High-Wealth Individuals and Digital Tax Myths

This is a weekend roundup of Bloomberg Tax Insights, which are written by practitioners, featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, and Daily Tax Report: International.

This week we look at the IRS’s focus on high-wealth individuals, reportable cryptocurrency events, digital tax myths, and socially conscious tax credits. We’ll hear from:

  • Sarah-Jane Morin, Michael Kummer, and Thomas Linguanti of Morgan Lewis on global high-wealth individuals
  • Jeff VanderWolk of Squire Patton Boggs on the myths of digital taxation
  • Alan Lederman of Gunster, Yoakley & Stewart P.A. on converting single-family homes to businesses in an opportunity zone
  • Robert Willens on not-so-secret tax planning strategies
  • Dean Baker of the Center for Economic and Policy Research on a simple fix for corporate income tax
  • Kay Hobart of Parker Poe on North Carolina’s transfer pricing resolution initiative
  • Laurence Sotsky of Incentify on generating a capital expenditure budget through tax incentives
  • Christiaan van der Valk of Sovos on the benefits and challenges of tax processes automation
  • Nimish Goel and Parth Sharma of WTS Dhruva Consultants on the e-gaming industry and VAT implications

The former owners of the Chicago Cubs are among high-wealth individuals who found themselves in the U.S. Tax Court.

Photographer: Jonathan Daniel/Getty Images

The IRS Global High Wealth Program recently announced that it will be looking at hundreds of high-income individuals’ tax returns. Sarah-Jane Morin, Michael Kummer, and Thomas Linguanti of Morgan Lewis outline the triggering events and what makes athletes and entertainers targets for audits. Read: Athletes, Artists, and Audits—IRS Renews Focus on Global High-Wealth Individuals

The OECD-led Inclusive Framework on base erosion and profit-shifting (BEPS) continues its program of work on the tax challenges of digitalization. Jeff VanderWolk of Squire Patton Boggs says that the eventual policy must be based on reality and not such myths as that digital multinationals are not currently paying their fair share in market countries or that higher taxes won’t be passed on to consumers. Read: Tax and Digitalization—Policy Should Not Be Based on Myth

The IRS concluded that a personal-use house located in a qualified opportunity zone, to be renovated by its buyer into a store, restaurant, or professional office, will require substantial improvement by the buyer in order to constitute qualified opportunity zone business property, writes Alan Lederman of Gunster, Yoakley & Stewart, P.A. Read: Opportunity Zone Houses Require Substantial Improvement

Under two Puerto Rico laws, a U.S. business can achieve substantial tax savings. These laws created tax planning service opportunities. Robert Willens highlights a recent U.S. appeals court decision that says strategies devised and marketed to take advantage of these laws were not a trade secret. Read: ‘Readily Ascertainable’ Tax Planning Strategies Are Not a ‘Trade Secret’

The 2017 tax law didn’t accomplish what it promised, writes Dean Baker of the Center for Economic and Policy Research. The author says the main problem with the current system is that it is focused on the wrong target. Instead of taxing corporate profits, we should be taxing stock returns. Read: The Simple Fix For Corporate Income Tax—Tax Stock Returns

The North Carolina Department of Revenue announced a transfer pricing initiative in July. Kay Hobart of Parker Poe explains what this means for corporate taxpayers and the state’s unique approach to transfer pricing. Read: North Carolina Announces Transfer Pricing Resolution Initiative for Corporate Taxpayers

Many capital expenditures can be funded through tax credits and incentives. Laurence Sotsky of Incentify lists five key actions to achieve an optimal capital expenditure budget. Read: Five Keys to Generating 25% of Annual Capital Expenditure Budget Through Credits & Incentives

Christiaan van der Valk of Sovos discusses why automation of tax processes is beneficial but at the same time challenging. The author was involved in the International Chamber of Commerce project on continuous tax controls and explains the set of principles which was the positive outcome. Read: Stitching Together the Fabric of Digital VAT Compliance

Nimish Goel and Parth Sharma of WTS Dhruva Consultants discuss how the e-gaming industry works and what the implications and challenges are from a value-added tax perspective, with a focus on the United Arab Emirates.Read: Online Gaming—Play with VAT Carefully

From the Archive

Bloomberg Tax contributors keep finding unanswered questions in the opportunity zone guidance and pressing the IRS for further explanation.

Opportunity zone guidance continues to give investors and their advisers a clearer picture of how the program will work while making it more workable, but questions remain, wrote Billy Morrow of BDO.

Treasury and the IRS recently issued correcting amendments to the final opportunity zone regulations, and those amendments came with an unexpected gift. Lisa Starczewski of Buchanan Ingersoll & Rooney said that the correcting amendments appear to make it much easier for an entity to meet qualified opportunity zone business qualifications during the start-up period if it has a working capital safe harbor in place.

Investors have a clearer picture of the opportunity zone program after the release of several hundred pages of taxpayer-friendly regulations. The program provides possibilities beyond real estate investment. Blake Christian of HCVT told how it will provide a variety of investment opportunities even with the Covid-19 crisis.

Beyond Tax

What’s happening outside the world of tax?

The past few months of confusion surrounding Covid-19 repercussions on the New York bar exam, and issues in other states with online tests, demonstrates the need for alternative licensing methods for attorneys, says Elizabeth Gil, a recent graduate of Duke University School of Law and a member of United for Diploma Privilege. Read: Beyond the Bar Exam—Covid-19’s Call to the Legal World

What can employers do if employees refuse to participate in mandatory workplace vaccination programs? Mintz’s Jen Rubin says employers need a built-in procedure that permits employees to opt out for medical or religious reasons or perhaps even social or political reasons, including those associated with the “anti-vax” movement. Read: How to Handle Employees Who Refuse Mandatory Vaccines

Global cryptocurrency platform Coinbase is reportedly in talks with investment banks and law firms about going public, says Louis Lehot, founder of L2 Counsel. This would lend legitimacy to other companies building the cryptocurrency ecosystem and potentially pave the way for future IPOs. It’s considering using a direct listing, which is gaining in popularity, as private companies become less dependent on IPOs as a fundraising mechanism. Read: Coinbase Could Become First-Ever Public U.S. Crypto Exchange

Exclusive Content for Bloomberg Tax Subscribers

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The IRS issued FAQs that were primarily intended to provide tax relief to foreign employers with nonresident alien employees who became “stranded” in the U.S. because of the Covid-19 travel disruptions. Depending on the facts, however, the FAQs may indirectly provide U.S. tax relief for some of the NRA employees themselves. Thomas S. Bissell, a retired tax partner of Coopers & Lybrand LLP (a predecessor firm of PricewaterhouseCoopers LLP) and a former attorney-adviser in the U.S. Treasury’s Office of International Tax Counsel, explains.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact Erin McManus at emcmanus@bloombergtax.com.