1996-05-05 - Re: Why I Pay Too Much in Taxes

Header Data

From: Black Unicorn <unicorn@schloss.li>
To: “Timothy C. May” <tcmay@got.net>
Message Hash: 7ccf14818225ef0314c93f1532f5c90b34b839f9351af249fe0dec5bedb6cc07
Message ID: <Pine.SUN.3.93.960505133203.1943H-100000@polaris.mindport.net>
Reply To: <adb163b00102100471cc@[205.199.118.202]>
UTC Datetime: 1996-05-05 22:22:48 UTC
Raw Date: Mon, 6 May 1996 06:22:48 +0800

Raw message

From: Black Unicorn <unicorn@schloss.li>
Date: Mon, 6 May 1996 06:22:48 +0800
To: "Timothy C. May" <tcmay@got.net>
Subject: Re: Why I Pay Too Much in Taxes
In-Reply-To: <adb163b00102100471cc@[205.199.118.202]>
Message-ID: <Pine.SUN.3.93.960505133203.1943H-100000@polaris.mindport.net>
MIME-Version: 1.0
Content-Type: text/plain


On Sat, 4 May 1996, Timothy C. May wrote:


[Much about Mr. May's taxes and methods of filing as well as
interesting discussion about entitlements and taxes deleted]

> One area where I mostly agree with Jordan Hayes and disagree with Sandy,
> Uni, and Duncan, is that I don't think it's as easy as they sometimes claim
> it is to avoid taxes by the offshore stratagems they espouse. Believe me, I
> looked into this a while back (it is never illegal to investigate ways to
> minimize tax burdens), and even considered moving out of the U.S. to a tax
> haven of some sort.

You don't have to disagree with me here.  I've said this all along.  It
can be expensive and difficult to set up a system to reduce tax offshore.
But the expense is mostly in setup costs and very front ended.  Once a
structure is in place, it's not that hard to continue to benefit.

> It turns out, as it does for many people I know, that my assets are
> relatively traceable. Salaries and even consulting fees are reported
> assiduously. Stocks can certainly be moved offshore, but the IRS obviously
> knows where they are (the institutions that keep records of stock ownership
> will tell them, for one thing...this may take a few years for the records
> to catch up, but they ultimately will).

I have to strongly disagree here.  But now you're talking about evasion,
not avoidance.  It's trivial to hide stock ownership from the IRS.  This
is perhaps one of the easiest things one can do.  Consulting fees?  These
too can be concealed.  It takes more work, but its possible.

> Certainly I could liquidate one form of my assets (stocks, real estate,
> etc.) and simply move the money out of the country. Tax evasion is always
> an option. But the price paid if one gets caught tends to be rather high.

Were you to liquidate and move out of the country and renounce
citizenship, and consult from abroad, and if you did this properly with
your t's crossed, you could very easily and legally avoid (not evade) U.S.
tax.  The question is whether this is an option for you or not for other
practical reasons.

> (Despite what you hear anecdotally about the IRS "settling" for pennies on
> the dollar.)

The IRS almost never settles like this.  Not in my experience anyhow,
unless they have a feeling that an aggressive auditor was over zealous
with your returns (and this should have been caught before you get to the
settlement phase in any event).

> Call me a skeptic.

You're a skeptic, but a reasonable skeptic.

You have an idea about what you're willing to spend, and what your willing
to "pay."  Your decision seems to be (quite logically) based on those
factors.

> I will do my best not to be drawn into a debate that has been held here
> several times before. If Sandy, Duncan, etc., believe it is so easy to
> avoid taxes--on the resources we are talking about, not sheltering small
> amounts--or if they claim that I am obviously not following their advice,
> I'll let them make these claims without any attempt to rebut them. I've
> been there and done that before.

I'll not claim its easy, and I know too little about your financial
situation to make specific recommendations.  (This is not, by the way, an
invitation for discloseure of anyone's financial dealings).  I
will say it's possible, and your mileage will depend on several factors.
How much you're willing to spend.  What you're willing to risk.  How risky
you want to get. etc. etc.  The nature of some people's business
makes it costly, others, who have mostly passive income, have an
easier time of it.

> I have no doubt that "tax planning" works for some people, and I think
> certain people like Vince Cate may do well in places like Anguilla,
> essentially starting a business from scratch. I even have longterm hopes
> for tax havens, cyberspace tax havens, anonymous systems, etc. But this
> ain't happening soon.

Here I'm not so sure I agree.  Several of us are working on making it
happen, soon.

> But I see no clear way that X shares of Apple, Y shares of Sun, Z shares of
> Intel, etc. can be converted into other forms without taxes being paid, or
> evaded. (Evaded, not avoided.)

Expatriate, have your expatriation pass the "Furstenburg" test and be
certified as being made for non-tax avoidance reasons, and you will pay
$0.00 in capital gains when you liquidate.

Should you be unable to pass the "Furstenburg" test, you can still enjoy
your dividens for 10 years before liquidating tax free.

If you don't want to wait 10 years, you can do a installment sale of your
stock via an exchange mechanism, tax free.

All 100% legal, until the Clinton "Death on expatriation" tax reform bill
passes and is signed.

> I recall Sandy claiming some scheme where I
> would use my shares as collateral and borrow tax-free against them. Sure,
> it's what I do everyday with my margin account. But to ultimately pay off a
> margin debt by selling assets involves taking capital gains (if there were
> any, of course--a safe bet in the last 10 years), and at this point the IRS
> and California Franchise Tax Board want their 40-45% cut.

I don't know what Mr. Sandfort suggested exactly, but I suspect he was
talking about an exchange of stock for debt instruments.  In some cases
such an exchange can be a non-realization event.  A form of this is one
way IPO execs still get cash from their options without being able to
exercise them and thus avoid the time restrictions on sale of stock and
condequently, often the realization of such sale.  I have to brush up on
my U.S. tax to tell you exactly when this works.  Let me know if anyone is
interested.

> Not being prepared to risk imprisonment for tax evasion, and being desirous
> of living in the United States rather than on a coral atoll, I answer the
> questions that Macintax asks me, gulp when I see the final figure, and
> write out a check (which I then have to sell even more stock to
> cover...perpetuating the cycle).

Coral Atolls are not the only jurisdictions you can live in and enjoy low
or no tax.  Consider Monoco, Liechtenstein and Panama for starters.

Imprisonment is another matter.  None of my clients have ever gone to
prison, only one has ever been audited.  (Issue was recommended for 
referal then dropped for lack of evidence)  Then again, I don't have as
many clients now as I once did.

Is it easy to minimize taxation?  No.  The United States has intentionally
made it so.  Is it impossible?  No.  Never will be.

Part of the problem is inertia.  There is a (not unreasonable) view that
taxes to the extent that the U.S. imposes them are a fact of life and that
no efforts can mitigate them which will not cost more to implement than
will be saved.  The truth of this view varies in degree with each
taxpayer.

As to the future, I predict powerful tax evasion options at the click of a
WWW button in 2-3 years.  Not that I would ever advise anyone to break
U.S. law.

> --Tim May

---
My preferred and soon to be permanent e-mail address:unicorn@schloss.li
"In fact, had Bancroft not existed,       potestas scientiae in usu est
Franklin might have had to invent him."    in nihilum nil posse reverti
00B9289C28DC0E55  E16D5378B81E1C96 - Finger for Current Key Information
Opp. Counsel: For all your expert testimony needs: jimbell@pacifier.com






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