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new York Times informed of Chicago businessman Barre Seid donated his entire business, tax-exempt, to the Marble Freedom Trust, a tax-exempt advocacy organization run by conservative activist Leonard Leo. A few months later, the trust sold the stock for more than $1.6 billion. And now it can use the tax savings to help fuel its political agenda.
Democrats and Republicans have become more aggressive with both tax and campaign finance laws since the US Supreme Court of 2010 Citizen United decision, But the $1.6 billion gift is the largest alleged gift of its kind and has exposed tax loopholes in the system. Fortunately, Congress has easy ways to fix the problem.
According to ProPublica, Seed acquired its stock decades ago, probably when it was valued too low. If he had sold his stock instead of transferring ownership to the nonprofit, he would have owed nearly $400 million in federal income taxes, with only $1.2 billion to charity (at a 23.8 percent capital gains tax rate; and excluding state income taxes).
If Seed had given his stock to someone other than a trust or some other tax-exempt organization, he would have paid a 40 percent gift tax on the entire $1.6 billion value of the stock. Similarly, if he held his stock until death, his estate would have to pay a 40 percent estate tax on the value of the stock, which would be less than $1 billion to pay.
But Seid had no income, gift or estate taxes when he gave his stock to the trust, a “social welfare” organization that is tax-exempt under Code Section 501(c)(4). And as a tax-exempt organization, when the trust sold the stock there was no tax on it.
Now it can spend $1.6 billion of its income on political activities with almost no restrictions. For example, it can spend unlimited for lobbying, ballot initiatives and similar activities, and spend almost half of its spending on political campaigns. And it is not required to disclose the names of its donors. This Cannot contribute directly to federal candidatesbut could Create a political action committee to circumvent these restrictions,
Seed could also avoid gifts and income tax by giving his stock to a 501(c)(3) charitable organization. But the political activities of those organizations are strictly limited. If he had given his stock to a political organization that is exempt under section 501(c)(27), he would have had to pay capital gains tax on the appreciation of his stock, although that donation would still be exempt from federal gift tax. Will happen. ,
But thanks to clever tax planning, SEED and the trust got the best of both worlds: no taxes and virtually no limits on the trust’s political activities. Effectively, the tax law helped Seed maximize his political gift.
There are two simple solutions to this problem. Congress can Expand special tax rule for social welfare organizations that treats gifts of valuable property in the form of sales to political organizations and subject to capital gains taxes.
Alternatively, Congress may impose a gift tax on property given to social welfare or political organizations. Before 2015, gifts to social welfare organizations Gifts were subject to tax, but contributions to political organizations were explicitly exempt. In 2015, Congress leveled the playing field by exempting both forms of the organization from gifts. But, better yet, Congress can now keep the playing field level by implementing gift taxes to both types of organizations.
There is no reason why taxpayers should explicitly subsidize gifts to political organizations. And Congress can easily limit the federal tax benefits for these gifts.
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