How Do Rich People Hide Their Money From Taxes
At threescore-stories high and 684-feet tall, Boston's Millennium Tower, a residential luxury high-rise that opened in 2016, is the fourth-tallest building in the city.
Information technology is too a virtual ghost boondocks.
That'south because the Millennium is less of a playground for the rich and more of a tax shelter in the sky, writes Chuck Collins in his new book, "The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions" (Polity), out next month.
"Over 35 percent of the 443 condominiums are owned by crush companies and trusts, and virtually 80 pct of the unit owners do non claim a residential exemption, indicating that the condo is non their primary dwelling," writes Collins. "With average condominiums selling for over $4 one thousand thousand, Millennium Tower is not only a wealthy residence for the rich, but besides a 'wealth storage unit' for global capital looking to park itself and hold value."
Collins knows a piddling something about the ultra-wealthy. A great-grandson of cold-cut magnate Oscar Mayer, Collins inherited $500,000 at age 25 and gave it all away to charitable organizations. Since and then, Collins, now 61, has spent his life educating and writing about the impact of wealth inequality.
His new book focuses on what he calls the Wealth Defense Industry (WDI), noting that not merely do the ultra-wealthy — which he defines as the 0.ane percent — spend fourth dimension and money ensuring they pay most no taxes, but that there are over ninety,000 professionals around the world whose careers are dedicated to helping them do so.
"The wealth defenders are a booming sector of the white-collar workforce around the earth," he writes. "They are the gatekeepers — the lawyers and accountants with expertise in trusts and estates, tax law, incorporation, and business transactions.
"What the industry euphemistically calls 'tax efficiency,' " he adds, is a gentler term "for legal and illegal tax dodging."
"Tens of thousands of people wake upwardly every morning and say, 'How can I help this billionaire pass as much money as possible to his children with the lowest taxes?' That is their mission in life," Collins tells The Post.
In 2015, the global Tax Justice Network estimated that there was between $24 trillion and $32 trillion in hidden wealth worldwide — around 10 to 12 percentage of the world's wealth, Collins writes.
The IRS estimates that the peak 1 percent of households fail to report near 21 percent of their income, co-ordinate to a new Wall Street Journal written report. The "tax gap" — or the amount "missing" from IRS coffers due to taxation evasion and noncompliance — from 2013 to 2015 was a stunning $391 billion a year. Collins notes that "noncompliance is largely the result of the wealth-hiding tricks of the richest ane percent, who are responsible for about 70 per centum of taxation underreporting."
Asset protection trusts are one normally used tool for hiding wealth. While varied and circuitous in nature, a trust tin can be used to "construct a fiction that they are parting with their property or coin while continuing to enjoy the money and property as if they keep to own it (because they sort of practise)," Collins writes.
Trusts are often built using "deliberately opaque rules and legal structures that fog upwards the question of buying."
The late billionaire Sheldon Adelson, for example, used a complicated trust machinery called a "grantor retained annuity trust (GRAT)" to "laissez passer on $7.9 billion to his children while avoiding $ii.8 billion in gift and estate taxes."
Another unremarkably used technique is transfer pricing, which involves "shifting avails between subsidiaries, increasing costs and expenses in loftier-taxation countries in gild to reduce taxes, while moving profits and royalty income to low- or no-tax countries."
Transfer pricing has allowed companies around the globe — like Apple — to "dodge about ten percent of corporate income taxes, roughly $100 billion to $240 billion a yr in US taxes," Collins writes.
"Apple has patents for their intellectual property, such as the design of the iPhone, owned by a subsidiary corporation based in a country that has depression or no taxes on royalty income from intellectual property, such as Ireland or kingdom of the netherlands," Collins writes.
Family offices — businesses that manage the dynastic wealth of one or several clans, often seeking out ways to hide their money and diminish their tax burden — are also a major stronghold for the WDI.
"Thousands of families around the world are forming family offices," Collins writes. "Oprah has one, OW Management LLC. The billionaire Koch family unit have 1888 Management LLC to manage their $100.6 billion in combined net worth. Hedge-fund manager William Ackman and Google co-founder Sergey Brin each take one."
Family unit offices hold "over an estimated $6 trillion or more, the equivalent of seven percent of the world's stock markets," Collins writes. "Recollect virtually information technology. Trillion-dollar pools of unregulated, anonymously owned capital. What could maybe go incorrect?"
Collins writes that there are threescore countries — including the Us — that take "contorted their laws to attract global fiscal services," allowing companies to register there without disclosing beneficial ownership. One way this is done is through bearding shell companies, which rarely conduct any actual concern and allow their owners to keep their identities equally hidden as the money they squirrel abroad within the companies. One adept, quoted past Collins, believes the state of Delaware is the largest source of anonymous vanquish entities in the world.
The wealth-hiding system is not a small sideshow in the larger economic organization — it is the system
Author Chuck Collins
While many of the biggest financial scandals, including Bernie Madoff and 1MDB, wind up involving Delaware beat out corporations, the state also offers significant tax advantages to its anonymous clientele.
"Delaware does not tax certain profit-making intangible items — like trademarks, royalties, leases, and copyrights. Nonetheless those aforementioned intangibles tin can be part of a tax strategy that allows them to exist classified equally deductions in other states, reducing the company'southward tax neb at that place," Bradley P. Lindsey, co-author of the study "Exploring the Role Delaware Plays equally a Domestic Taxation Oasis," says in Collins' volume.
This loophole has "enabled corporations to reduce taxes paid to other states by an estimated $9.5 billion over a decade by shifting royalties and revenues to Delaware-based holding companies. WorldCom used the loophole to cut $20 billion from country taxes thanks to an intangible nugget called 'management foresight,' " Collins writes. (According to The New York Times, direction foresight refers to "strategic plans" that WorldCom charged its subsidiaries billions of dollars for.)
Delaware is not alone. In the 1980s, South Dakota, long dwelling to weak regulation and no state income taxation, repealed rules that put a time limit on trusts. Instead of being forced to liquidate a trust after a certain number of years, the country immune rich families to proceed on hiding and nurturing their money, essentially offer them an "elixir of immortality for dynastic wealth."
"In 2010, [South Dakota] trust companies managed a total of $57 billion," writes Collins. "By 2020, they were managing over $350 billion."
Many have used anonymous shell companies to park their wealth in luxury real estate in big cities nationwide, such as the Millennium in Boston and One57 on New York's Central Park.
According to The New York Times, "54 per centum of real estate purchased in New York for more $v million was acquired in the proper name of anonymous shell companies" in 2014, Collins writes.
"In the six most expensive condo projects in the city, the owners in a majority of units were hidden by trounce companies, including 77 pct of the units in One57 and 69 pct of the units at The Plaza. The value of the 900 condominiums in these six buildings was equal to the value of 20,000 average American homes."
Collins advocates for greater wealth transparency in the American system — and for rules that arrive harder for the nation's richest people and corporations to avert paying tax.
"The wealth-hiding system, an ecosystem if you will, operates considering of the tolerance and enablement of many different institutions and actors," he writes. "It is non a minor sideshow in the larger economic organization — information technology is the evidence. Information technology is the arrangement."
Currently, the IRS is urging lawmakers to give the agency greater funds for enforcement, including more than staff and tougher rules requiring more reporting of financial data by businesses. In congressional testimony final week, IRS Commissioner Charles Rettig argued that each additional dollar spent on tax enforcement could yield $v to $7 in revenue, and heighten an additional $1 trillion over a decade without raising taxes, The Wall Street Journal reported.
"It is not just a torso count of how many people we have in enforcement," Rettig said. "We need to have specialized agents."
Collins says wealth hoarding can be reined in if the government can find the forcefulness to face up it. In fact, bipartisan steps have already begun.
"In December 2020, Congress passed the Corporate Transparency Human action, which requires corporations to disclose beneficial buying. Republicans and Democrats came together, but it doesn't include trusts," Collins tells The Post.
"Nosotros could establish a federal law saying that trusts can only be for 80 years as opposed to these dynasty trusts that exist forever. Nosotros could totally fix this. With the political volition, we could close down a lot of this."
Source: https://nypost.com/2021/03/27/the-shocking-ways-billionaires-profitable-companies-hide-money/
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