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Cash-Rich Splits: A Frontier Where No Turbo Tax Can Go

Jul 17, 2014
by Caroline Miller
Allan Sloan, cash-rich splits, Don Graham, Warren Buffett
2 Comments

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.   

tax avoidcane

Courtesy of www.pinterest.com

 

 

 

 

 

 

 

 

 

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2 Comments
  1. tuna cole July 17, 2014 at 10:27 am Reply
    A well said commentary on how the tax code allows the rich and uber-rich to avoid/minimize paying taxes. However, I feel like I've been left dangling; I was hoping for some thoughts on what we--as individuals, a community, a nation--might do about this situation. You've stirred the pot, pointed out a range of the problem (which many of us are generally aware of), so now what?...
    • Caroline Miller July 17, 2014 at 11:09 am Reply
      Stay tuned, Tuna. More commentary coming down the road. I limit myself to 4 5o 5 short paragraphs a blog. Can't expose the problems and the potential solutions in those parameters but be assured, I'm not finished with the subject. Thank you for your comment.

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Contact Caroline at

carolinemiller11@yahoo.com

Portland, Oregon author Caroline Miller had distinguished careers as an educator, union president, elected official and artist/advocate.

Her play, Woman on the Scarlet Beast, was performed at the Post5 Theatre, Portland, OR, January/February 2015

Caroline published a serialized novelette, Marie Eau-Claire, on the website, The Colored Lens.  She also published the story Gustav Pavel,  a parable about ordinary lives, choice and alternate potential, on the website Fixional.co.

Caroline has published four novels

  • Ballet Noir
  • Trompe l’Oeil
  • Gothic Spring
  • Heart Land

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