Tag Archives: president

Post-Election Flashback: A Tax Break For Federal Executive Office Appointees

With President-elect Donald Trump’s cabinet appointments at the forefront, we revisit our August 2016 post examining a capital gains tax break for federal executive appointees who must sell assets to avoid conflicts of interest.  We noted that appointees with unrealized capital gains in undiversified assets could use the law to diversify without paying capital gains tax, creating a tax break vastly more valuable than anything else they earn from their positions.

Here is a link to our original post:  http://blog.williamsparker.com/businessandtax/2016/08/17/want-diversify-appreciated-asset-position-without-paying-capital-gains-tax-take-federal-government-job-conflict-interest/

Here is a link to a November 8 International Business Times article quoting our post and further examining the tax deferral law: http://www.ibtimes.com/political-capital/wall-street-titans-could-get-tax-benefit-taking-jobs-trump-or-clinton-white-house

Are any potential Trump appointees likely to benefit?  Decide for yourself after reviewing a roster of potential appointees:   https://www.washingtonpost.com/graphics/politics/trump-administration-appointee-tracker/?hpid=hp_hp-top-table-main_cabinet-graphic-135pm%3Ahomepage%2Fstory

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Does a Republican Sweep Augur Federal Tax Reform?

Amongst many things, the Republican sweep in yesterday’s election improves prospects for the most significant tax reforms since 1986.

While we instinctually focus on possible changes to our personal tax burdens, business income taxation may offer the most opportunities for structural reforms. Structural changes may or may not reduce the amount of tax revenue. They are, at least in theory, policy driven to encourage business behavior consistent with greater economic growth.

Changes on the table include taxing business income that is reinvested (rather than distributed to owners for their personal uses) at a lower rate, and changing the international tax regime to a territorial system that does not tax income earned in other countries when repatriated to the United States. The former may encourage business investment spending. The latter may reduce distortions in capital flows into the United States caused by the current tax regime. Both changes would bring the United States closer in line with the tax systems in other developed countries.

And, of course, our leaders will revisit Obamacare, including the new taxes it created.

President-Elect Donald Trump’s proposals do not exactly match those in Congress. Disagreement could impede reform. But with House Speaker Paul Ryan and President-Elect Trump both focusing on tax reform, we will see the most serious tax reform debate in many years.

Here are links to recent media discussion of possible tax reforms:

http://www.wsj.com/articles/donald-trump-win-gives-gop-fuel-to-slash-taxes-1478687402

http://www.forbes.com/sites/anthonynitti/2016/11/09/president-trump-what-does-it-mean-for-your-tax-bill/#53ec8be84b8b

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Want to Diversify an Appreciated Asset Position Without Paying Capital Gains Tax? Take a Federal Government Job With a Conflict of Interest.

If you want to convert a substantially appreciated asset into a diversified asset portfolio without paying capital gains tax, choose your favorite Presidential candidate with extra care.   He or she could save you a lot of tax by giving you a job.

If that candidate becomes President, appoints you to an Executive Branch position, and determines owning the appreciated asset creates a conflict of interest in your new Executive Branch job, Internal Revenue Code Section 1043 allows you to sell the appreciated asset and buy a diversified investment portfolio or Treasury Securities without paying the capital gains tax. Judicial appointees enjoy a similar opportunity.

Sound crazy? In 2006, media speculated that former Goldman Sachs CEO Hank Paulson would use Section 1043 to avoid millions of dollars of capital gains tax from selling appreciated Goldman Sachs stock when President George W. Bush appointed him Treasury Secretary. One might expect the tax benefit far exceeded the value of Mr. Paulson’s salary and other compensation.

But Section 1043  isn’t a complete “win” for the appointee. The gain is only deferred, not permanently eliminated, so the appointee must recognize the gain and pay the capital gains tax if and when he or she sells the newly purchased investments.  Also, diversification isn’t always voluntary.  As a condition to confirming his or her appointment, a Congressional committee can require an appointee to sell an asset the appointee wants to keep.  Another noteworthy consideration: these jobs aren’t necessarily easy.  One can wonder if, given a crystal ball, Mr. Paulson would rather have paid the capital gains tax, than serve as Treasury Secretary in the early days of the the Great Recession and, as a Republican, drop to a knee before the Democratic Congressional leadership to beg support for rescue legislation in the midst of financial crisis.

Nevertheless, don’t hesitate to raise an eyebrow if our future President appoints someone with a lot of gain (to defer) to an Executive Branch position. And if you find a job attractive in part for its tax perks, take heart that you aren’t necessarily the first person to submit your resume under such circumstances.

Here is a link to Internal Revenue Code Section 1043: https://www.law.cornell.edu/uscode/text/26/1043

Here is a link to a 2006 Forbes article discussing Mr. Paulson’s tax situation and some quirks to Section 1043 in more detail:  http://www.forbes.com/2006/06/01/paulson-tax-loophole-cx_jh_0602paultax.html

Here is a link to 2008 coverage of Mr. Paulson’s kneel: http://www.nytimes.com/2008/09/26/business/26bailout.html

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037