Millionaires Don't Pay Taxes? 1,470 of America's Richest Didn't, According to IRS

L.A. Weekly ^ | Aug. 8 2011 | Dennis Romero

[americanophile]

Southern California has more millionaires than just about anywhere else in the nation, with L.A. coming in at No. 1, Orange County at No. 4, and San Diego ranking No. 6 in cities with the most seven-figure-plus households in 2008.

So maybe we should feel a little guilty, especially as President Obama and the GOP are headed toward draconian federal cuts, the United States' credit rating is down a notch, and the stock market is diving like a conservative congressman in a bathroom stall.

Because many millionaires and billionaires, it was revealed today, don't pay taxes like you and me:

In fact, many don't pay taxes at all. Now, those familiar with the Mack-truck sized loopholes written into the tax code (example: the wealthy who make their money off capital gains only pay a 15 percent tax rate, if that) shouldn't be surprised.

According to a recently released IRS report (PDF), 1,470 millionaires and billionaires paid zero taxes in 2009.

The report states that donations to charity, investment in government bonds, and taking cash from overseas operations has resulted in a legit, $0-tax bill for these high rollers.

Of course, some Democrats in congress have been trying to eliminate tax loopholes and discounts as part of the debt ceiling debate. But while Republicans are gung-ho to cut federal largess in the name of a solvent Republic, they've been quick to protect those who live largest.

[allmendream]

I remember when Kerry was running for President telling me I wasn't paying enough at over 30% on tens of thousands in income; while he paid less than 3% on hundreds of millions in income.

The fact of the matter is that, based upon net government receipts and net declared income - anyone paying over 18% of their income in taxes is getting a raw deal.

I and the vast majority of working Americans pay over 30%, that makes up for a few thousand millionaires paying less than 3%.

Small price to pay, some might say - to make sure Kerry and his ilk pay less than 5%.

[SaraJohnson]

Republicans are too stupid to stick together and talk effectively about reform. But they should agree with the class warfare idiots and propose a fair reform to a 10% tax to everyone - no loopholes.

[ladyjane]

You are so right.

Why is it difficult for so many to understand the difference between income and net worth?

Taxing citizens because they are millionaires would require that we change the federal tax code to tax people’s assets in addition to income.

Journalists obviously can’t differentiate between the two. They don’t understand the difference between bullets and cartridges or revolvers and semi-automatics.

[FromTheSidelines]

I think you need to report any interest in any foreign company. And I do know that you need to report any interest or authorization on any bank account that holds more than $10,000 at any time throughout the year - so if you do have a shell corporation it must be reported.

I think the IRS considers also how many own the company; if it is one person or only an family, and it is not a full corporation per US consideration (not an LLC or partnership, but an actual C corp) then you are responsible for tax on all profits. Only an actual C corp style company is tax-deferred; however, many nations do not allow foreign held C corps. They only allow S corps, LLCs, or partnerships.

Even if you can successfully defer your taxes, you still have to report your interest in that foreign company and foreign bank accounts - so the IRS can take a look at what you have around the world...

[dila813]

If you have the money tied up in a shell corporation and that money isn’t actually sitting there and it is invested, the balance is zero.

You don’t work for the company, the company had no income either. it is just a shell.

All profits are paid into it and it just turns it over and invests it again.

You might have to report under some circumstances, but no the income is zero, you have no tax to pay.

So Shell A has Broker B invest in Company C, Shell A has a bank account, but it is always zero. Broker B just receives profit from Company C and reinvests it into Company E.

You don’t work for them, the money never goes into your bank account or even Company A’s.

It is the same thing that happens in the US with your broker account, you don’t work for your broker and you are only responsible for capital gains on your investment.

When you moved the money off shore, you had already paid income tax on it too.

[dila813]

One other thing too, your corporation is the one that has to report as a foreign corporation.

There is an IRS Form for that but they only report if they have transactions with a US Entity during the year. Transfer of assets.etc.... but they don’t, so they don’t, so you don’t have to pay either.

Basically you have a firewall, but you will never be able to touch the money....so it sucks.. but if you are rich, you don’t care...it beats a mattress any day.

[FromTheSidelines]

Hmmm... I do know you have to report your interest in any foreign company if you own or control over a certain percent (I believe it is 10%), and that you also have to report any interest in any bank account or securities account in which you have ownership or even control, if it contains more than $10,000 per year.

Yeah, not realizing your investment should get you around taxes - but it also means you don’t realize your investment. Using it for overseas spending would be realization and that would be taxable.

If only the US was like the rest of the OECD and money earned overseas simply wasn’t subject to US taxation!

[FromTheSidelines]

Here is some information on foreign asset reporting from the IRS. I think you have to personally report your interest if the asset was worth more than $10,000 at any time during the year. It's not for the foreign corporation to report, but the taxpayer.

[dila813]

The asset you are reporting would be the corporation. period. It is worth nothing because the money is invested.

You don’t report capital gains. You haven’t sold anything or cashed in any of the stock.

For you to pay income tax, it has to be income, you have to be an employee.

[dila813]

The key information you are missing:

Q. Is an FBAR required if the account generates neither interest nor dividend income?

A. Yes, an FBAR must be filed whether or not the foreign account generates any income.

Notice that you have to report if over 10k, but you may or may not have generated any “income”

Q. What does “maximum value of account” mean (for Box 15 on the FBAR)?

A. The maximum value of account is the largest amount (not the average amount) of currency and nonmonetary assets that appear on any quarterly or more frequent account statements issued for the applicable year. If periodic account statements are not issued, the maximum account value is the largest amount of currency or nonmonetary assets in the account at any time during the year. Convert foreign currency by using the official exchange rate at the end of the year.

Notice it goes literally off the financial account statement. You don’t have an account with a shell company, the shell company is the one that has the accounts.

For you to pay money on this stuff, they would have to tax your assets at their current market value regardless of whether they actually realized a gain or a loss that year, that would be stupid.

[dila813]

One other thing, there is actually a provision that says if a foreign corporation does a transaction they have to provide a form similar to a request for federal tax id.

When you report, you have to use that tax id to record transactions between you and the shell.

This goes for suppliers and customers. It really sucks.

[dila813]

Here are Sources of Income that are taxable:
Wages, salaries, tips, etc.
Taxable interest.
Dividends.
Taxable refunds, credits or offsets of State and local income taxes. There are some exceptions - refer to Form 1040 instructions.
Alimony (or separate maintenance payments) received.
Business income (or loss).
Capital gain (or loss).
Other gains (or losses) (i.e., assets used in a trade or business that were exchanged or sold).
Taxable amount of individual retirement account (IRA) distributions. (Includes simplified employee pension [SEP] and savings incentive match plan for employees [SIMPLE] IRA.)
Taxable amount of pension and annuity payments.
Rental real estate, royalties, partnerships, S corporations, trusts, etc.
Farm income (or loss).
Unemployment compensation payments.
Taxable amount of Social Security benefits.
Other income. (Includes: prizes and awards; gambling, lottery or raffle winnings; jury duty fees; Alaska Permanent fund dividends; reimbursements for amounts deducted in previous years; income from the rental of property if not in the business of renting such property; and income from an activity not engaged in for profit).