Don't Mess With Taxes

The tax voyeur in all of us enjoyed the latest unsurprising revelations of how rich people hide money around the world, including a dozen U.S. states and D.C., to avoid paying taxes. The attention to this not really news item also is a good time to note the difference between illegal tax evasion and legal tax avoidance.

The South Dakota capitol building is in the state's capital city of Pierre. The state itself is the U.S. capital as far as the most trusts identified in the Pandora Papers. (Photo by Jake DeGroot via Wikipedia)

Last week we got news that isn't news to anyone. Wealthy people around the world, with the help of money managers and bankers, find ways to stash their cash and other assets in tax shelters.

The newly revealed Pandora Papers, like the Panama Papers back in 2016 and the Paradise Papers leak of 2017 (what is it with the P alliteration and tax havens?), are a collection of millions of private financial records that reveal the global tax havens of the affluent and powerful.

While tax cheats need to be identified and face the consequences of their actions, it's no longer a surprise, if it ever was, that the super-wealthy have and continue to dodge taxes by creative accounting.

And thanks to the excess of so-called reality television and the internet, we're actually kind of bored (at least I am) of how they use that should-be-taxed money to buy mansions, yachts, and other property in low-tax locales.

United States tax haven states: The one thing, however, that did jump out, at least to some Americans, is that some not necessarily exotic places in our country show up in the Pandora Papers.

OK, Nevada has the gauche glitz of Las Vegas, baby, but South Dakota? Or Oklahoma, where my parents spent many wonderful, but basically bland, decades? And, apologies to President Joe Biden, Delaware? Really?

I also must admit that I live in and am a former resident of three of the Pandora Papers' U.S. tax havens jurisdictions: Texas, Florida, and Washington, D.C.

OK, I know. You want to know if you also live in U.S. tax haven. Here are the 16 U.S. jurisdictions, alphabetically, that made the list:

Why the U.S. haven influx: Of course, the folks from other countries who look to the United States to hide their money aren't moving to the states or even visiting them. It's mainly just their assets going there. Or, as Michael Heller, vice dean and professor of real estate law at Columbia Law School, told CNBC, the United States has become "the world's dumping ground for hot money."

That's why that CNBC article is among this weekend's Pandora Papers-themed multiple Saturday Shout Outs. The ol' blog's selections for this weekend's reading on global, with a focus on United States, tax havens include:

• Here's how states like South Dakota have become global tax havens by CNBC
• How South Dakota became a global tax haven by Axios
• Pandora papers reveal South Dakota's role as $367bn tax haven by The Guardian
• South Dakota's tax avoidance schemes represent federalism at its worst by The Washington Post
• Pandora Papers: A Money Bomb With Political Ripples by The New York Times
• After Pandora Papers, EU says it plans new rules against tax avoidance by Reuters
• When Reputation Matters, Leaks Like the Pandora Papers Can Be Very Effective editorial by The New York Times

Again, for most folks — and all in the U.S. and global tax communities — the International Consortium of Investigative Journalists' (ICIJ) revelation of the Pandora Paper is no surprise.

But it is interesting to see how and how much of the United States is part of the problem.

Difference in tax terms and tactics: Before I go off to enjoy the rest of my Saturday, I did want to offer one more reminder.

Tax evasion and tax avoidance aren't just different semantically. From a tax and legal standpoint, they are two majorly-dissimilar categories and acts.

Tax evasion is any illegal effort to not pay legitimately due taxes. Not reporting all or some income is a common tax evasion technique. When things get more elaborate, illegal tax shelters and tax haven countries come into play.

Tax avoidance, on the other hand, is using legal methods to lower or eliminate the amount of tax that must be paid. The U.S. tax code is full of tax avoidance options, such as tax-favored accounts, tax deductions, tax credits, and income adjustments.

If you use legal tax avoidance, just be sure to prove — keep good records! — to tax collectors who ask any questions that you qualify for the tax-reducing or eliminating break(s).

Don't conflate or confuse the two, or you could find yourself in a future P-Papers expose.

You also might find these items of interest:

• Oct. 15 also deadline for foreign account FBAR filings
• Global income inequality tied to worldwide tax havens
• Swiss banker wanted in U.S. tax evasion cases escapes IRS clutches

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