Tag Archives: tax deferral

UHF Antennas Become Even More Obsolete, But Broadcasters Get a Tax Break

Remember adjusting an oddly shaped TV antenna to improve reception on channels higher than 13?  If you do, the memory is likely distant.

Congress noticed a few years ago and mandated that the Federal Communications Commission (the “FCC”) repurpose Ultra High Frequency (a.k.a. “UHF”) broadcast spectrum that carried some of those channels, to create more room for mobile broadband.  The FCC gave licensees holding rights to the repurposed spectrum the option of selling their existing licenses or accepting inferior rights.

One licensee wanted to sell and reinvest in other rights of their choosing without paying capital gains tax on the sale. The licensee asked the Internal Revenue Service to rule that Internal Revenue Code Section 1033, the same provision that allows tax-free reinvestment when the government takes real estate by condemnation, applies to allow tax-free reinvestment of the UHF license rights.  The IRS agreed, even though the taxpayer technically was not forced to sell. The IRS ruled that the option to accept other rights did not prevent Section 1033 tax deferral because the inferiority of the substitute rights the FCC offered justified ignoring that alternative. The IRS found the transaction amounted to a forced sale and therefore qualified for tax deferral.

If the government gives you a “false” choice between selling your property or accepting an inferior alternative, this ruling explains how to defer tax on the sale if you reinvest the proceeds. But we do not recommend trying this strategy with your old UHF TV antenna. You probably won’t recognize gain to defer anyway.

Here is a link to the IRS ruling: https://www.irs.gov/pub/irs-wd/201702034.pdf

E. John Wagner, II

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

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