Tax System Loophole Exploited by many Rich Individuals

Tax System Loophole Exploited by many Rich Individuals

A recent New York Times story has reported about an income tax loophole used by many high net-worth individuals have been exploiting to save millions of dollars in taxes. The NY Times report has focused on some hedge fund managers who have been using this loophole to save taxes. The trick involves sending money to Bermuda and then bringing it back.

Termed as ‘income defense industry’ by many, there are many people working in this system for high income individuals to safeguard their money and save millions in taxes due on their income. The system involves highly paid tax lawyers, estate planners, anti-tax activists and lobbyists who work in tandem to devise the best strategies for super-rich individuals for saving taxes.

The NY Times story talks about hedge fund managers Daniel S. Loeb, Louis Moore Bacon and Steven A. Cohen in context of the sophisticated ‘income defense industry’. The report added that massive funding goes to various departments and political outfits for having favorable conditions for the tax loopholes.

The report added, “Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.”

While billionaire George Soros has spoken in favor of higher taxes for super-rich individuals, he himself has exploited this loophole, according to NY Times report.

The report further informed, “Each of the top 400 earners took home, on average, about $336 million in 2012, the latest year for which data is available. If the bulk of that money had been paid out as salary or wages, as it is for the typical American, the tax obligations of those wealthy taxpayers could have more than doubled. Instead, much of their income came from convoluted partnerships and high-end investment funds. Other earnings accrued in opaque family trusts and foreign shell corporations, beyond the reach of the tax authorities.”

The full report offers a much-detailed information about the way the loophole is exploited by the super-rich. The NY Times report can be read here >>