its law and why would it do so in a relatively ineffective way?

I believe the answer is "crumbs." Major multinational companies, when they choose to take advantage of the peculiarities of the Irish tax law, often seem to leave a few dollars (or Euros) behind. That can easily be done by not fully "zeroing out" the income that is subject to Irish tax, or it can be done by actually carrying on some job-creating business in Ireland. Ireland does not want to be seen as a tax-avoidance jurisdiction, but it likes those crumbs.

Are people really renouncing U.S. citizenship over FATCA tax reporting?

The Los Angeles Times reports on the difficulties U.S. tax reporting requirements ("FATCA") can impose on expatriates:

Los Angeles Times article

So are people really giving up U.S. citizenship in order to avoid FATCA requirements? Anecdotally, no, if only because the U.S. tax cost of doing so is prohibitive. (An expatriating taxpayer is in many cases treated as selling all of his or her property in a taxable sale the day before expatriation.)

Expatriates are, however, very unhappy about the highly burdensome foreign reporting requirements that apply to even very small foreign accounts. The penalties, even for an inadvertent violation with no tax deficiency, can be enough to destroy a family's finances.

I can't speak for foreign banks, but after the reporting squeeze the U.S. and Swiss governments put on Swiss banks, it's no surprise if a foreign bank does not wish to deal with U.S. customers.

The FATCA requirements are surely not troubling money launderers in the least; there are plenty of jurisdictions that will not make disclosures to U.S. authorities, and I don't think money launderers usually are greatly concerned about filing accurate tax returns.

Meanwhile, the U.S. government is literally trying to dictate how other countries run their banking systems. This is exactly the kind of policy that undermines the perceived legitimacy of the U.S. tax system in the eyes of both the world and of U.S. taxpayers.

Of course, it's a desirable goal to detect money laundering and foreign jurisdiction tax evasion. However, all an excessively broad reporting requirement does is allow bad people to hide in a thicket of unnecessary reports filed by good people.

FATCA compliance should be completed by filling out two lines (per account) on a standard tax return. Additional reporting requirements should apply only where they make sense. Penalties where there is no tax evasion should be limited to an amount that reflects a reporting error, not an international money laundering conspiracy.

Introduction of Michael Kerekes

Greetings to all who come here. My name is Michael Kerekes, and until a few minutes ago I was the last person on the Internet who did not yet have a blog.

I intend to discuss primarily tax matters, from momentous issues of tax policy to silliness on the part of both taxpayers and governments.

When someone says it better then I could, I will post a link:

Example of someone saying it better than I could:

For those of you who did not click through, it's a comic about those who might allow the government to remain shut down, to default on its debt, or both. What is currently going on falls clearly into the "silliness" category, but it unfortunately also falls into the "dangerous" category.

In the long run, there will be a lot of tax angles to this mess. Currently, we are dealing primarily with the possibility that there will be a repeal or reduction of the medical device tax. 

Generally, medical device manufacturers receive tremendous value from society in the form of patent protection. Specifically, the Affordable Care Act that is to be partially funded by the tax will create millions of potential new clients for medical devices. Thus, the tax seems to be a fair way to cover a relatively modest part of the cost of the Act. If the medical device tax is repealed, someone else will have to pay for that funding. Who can more fairly be asked to do so?