TO DO: (2) 4-6 page memos, write explanatory memos addressing the discussion topic in full.
- At a recent high school reunion, you encounter a former classmate who is now a political journalist. In a weak moment you confess to her that you have chosen income taxes as a profession. Intrigued by your career choice, she tells you that she is working on an article about a novice political candidate (who for years was a prominent real estate mogul) and she has obtained the candidate’s tax returns for the last 10 years. These returns show that the candidate has significant tax losses and has paid no federal income taxes in at least a decade. She is trying to understand how it is that a wealthy real estate professional could amass such wealth without paying income taxes. You agreed to help summarize for her what potential techniques the candidate may have employed to achieve such wealth without having an underlying tax liability.
- Key notes to address: (i) concepts of basis, (ii) concept of loss carry forward basis, (iii) concept of basis where it allows one to withdraw money from a partnership more than what the actual cash contribution was and (iv) passive activity loss.
- Must include the above four key notes to address, write the memo in a manner where it can be understood by a person with no previous tax knowledge aka the political journalist.
- “Hedge fund loophole” – please explain what a “carried interest” is and provide an overview of the various congressional proposals to curtail their use.
- Hedge fund loophole: his is the warren buffet rules that indicates that hedge fund owners can pay a significantly lower tax rate than someone who is an administrative professional pay (think payroll clerk, someone in a very low tax bracket compared to the owner of a hedge fund).
- Question: How does this come about and talk about the carried interest and provide an overview of the various congressional proposals that are out there to curtail this abuse where hedge fund owners are paying less tax than the ordinary taxpayer.
- Must answer the question in full detail and write the memo that summarizes the hedge fund loophole and carried interest.