Every year I pay to have someone prepare my taxes. I don’t use TurboTax because a friend’s experience left him tied in knots and feeling as if he’d been forced to waltz with an octopus. That’s why I’d rather pay to have my taxes done than wander alone through the brambles laid out by the federal government.
Strange as it may seem, tax law is easier on the wealthy. There are loopholes for them, and some of the really big guys, like Google and Apple, avoid taxes by taking their money abroad. Life is better for the dollar on a tropical island, apparently. No wonder big corporations have surpluses with which to pay lobbyists back home to represent their interest. A cash-rich split one of those loopholes designed to benefit corporate America. According to Allan Sloan, columnist for Fortune magazine and my hero, a cash-rich split allows companies to “dispose of holdings on which they have big gains and emerge with cash without technically selling anything, thus incurring no tax bill.” (“How Warren Buffett and Don Graham Are Saving $675 million in taxes,” by Allan Sloan, Fortune, April 28, 2014, pg. 54.)
Here’s how it works: “Company A puts cash or other ‘investment assets’ plus a business into a subsidiary that it then swaps tax-free to Company B in return for B’s holding of A’s stock.” (Ibid pg. 54) No sale, no taxes but money changes hands all the same.
The deals are complicated but worth the effort for those involved. In a recent exchange between Berkshire Hathaway and Graham Holdings, the companies saved a total of $675 million in taxes.
Deals like these make me wonder why Google and Apple bother to send their companies overseas. The landscape for tax avoidance at home is so rich, it hardly makes the purchase of a ticket to the Cayman Islands worth the price.