Through this weeks readings the concept of tax avoidance vs. tax evasion is introduced. Although a seemingly straightforward, further readings about both avoidance and evasion may elicit deeper perception of the topics.

Recently on PBS I watched a rebroadcast of a Farm Aid concert which caused me to think about Willie Nelson and his tax “issues”. Billed by Time magazine as one of the top ten tax dodgers of all time, right up there with Alphonse Capone (whose historical documents are available on irs.gov through the Links Library), is Willie Nelson. Take some time to look into root and cause of Willie Nelson’s IRS issues.

After examining this case of tax evasion, research the tax loophole, or the legal tax avoidance of “carried interest” which was brought to the “evening news” by Mitt Romney. There is a particularly interesting article published by The New Yorker in March 2016, entitled "The Billionaires’ Loophole"

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. Please read this article as well as researching further information independently. Carried interest was minimally addressed in the TCJA. The following explains these insignificant changes   Tax reform in Small Bites.docx Actions

Tax shelters have undergone much scrutiny which has precipitated many changes in the last 20 years. What are your thoughts on Willie Nelson and Price Waterhouse? What about carried interest and its cast of characters?

 

Tax Reform m in Small Bites Although Congress has been considering changing the tax treatment of carried interest for years, the Tax Cuts & Jobs Act (TCJA) enacted in December 2017 left the favorable treatment largely intact. The new danger to carried interest tax treatment may come from the states. A carried interest is an equity interest in a partnership granted to a manager (or other service provider) that is not subject to tax upon grant or vesting and which often results in capital gain treatment for the holder. Managers of funds and executives in other businesses structured as partnerships for tax purposes often receive carried interest as compensation for services performed in the management of the partnership. AsS a result, their share of partnership income has the same character as it has for passive investors in the fund (e.g. generally capital gains for private equity funds), and their proceeds from sale of their interest may largely be subject to a top 23.8 percent capital gain rate rather than the top 37 percent ordinary income tax rate for federal income tax purposes. The TJCA imposes a new three-year holding period on certain carried interests for holders to qualify for the long-term capital gains rate. The three-year holding period applies only to a partnership interest transferred or held in connection with the provision of substantial services by the taxpayer or a related person in the trade investing in or developing "specified assets." For this purpose, specified assets include securities, commodities, rental or investment real estate, cash or cash equivalents, and option or derivative contracts. business of raising or returning capital and either Having escaped federal tax reform largely unscathed, fund managers and other holders of carried interests now need to look to the states. New York Govemor Andrew Cuomo announced in January that he is seeking to change the treatment of carried interest for state tax purposes and impose additional tax on hedge fund managers working in New York. It is not clear from the statement how these additional taxes would apply. Similar bills are being considered in Connecticut, New Jersey, and Massachusetts.