{"id":48536,"date":"2021-02-22T08:52:32","date_gmt":"2021-02-22T08:52:32","guid":{"rendered":"https:\/\/www.counterpunch.org\/?p=133358"},"modified":"2021-02-22T08:52:32","modified_gmt":"2021-02-22T08:52:32","slug":"jeffrey-epsteins-billionaire-tax-avoidance-assistance-business","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2021\/02\/22\/jeffrey-epsteins-billionaire-tax-avoidance-assistance-business\/","title":{"rendered":"Jeffrey Epstein\u2019s Billionaire Tax Avoidance Assistance Business"},"content":{"rendered":"
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Drawing by Nathaniel St. Clair<\/p><\/div>\n

The sex-trafficking scandal surrounding the late Jeffrey Epstein already has tarnished the reputations of prominent politicians, businessmen, and the British royal family. Now it\u2019s casting a dark shadow on an estate tax-avoidance strategy popular among Wall Street CEOs and tech entrepreneurs.<\/p>\n

The strategy exploits a loophole that Congress unintentionally left open when it passed provisions related to grantor retained annuity trusts, or GRATs, in 1990. Use of these trusts already has cost the IRS\u2014by one estimate<\/a>\u2014well over $100 billion in just the last two decades. A recent filing<\/a> with the Securities and Exchange Commission by the private equity firm Apollo Global Management reveals that the firm\u2019s longtime CEO, Leon Black, relied on Epstein\u2019s assistance to extract more than $500 million of tax savings from GRATs.<\/p>\n

GRATs\u2014which combine a trust and an annuity to generate supercharged tax benefits\u2014are entirely legal. But they make no sense from a policy perspective, and they only work because Congress in 1990 enacted<\/a> a valuation formula that defies economic reality. While GRATs aren\u2019t responsible for Epstein\u2019s predation, the appearance of GRATs in the most recent Epstein revelations is one more reminder that Congress and the Biden administration should scrap this tax shelter.<\/p>\n

According to the report of an outside law firm hired by Apollo, Epstein advised Black on a range of matters between 2012 and 2017, generating $158 million<\/a> in fees. The \u201cmost valuable piece of work Epstein provided Black,\u201d according to the report<\/a>, concerned a GRAT that Black had set up several years earlier.<\/p>\n

Epstein wasn\u2019t the only financial advisor helping high-net-worth individuals set up GRATs, and Black isn\u2019t the only one to take advantage. The strategy surged in popularity after a 2000 decision<\/a> by the U.S. Tax Court rejected an IRS challenge to the Walton family\u2019s aggressive use of GRATs. Following the Waltons\u2019 lead, thousands of others\u2014including Facebook founder Mark Zuckerberg<\/a> and JPMorgan Chase CEO Jamie Dimon<\/a>\u2014have used GRATs to cut their gift tax and eventual estate tax liabilities.<\/p>\n

Two of the most masterful users of GRATs are Zoom founder Eric Yuan and the late casino magnate Sheldon Adelson. SEC filings indicate that Yuan saved more than $2 billion with well-timed transfers<\/a> to two GRATs around the videoconferencing company\u2019s April 2019 IPO. Adelson, a major Trump donor who died last month, reportedly<\/a> reduced<\/a> his family\u2019s tax liability by about $2.8 billion through GRATs.<\/p>\n

Here\u2019s how it works. To set up a GRAT, an individual\u2014called a \u201cgrantor,\u201d and almost always a multimillionaire or billionaire\u2014makes a gift to a trust with a string attached. The string is that the trust must make a series of payments\u2014a \u201cretained annuity\u201d\u2014back to the grantor for several years. After the several-year period is over, the trust\u2019s assets go to its beneficiary, which is usually another family trust set up for the grantor\u2019s children and grandchildren.<\/p>\n

A 1990 law allows the grantor to calculate her net transfer for estate and gift tax purposes by subtracting the value of the retained annuity from the amount that goes into the trust. Since these annuity payments happen in the future, Congress needed to set an interest rate that would be used to calculate the annuity\u2019s present value. Congress\u2019s error was to tie the rate to the interest rate on U.S. Treasury bonds. For February 2021, the interest rate for GRATs is just 0.6 percent<\/a>.<\/p>\n

The low interest-rate assumption gave rise to an easy planning opportunity. Wealthy individuals can stuff their GRATs with high-risk, high-growth assets that are likely to generate returns well above the Treasury rate. On top of that, they can structure their GRATs such that the present value of the annuity exactly equals\u2014or \u201czeroes out\u201d\u2014the value of the transferred assets, resulting in a net gift of zero.<\/p>\n

The upshot is that if assets in the zeroed-out GRAT grow faster than the Treasury-based rate, the GRAT will have money left over after it\u2019s done paying out the annuity, and that money will go to the GRAT\u2019s beneficiary free of any gift tax. If GRAT assets grow slower than the Treasury rate or dip in value, the trust will run out of money before it makes all of its annuity payments. The trust will cease to exist, and no one will owe any tax. From the grantor\u2019s perspective, this is a heads-I-win, tails-we-tie bet with the IRS.<\/p>\n

Recognizing what a problem GRATs had become, President Obama repeatedly<\/a> asked Congress to clamp down on these tax-avoidance trusts. After President Obama left office, Senator Bernie Sanders (I-Vt.) and Rep. Jimmy Gomez (D-Cal.) picked up the mantle of GRAT reform and introduced legislation<\/a> that would shut down the strategy that the Waltons pioneered. But President Trump\u2014who owes much of his fortune<\/a> to transfers that his father made to him using GRATs\u2014showed no interest in fixing the problem, and the Sanders-Gomez bill stalled under divided government.<\/p>\n

Hopefully, the latest Epstein revelations will put GRATs back on the tax reform agenda. The easiest fix would be simply to repeal the 1990 law that allows GRATs to exist. Taxpayers who desire the steady stream of income that comes from an annuity can continue to buy those products from insurance companies. It\u2019s only ultra-rich taxpayers who are using annuities as an estate tax avoidance strategy who would be affected.<\/p>\n

GRATs are not the most infuriating aspect of the Epstein saga, in which dozens of prominent individuals and institutions actively abetted or turned a blind eye toward Epstein\u2019s deeds. But by shining another spotlight on GRATs, the Epstein revelations remind us of the continuing damage from a tax shelter that never should have been allowed in the first place.<\/p>\n

The post Jeffrey Epstein\u2019s Billionaire Tax Avoidance Assistance Business<\/a> appeared first on CounterPunch.org<\/a>.<\/p>\n\n

This post was originally published on CounterPunch.org<\/a>. <\/p>","protected":false},"excerpt":{"rendered":"

The sex-trafficking scandal surrounding the late Jeffrey Epstein already has tarnished the reputations of prominent politicians, businessmen, and the British royal family. Now it\u2019s casting a dark shadow on an estate tax-avoidance strategy popular among Wall Street CEOs and tech entrepreneurs. The strategy exploits a loophole that Congress unintentionally left open when it passed provisions More<\/a><\/p>\n

The post Jeffrey Epstein\u2019s Billionaire Tax Avoidance Assistance Business<\/a> appeared first on CounterPunch.org<\/a>.<\/p>\n","protected":false},"author":2446,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"_links":{"self":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/48536"}],"collection":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/users\/2446"}],"replies":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/comments?post=48536"}],"version-history":[{"count":1,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/48536\/revisions"}],"predecessor-version":[{"id":48537,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/48536\/revisions\/48537"}],"wp:attachment":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/media?parent=48536"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/categories?post=48536"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/tags?post=48536"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}