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Here’s How Moving to Work Remotely Could Affect Your Taxes

If you decided to ride out the pandemic at your out-of-state vacation house or with your parents in the suburbs, you may be in for an unpleasant reality: a hefty tax bill.

Given the complexity of state tax laws, accountants are advising their clients to track the number of days they spend working out of state. Some states impose income tax on people who work there for as little as a single day.

Even before the pandemic, conflicting state tax rules were creating issues for the increasing number of people who were working remotely, said Edward Zelinsky, a tax professor at Yeshiva University’s Cardozo School of Law.

“In the last six months, this has gone from a big problem to a humongous problem,” Mr. Zelinsky said. He knows from personal experience: He lives in Connecticut but works in New York and has paid tax on his New York-based salary to both states.

You might, depending on the state and how long you have been there.

The state where you have your primary residence typically can tax your worldwide income, and any state where you earn income also has the right to tax you on the income you earn in that state, said Kirk Stark, a professor of tax law at the University of California, Los Angeles.

“That immediately creates a possibility of two separate states taxing the same income,” Mr. Stark said.

Many states offer credits for taxes paid to other states, and that may ease the burden. But if the state where you have relocated does not have a reciprocity agreement with the state of your primary residence, you could be subject to double state-income taxation.

You have less to worry about if you have relocated to one of these 13 states, which have agreed not to tax workers who have moved there temporarily because of the pandemic: Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island and South Carolina, according to the Association of International Certified Professional Accountants.

Unfortunately not, unless you are prepared to move there permanently.

Navneet Garodia, 35, a financial services professional, has an apartment in Jersey City, N.J., but moved in July to his in-laws’ house in Florida so that he and his family could have more space. He plans to reduce his New Jersey tax payments to account for the days he has worked from Florida, a state that does not impose income tax on residents.

“I shouldn’t be paying the amount of taxes I am in New Jersey, and Florida has no taxes,” he said. He has taken steps to show tax authorities that he is, in fact, in Florida, such as forwarding his mail to his address there.

But Mark S. Klein, the chairman of the law firm Hodgson Russ, says it is not that simple, as long as taxpayers still have a primary residence in the state where they had been working and intend to return there. The same applies for people who have moved to the Hamptons for the last few months — they will not be exempt from New York City tax if they return to the city once the pandemic is over.

“The rule with changing your domicile is you have to leave New York City, land in a new location and stick the landing,” Mr. Klein said.

Yes. Mr. Klein said more than 50 of his clients had moved to Florida, Texas, Nevada or Wyoming since March.

“It’s not a coincidence that these are no-tax states,” he said. The other states with no income tax are Alaska, South Dakota and Washington. Many of his clients have kept their residences in California or New York, he said, but will plan to spend the majority of the year in their homes in lower-tax or no-tax states.

Kent and Ruby Santin, who had lived in Long Island City, Queens, said they were looking to buy in New York when the pandemic hit. Instead, seeking better access to the outdoors, they changed course and bought a house on Lake Tahoe in Nevada.

The lack of income tax there was also a big plus. “That was part of the decision, to be totally honest,” Mr. Santin, 30, a management consultant said.

“Federalism,” Mr. Zelinsky said. Under the U.S. Constitution, states are permitted to create their own tax rules.

“What we’ve learned in the last six months are the benefits and the disadvantages of federalism,” he said. The benefits include governors who acted responsibly in managing the pandemic who “can make up for deficiencies of the federal government,” he said.

“The disadvantages are that states are going to have 50 different tax rules.”

Auditors are persistent, especially in New York. They will want to know how many days you have been in a state and will check your phone records, your credit card receipts, your voter registration, your travel records and details indicating how permanent your second residence is, including where your children are enrolled in school.

Even the nurses who came to New York to treat coronavirus patients will be subject to New York income tax if they worked in the state for more than 14 days, Gov. Andrew M. Cuomo said in May.

“We’re not in a position to provide any more subsidies right now because we have a $13 billion deficit,” Mr. Cuomo said at a news conference.

Nishant Mittal, the general manager of Topia Compass, which offers an app to help people keep track of their whereabouts for tax purposes, said he saw a 513 percent rise in subscribers in June, compared with June last year.

He said most of his clients did not envision a situation in which they would be working from the office as much as they did before the pandemic. “At this point, it’s no secret that this is going to be a big headache,” he said.

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States Are in a Quandary as Taxes Evaporate and Virus Spending Soars

The ballooning costs of the coronavirus pandemic have put an unexpected strain on the finances of states, which are hurriedly diverting funds from elsewhere to fight the outbreak even as the economic shutdown squeezes their main source of revenue — taxes.

States provide most of America’s public health, education and policing services, and a lot of its highways, mass transit systems and waterworks. Now, sales taxes — the biggest source of revenue for most states — have fallen off a cliff as business activity grinds to a halt and consumers stay home.

Personal income taxes, usually states’ second-biggest revenue source, started falling in March, when millions lost their paychecks and tax withholdings stopped. April usually brings a big slug of income-tax money, but this year the filing deadlines have been postponed until July.

“This is going to be horrific for state and local finances,” said Donald J. Boyd, the head of Boyd Research, an economics and fiscal consulting firm, whose clients include states and the federal government.

Many state and local governments have already taken extraordinary measures to protect residents and keep public services running. New York lawmakers gave Gov. Andrew M. Cuomo a one-year window to unilaterally cut spending if warranted, as the state faces a shortfall of at least $10 billion in tax revenue.

In Connecticut, Gov. Ned Lamont directed an extra $35 million to the state’s nursing homes so that they could pay retention bonuses, overtime and other incentives to keep workers on the job as the health crisis worsened. Oklahoma lawmakers authorized Gov. Kevin Stitt to tap into the state’s $1 billion rainy-day fund to make up a $415 million budget gap he attributed to delayed income-tax payments.

Even if states are able to stretch their finances temporarily — by trimming budgets, appropriating funds earmarked for other purposes or passing emergency legislation, as many have done — the economic recovery is expected to be slow. That means tax revenues from tourism, oil and gas drilling, conventions and other activities are probably not going to bounce back.

“We can’t spend what we don’t have,” Mr. Cuomo told the New York Legislature this month. The state is hoping to bridge its revenue gap through a mix of federal aid, loans and cuts.

Companies are unlikely to hire back the millions of workers they have laid off until they can restart normal operations, and some businesses may fold entirely. High unemployment, low consumer demand and a wave of personal bankruptcies are likely to push up the welfare-related expenses of states — on top of their pandemic-related bills.

“It will be very hard to pay for people in nursing homes, and to pay teachers to teach kids when school resumes, and to pay police,” Mr. Boyd said, naming three services that are financed in large part by the states and provided by local governments. States, along with the federal government, typically reimburse nursing homes for patient care through Medicaid and other programs.

The governors of seven Northeastern states, including New York, said this week that they would coordinate efforts to reopen their economies as the rate of daily infections dropped; the governors of three West Coast states made a similar pact. The governors have been reacting to President Trump’s statements on Monday that he had the ultimate power to decide when to relax stay-at-home orders and other restrictions that states have ordered to slow the spread of the virus.

Last week, the National Governors Association called on Congress to provide additional fiscal assistance to states to meet budget shortfalls arising from the crisis. “In the absence of unrestricted fiscal support of at least $500 billion from the federal government, states will have to confront the prospect of significant reductions to critically important services all across this country, hampering public health, the economic recovery, and — in turn — our collective effort to get people back to work,” the association’s chairman, Gov. Larry Hogan of Maryland, and vice chairman, Mr. Cuomo, said in a statement.

No two states are being affected the same way. Some of the most drastic tax revenue losses have occurred in states like Texas, Oklahoma, Alaska and Louisiana, which rely heavily on taxing oil and gas. Oklahoma based its initial budget projections on $55-a-barrel oil; lately, the price has been less than half that. The Texas Taxpayers and Research Association estimates that for every dollar decline in the price of oil, the state loses $85 million in revenue.

“The things we thought would keep us from hitting the edge of the fiscal cliff — oil prices rebounding, production coming up dramatically — those prospects look awfully dim right now,” Pat Pitney, the Alaska Legislature’s chief budget analyst, who was budget director to former Gov. Bill Walker, recently told the Alaska Public Media news site. “None of us knows the future. But the signs are way less optimistic than they were just a few short months ago.”

Other states, like Hawaii, Nevada, New York and New Jersey, depend heavily on bringing in huge numbers of people — sun worshipers, theatergoers, gamblers, conventioneers, sports fans — and taxing their hotel rooms, tickets, restaurant meals and alcohol.

The Congressional Budget Office studied pandemics in 2006, after a devastating viral outbreak in Asia, and warned that if a similar event happened here, “industries that require interpersonal contact” would be hit the hardest, losing 80 percent of their business for several months. And in fact, last month the New York City comptroller, Scott Stringer, reported an 80 percent decline in tourism-related industries.

“We’re facing the possibility of a prolonged recession — we need to save now before it’s too late,” Mr. Stringer said in a statement last month. He called on city agencies to trim $1.4 billion in their planned spending so the money could be redirected to help “the hotel, restaurant, social service and retail workers who are bearing the brunt of this crisis.”

States borrow money from the public markets by issuing bonds, but normally for specific projects, not to fund day-to-day operations. Last week, the Federal Reserve said it would buy up to $500 billion of short-term debt from the states, the District of Columbia, and the largest cities and counties. But the Fed made clear that the new debt purchasing program was to be used primarily for bridging over a few months of low revenue, with repayment due when normalcy returns. In a term sheet, the Fed said the states could also borrow to pay interest and principal on their existing debt, and to assist smaller localities. All borrowings must be repaid within two years.

Some policy analysts said the time frame was too short, given the bleak outlook.

Thomas H. Cochran, a senior fellow at the Northeast Midwest Institute, said it would be better if the Fed made loans that could eventually be forgiven, as long as the states could show they had used the money to keep public services at pre-pandemic levels after their revenue dried up. The institute studies urban and economic issues for an 18-state region.

Such loan repayment periods should last at least three years, Mr. Cochran said, recalling the time after the financial crisis of 2008. State and local revenues fell for two consecutive years — a first in postwar history — and did not rebound until 2016. This time could be worse.

In New Jersey, Fitch Ratings said its outlook on the state’s Casino Reinvestment Development Authority had turned negative because the casinos in Atlantic City were closed. (A negative outlook means a downgrade is possible over the medium term, so that investors who want to reduce their risk can consider selling; it can also make future borrowing more expensive.) New Jersey has been using tax revenue from casinos to repay certain bonds and to help financially troubled Atlantic City.

Other states, including California, Connecticut, Massachusetts and Colorado, as well as New York, have income-tax arrangements that target high incomes and capital gains. This approach makes their revenue volatile, like the markets.

Before the pandemic, Gov. J.B. Pritzker of Illinois had called for a graduated tax, a move away from the state’s current flat income tax with the goal of taxing high earners more. A referendum was scheduled for November.

Illinois urgently needs the additional revenue. Even before the pandemic, the state owed its vendors $7.8 billion, for hospitals, health insurance, higher education and consulting services, among other things. Governor Pritzker’s plan is supposed to help the state increase its tax collection, but given the recent market rout and the wobbly economy, there may not be so much high-end income to tax.

David Yaffe-Bellany contributed reporting.

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Property Taxes Are Probably Still Due Despite Coronavirus

Everyone has three extra months to pay federal income taxes because of the financial pain caused by the coronavirus pandemic. But what about the real estate taxes on your home? Any flexibility on paying those?

Maybe. It depends on where you live, since property tax payments are governed by a patchwork of state and local rules.

Extra time to pay could help people struggling with furloughs or layoffs. The average property tax bill on a single-family home in 2019 was about $3,600, but average bills are three to five times higher in some areas of the country, including parts of New York, New Jersey and California, according to Attom Data Solutions, which tracks property trends.

It’s generally harder for local governments to postpone tax payments because they rely on the money — usually paid in lump sums once or twice a year — to finance essential services. And while the federal government has vast financing power, counties, cities and towns have limited reserves of cash and credit to fill budget gaps.

Cities and towns rely on property taxes to fund the very services that are heavily strained because of the virus, said Christiana McFarland, research director for the National League of Cities. “It’s a huge hit on their budgets,” she said.

Some governments have extended spring property tax deadlines by as much as a month because of the economic dislocations caused by the virus. Others are effectively providing extensions to people who need more time by waiving penalties for late payments.

“We’re seeing a wide range of responses,” said Teryn Zmuda, chief economist with the National Association of Counties.

The extensions help people who pay their property taxes directly. People whose property taxes are included in their monthly mortgage payment don’t benefit because the money is already collected in an escrow account. (People struggling with mortgage payments should contact their bank or loan servicer. Relief has been granted for federally backed mortgages and some other home loans.)

Fewer than half of the homeowners in the United States paid their property taxes with their mortgages in 2015, according to a report in 2018 by the Lincoln Institute of Land Policy. The majority either didn’t have a mortgage or had one that didn’t put their property taxes in escrow accounts. (The share of people paying property taxes through escrow accounts varied widely by state.)

Older people are much more likely to pay their property taxes directly; just 20 percent of homeowners 65 and older had escrow accounts, the report found.

In many areas, homeowners are still expected to make property tax payments by the usual deadlines despite the economic strain caused by the virus. For a variety of reasons, “it is more difficult to change property tax filing dates than to change income tax dates,” said Jared Walczak, director of state tax policy at the Tax Foundation, a nonprofit organization focused on tax policy.

Local governments, typically counties or cities, set property tax rates and collect the money. But payment deadlines are often dictated by state law, and changing them may require an act of the legislature — many of which are now in recess — or an executive order.

Property taxes are used to pay for public schools, public health and emergency services, trash pickup, water and sewer operations, road maintenance and libraries. More than two-thirds of counties rely on property taxes for more than one-quarter of their revenue, Ms. Zmuda said. And during the coronavirus crisis, she said, counties are funding increased public health services, spending far beyond what they budgeted.

Postponing receipt of property taxes can cause havoc with local budgets, Mr. Walczak said. Unlike income taxes, which are collected over time through regular payroll deductions and estimated tax payments, property taxes are typically paid all at once or perhaps in a few installments.

Officials are struggling to find a balance between their needs and residents’ newly straitened circumstances. A group of county and tax officials in California urged the state to stick to an April 10 property tax deadline. Allowing all homeowners and businesses more time to pay, they said, “will tip local governments into insolvency at a time when our residents need us the most.”

Counties, the group said, “will use all existing authority” to cancel penalties for homeowners and small businesses affected by coronavirus “on a case-by-case basis.”

In a statement on Saturday, Gov. Gavin Newsom of California praised the counties’ “commitment” to cancel penalties because of “demonstrated economic hardship” caused by the virus. “This is good news for Californians,” he said.

A spokesman for Mr. Newsom said on Thursday that his office was “looking into further actions as well.”

Taxpayer and business groups have urged the governor to extend the deadline by 90 days, arguing that applying for waivers is burdensome, and that counties may grant them inconsistently.

Florida has extended property tax deadlines statewide about two weeks, to April 15 from March 31, because of the virus. King County in Washington State, which includes Seattle, a city hit hard by the virus, has postponed its spring deadline by a month, to June 1. West Virginia approved a statewide one-month extension to May 1. San Francisco has moved its deadline from early April to May 4, when it expects a stay-at-home order to be lifted.

Some New York state and county officials have asked Gov. Andrew M. Cuomo to postpone May property tax deadlines. A request for comment sent to the New York governor’s office was forwarded to the State Division of the Budget. A division spokesman, Freeman Klopott, said Wednesday that the state was “open to discussing adjustments to those dates at the request of the impacted local taxing jurisdictions.”

New York City follows a different payment schedule. In a transcript of remarks on March 22, Mayor Bill de Blasio suggested that the city was unlikely to extend an April 15 city tax payment deadline for some homeowners, given “skyrocketing” expenses and “plummeting” revenue because of the coronavirus crisis. But he added, “We’re going to look at everything.”

Here are some questions and answers about paying property taxes:

What happens if I don’t pay my property taxes?

Failure to pay your property taxes can lead to financial headaches like penalties and interest and, eventually, more serious problems like a lien on your home. Local governments may auction delinquent properties to collect back taxes, or sell the liens to companies that, in turn, may foreclose. Some areas, however, have temporarily halted tax lien sales because of the coronavirus outbreak.

Are there programs that can help me if I can’t pay?

Even before the virus, most tax authorities offered programs that reduced property taxes for low-income, disabled or elderly people and veterans. Some also offer those suffering financial hardship the option to defer payment or arrange an installment plan.

“There’s a lot of variation in how flexible taxing authorities are,” said Sarah Bolling Mancini, a lawyer with the National Consumer Law Center.

To find out whether your local government has postponed payment deadlines, or for instructions on how to request a deferred payment or payment plan, contact your local tax collector or tax commissioner’s office. Some offices may be closed because of the virus, so it’s best to start by checking the agency’s website.

Can I challenge the assessment on which my property tax bill is based?

Yes, but usually you must do this well before the tax bill comes due. Most communities send property owners assessments months before bills are issued and set a deadline for appeals. If it is too late to appeal the assessment used to calculate your current tax bill, you can plan to challenge the assessment for next year.

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You Have an Extra 3 Months to File Your Taxes. Should You Wait?

The government has granted everyone an extra three months to file — and pay — their 2019 federal income taxes because of the coronavirus turmoil. Whew! It helps to have wiggle room in uncertain times.But just because you have more time, should you take it?If you’re owed a significant tax …

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Don’t Let the Wrong State Get Between You and Your Assets

Gwyneth Paltrow, the actress who created the successful lifestyle brand Goop, said last summer that she and her new husband, Brad Falchuk, were living apart, on purpose. Although recently married, they had opted to maintain separate homes.

The practice, known as living apart together, dates at least to the 18th century, both among avant-garde artists bucking conformity and working people needing to sacrifice cohabitation for economic necessity.

In a recent interview in Harper’s Bazaar, Ms. Paltrow said they now live under the same roof. But the curiosity generated by her embrace of the practice gave lawyers and wealth advisers an opportunity to point to its risks. If a couple, wealthy or not, live in different legal jurisdictions, there can be a battle over which municipality’s or state’s laws prevail if they decide to divorce.

“The implications on a couple that is married and wants to dissolve the marriage, that’s where you’re seeing the ramifications of this,” said Michael Stutman, a founding partner of the law firm Stutman Stutman & Lichtenstein. He has represented clients in a living apart together arrangement who filed papers in the county or state that would grant them more favorable treatment in a divorce.

Divorce is not the only area where choosing one state over another can make a huge financial difference. For certain financial transactions, people can benefit from a state’s favorable laws without even living there.

It has gotten to the point where some states have begun promoting their ability to offer better protection than their rivals.

The competition has also had a leveling effect; “state shopping” is no longer a tactic of the megarich. Merely affluent people looking for a better financial deal for current or future assets now have multiple, cost-effective options.

But not doing your due diligence can have unintended consequences. “State law makes a difference,” said Michael Roberts, president of Arden Trust Company in Atlanta. “If you have not planned, the state has a plan for you.”

Here are four areas where picking the right state matters as much as choosing the best financial plan.

When it comes to divorce, a couple with homes in two states, like California and New York, can face vastly different treatment of marital assets. California is a communal property state, where assets are split in half; New York is what is called an equitable distribution state, meaning there is more latitude in deciding who gets what.

Mr. Stutman recently represented a wealthy husband who was living and working in California while his wife lived in New York. When the marriage dissolved, Mr. Stutman said, he acted quickly to file the divorce papers in New York before the wife’s lawyer could file in California.

“It was a nine-figure pot of money, and the difference between the two states was eight figures,” he said. “It’s a bit of a race to the courthouse.”

The risk of living apart together exists for people in the same state but different counties. Mr. Stutman said a New York couple could file in any county in the state. Suffolk County, which encompasses the wealthy towns that make up the Hamptons, has traditionally been more favorable to the spouse who earned the money, particularly if the couple owned a home there.

Sometimes, the state will make decisions for a couple living apart together. In financial matters, for instance, most states will choose a sibling or a descendant over a partner living in a separate residence, Mr. Roberts said.

“If you’re living apart together and you want this person to be the beneficiary of your estate, then you need to have a will and spell this out,” he said. “If you don’t, it may end up with your brother that you can’t stand.”

States also have different views on being private and keeping secrets. Delaware allows for trusts to be set up so beneficiaries don’t know they exist until an age determined by the person creating the trust.

Other states require that beneficiaries be told of the trust on their 18th or 21st birthday. In Delaware, a person could be kept in the dark until 30 or 40 or later.

“Parents don’t want to tell someone at 18 that they have this multimillion-dollar trust if they can wait until their mid-20s or early 30s,” said Joshua S. Miller, senior wealth strategist and managing director at CIBC Private Wealth in Boston. “They want kids to get out of college, get a job, start working a bit, mature.”

Mr. Miller said he counseled clients not to let a trust be silent for too long. “A silent trust is a tool,” he said. “I feel strongly that values, legacy and stewardship are really important. I ask clients, ‘Are you able to talk openly about your wealth?’”

Long ago, people went to foreign jurisdictions, like Switzerland or the Cayman Islands, to protect their wealth from creditors. But states have long since caught up, with Delaware, Nevada, New Hampshire and South Dakota revamping their trust laws to compete for high-net-worth individuals who want to shield their assets.

No state allows money to be shuffled into a trust in response to a lawsuit, a practice called fraudulent conveyance. But several states allow the transfer of money into a trust that would be protected after a period of, say, 18 months. A legitimate use could be by doctors or contactors who might be sued in the course of their career.

The money, though, cannot be commingled with other assets, said Matthew Hochstetler, a trusts and estates lawyer at David J. Simmons & Associates who practices in Ohio and Florida. And the process needs to look reasonable. He said he would advise clients to move no more than 50 percent of their wealth into an asset protection trust.

Bankruptcy judges do not look kindly on people who have separated assets for protection in a state like Nevada and cannot pay their debts in the state where they live.

“Bankruptcy judges love to put you in jail and hold you in contempt,” said Jerome M. Hesch, a retired law professor who runs a tax and estate planning institute at the University of Notre Dame.

But this is where the courts pit state against state. Generally, exceptions are made in the cases of alimony or child support, but states that allow self-settled trusts — in which the people setting them up are also the beneficiaries — have been challenged for not validating those support exceptions, particularly when the beneficiary lives in a different state.

“If you happen to live in a state with special asset-protection laws, there is nothing stopping you from taking advantage of your own state’s laws,” said Justin Miller, national wealth strategist at BNY Mellon (and no relation to Joshua Miller). “The real question, though, is whether individuals can set up a trust for themselves in a state where they don’t live and still avoid their own state’s law. Will your state respect it?”

Moving from a high-tax state to a one with low or no income tax is a well-known strategy. Of course, it requires the taxpayer to move. But there are other ways to save on income tax and still stay home.

Pulling certain assets out of high-income tax states like California and putting them into trusts in states with no income tax can save a huge amount of money. The highest rate in California is 13.3 percent; the rate in New York State and New York City combined can go up to 11 percent. Not paying that tax can be an enormous boost to an investor’s portfolio gains.

“All income reported by a Nevada or Delaware trust pays federal income taxes but no state income tax,” Mr. Hesch said. “If the people don’t need the money, it accumulates for the future.”

The only caveat is that the losing state does not always take the loss gracefully.

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The Liberal Economists Behind the Wealth Tax Debate

BERKELEY, Calif. — One of the most liberal policy proposals animating the Democratic presidential primaries is the handiwork of two French economists who are not formally advising any campaign and have barely met the candidates running for the White House.

Gabriel Zucman and Emmanuel Saez are the driving force behind proposals for a wealth tax, an idea embraced by Senators Bernie Sanders and Elizabeth Warren as a way to reduce economic inequality by forcing the richest Americans to pay taxes on everything they own and diverting that money to public services like universal health care and free college tuition.

Their efforts documenting a sharp increase in the concentration of wealth at the very top and their outspokenness have vaulted the tax from a fringe idea in American politics to the center of a reinvigorated debate on taxing the rich.

They have also made Mr. Zucman and Mr. Saez the most visible, and polarizing, economists in the 2020 campaign.

Other economists, including some who held top jobs under past Democratic presidents, have attacked Mr. Zucman and Mr. Saez over their research methods, their policy conclusions and their data. Conservative economists say their proposals would cripple economic growth.

Last year, the faculty at Harvard’s Kennedy School of Government voted to offer Mr. Zucman, 33, a tenured position. But Harvard’s president and provost nixed the offer, partly over fears that Mr. Zucman’s research could not support the arguments he was making in the political arena, according to people involved in the process. He has since been awarded tenure alongside Mr. Saez, 47, at the University of California, Berkeley.

The pair have won praise from some liberal activists. Felicia Wong, the president of the Roosevelt Institute, a progressive think tank, said Mr. Saez and Mr. Zucman had helped bring large tax increases on the rich into the mainstream, winning support even from Democratic candidates who do not support their wealth tax.

“It’s a very different debate,” Ms. Wong said, “and now we’re having it on Saez and Zucman’s terms.”

The effect was evident in the Democratic presidential debate on Wednesday in Las Vegas. Over two hours that included few concrete economic policy proposals, Ms. Warren and Mr. Sanders both promoted their wealth-tax plans. Mr. Sanders leaned on Mr. Zucman and Mr. Saez’s data to denounce “the insane situation that billionaires today, if you can believe it, have an effective tax rate lower than the middle class.”

Late last month, Mr. Zucman and Mr. Saez discussed their work from their university offices in Berkeley, with billion-dollar views of the San Francisco financial district in the background.

They acknowledged their critics and the uncertainties involved in their research, which attempts to assemble a picture of America’s wealth distribution that is essentially invisible in standard economic data. But they defended their methods and conclusions, and said they were not surprised that the wealth tax, which polling shows is popular even with a majority of Republicans, had captured the imagination of candidates and voters.

“Clearly it’s been central to the campaign,” Mr. Zucman said, citing voter dissatisfaction with the levels of inequality in America.

But he added: “Let me be very clear that the wealth tax is not going to solve all these problems. It’s part of the solution.”

Both Mr. Saez and Mr. Zucman have built their careers studying the rise of inequality and its intersections with tax policy. In 2009, Mr. Saez won the John Bates Clark Medal for leading what the American Economic Association called “a remarkable resurgence of interest in tax policy research over the last decade.”

Mr. Zucman began his doctoral studies in economics that year. The son of two doctors in Paris, he wrote his master’s thesis on the effects of France’s wealth tax on the migration of high earners and spent the fall of 2008 interning at a Parisian financial firm. Lehman Brothers, the investment bank, collapsed on his first day, and he found himself explaining the macroeconomic dynamics of a financial crisis to panicked traders. It helped inspire him to pursue a doctorate in economics.

Mr. Zucman eventually made his way to Berkeley, where he teamed up with Mr. Saez, who, along with another French economist, Thomas Piketty, was producing pioneering research that documented the rising share of income earned by the very richest Americans in recent decades. Mr. Saez and Mr. Zucman, building on that data, showed that wealth had grown more concentrated as well.

In their book published last fall, the pair estimated that the top tenth of 1 percent of Americans — fewer than 250,000 adults, with an average wealth of about $70 million each — held 19.3 percent of all wealth in 2018. That was triple their share from four decades earlier.

That statistic has helped galvanize the left, prompting lawmakers and other Democrats to call for a complete overhaul of how America thinks about taxation. Every major Democratic presidential candidate has proposed trillions of dollars in tax increases on the rich and corporations to pay for government programs to help reduce inequality, like affordable housing, debt-free college and universal health coverage.

“In terms of Democratic thinking, it’s been enormously influential, both in highlighting the issue of inequality — particularly how concentrated it is at the very top — and the way the tax system has been inadequate in combating that increase in inequality,” said Jason Furman, a Harvard economist who was a chairman of President Barack Obama’s Council of Economic Advisers.

Four years ago, Mr. Saez and Mr. Zucman pitched the leading Democratic candidates, Hillary Clinton and Mr. Sanders, on their wealth tax proposal, but both campaigns passed.

This cycle has been different. Mr. Sanders and Ms. Warren have both proposed wealth taxes. A third leading candidate, Pete Buttigieg, has said America “should consider” a wealth tax, though he has criticized Ms. Warren’s. Michael R. Bloomberg, the billionaire former mayor of New York, this month proposed raising taxes on the richest Americans but stopped short of endorsing a wealth tax.

“They are the experts on wealth and income inequality in America,” said Warren Gunnels, a senior adviser to Mr. Sanders’s campaign. “Those that disagree with Saez and Zucman,” he added, “are the types of groups and academics that are funded by the powers that be, the establishment, the billionaire class.”

Mr. Sanders is counting on the wealth tax to raise more than $4 trillion over a decade, which he would spend on universal child care, affordable housing and part of the financing for his “Medicare for all” plan. Ms. Warren sees it supplying $2.75 trillion for education and child care and $1 trillion for Medicare for all.

Mr. Saez and Mr. Zucman produced those revenue estimates. Leading economists have challenged them, most notably Harvard’s Lawrence Summers, a former chairman of Mr. Obama’s National Economic Council, and Natasha Sarin, a University of Pennsylvania law school professor, who calculated that the tax would raise less than half that amount.

The debate has turned ugly on Twitter, a development that Mr. Zucman has embraced. He engages in prolonged back-and-forth debates with his critics, defending his views with charts, data, emojis and sarcasm.

In December, he dismissed Mr. Summers and Ms. Sarin’s revenue estimates as “unserious.” A month earlier, when The New York Times and other outlets reported that Mr. Bloomberg was prepared to spend as much as $1 billion on his presidential campaign, Mr. Zucman feigned surprise: “This is astonishing, because what I learned from Larry Summers and others is there’s no evidence that the wealthy have a lot of influence on US politics. Very confused right now.”

Mr. Zucman seems to regard social media as a necessary but unfortunate venue for advocacy. Asked in an interview if he enjoyed Twitter, he let out a long sigh. “Who does?” he said. As for losing out on the opportunity at Harvard, he said it was appropriate for social scientists to contribute to policy debates and said Harvard’s decision “should not discourage young scholars in the U.S. to publicly defend new ideas.”

Image

Credit…Ian C. Bates for The New York Times

He seemed disappointed in Mr. Summers, whom he regards as a brilliant economist who has strayed into a subfield where Mr. Zucman claims more expertise. Mr. Summers regards Mr. Zucman as highly talented, and was among the economists who argued strongly in favor of his hiring at Harvard.

“These things get sorted out over time,” Mr. Summers said in an interview, after praising Mr. Zucman and Mr. Saez for pushing the debate on inequality. “Most serious professionals in the tax policy area think that the polemical urge at some points has gotten the better of Gabriel and Emmanuel, especially when Gabriel starts to tweet.”

Other economists have challenged the details of Mr. Zucman and Mr. Saez’s wealth inequality calculations. They have engaged in a debate with the economists Matthew Smith, Eric Zwick and Owen Zidar, whose work shows a much smaller concentration of wealth among top earners. The competing study implies there is less for the government to gain by taxing the very wealthy.

And while candidates like Mr. Sanders support raising taxes on the wealthy by citing Mr. Zucman and Mr. Saez’s claim that the rich pay lower effective tax rates than poor and middle-class Americans, many liberal economists say the claim is wrong since the calculations do not include some tax benefits for the poor, like the earned-income tax credit.

“Leaving them out seems both analytically and politically mistaken,” said Jared Bernstein, a former top economist for Mr. Obama who counts himself a fan of Mr. Zucman and Mr. Saez.

Some economists have long been critical of Mr. Saez and Mr. Zucman’s work, including Wojciech Kopczuk, a Columbia University economist who published a rebuttal to the pair’s wealth data in 2015. But their rising public profile has brought more scrutiny. Mr. Kopczuk argues that, compared with their earlier work, the Berkeley economists’ recent book made more aggressive — and he believes incorrect — assumptions.

“That’s when you can say without any doubt they crossed from academic research to advocacy,” Mr. Kopczuk said. “It’s liberating when you don’t have to deal with reviewers.”

Mr. Saez and Mr. Zucman defend their methods as “conservative” estimates and note that the imposition of an American wealth tax would provide much more transparent evidence on wealth concentration.

“If we have the wealth tax data, we will see who is right,” Mr. Saez said. “If we’re wrong, fine. If it turns out there is no wealth concentration in the United States, we don’t need a wealth tax.”

Jim Tankersley reported from Berkeley, and Ben Casselman from New York.

Source:

NYT > Business

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How to Find the Best C.P.A. or Tax Accountant Near You

If you recoil at the thought of preparing your own tax return and wonder how you can find a good certified public accountant (C.P.A.) or tax accountant, you’re not alone. According to the I.R.S., of the more than 138 million tax returns e-filed through November 22, 2019 (for the 2018 tax year), about 58 percent were prepared by a tax professional.

At Wirecutter, a product review site owned by the New York Times, we have found that hiring a C.P.A. or tax pro can take the time-consuming and often frustrating task of deciphering I.R.S. rules and forms off your shoulders. However, hiring the wrong person can do more harm than good.

Each year, the I.R.S. compiles a “Dirty Dozen” list of tax scams. Although the scams are wide-ranging, many of them include actions taken by shady tax preparers, such as promising inflated refunds, falsely claiming deductions and credits, or encouraging clients to avoid their tax obligations.

Unfortunately, just about anyone can become a paid tax preparer. Most states have few to no requirements for certification, training, or even competency testing.

So how do you find someone you can trust? Let us walk you through a three-step process to find a qualified C.P.A. or tax accountant near you.

Like with most service providers, a great way to find a C.P.A. or accountant is to ask for a referral. But don’t just go with the first name you get — compile a list of three or four potential accountants. Here’s how:

Dan Henn, a C.P.A. in Rockledge, Florida, said most of his business comes from referrals.

“Check with family, friends, business associates, co-workers, your attorney, financial adviser, or banker,” Mr. Henn said. “Find out who they use and if they’ve had a positive experience.”

C.P.A.s and accountants tend to focus on particular niches or specialties, such as small-business owners, high-net-worth individuals, or clients who work in certain industries. As a result, Mr. Henn recommends asking people you know with similar needs. “For example, if you’re a doctor, talk to other doctors and ask who they use,” he said.

The one qualification every paid tax preparer must have is a preparer tax identification number, or P.T.I.N. Anyone can apply for a P.T.I.N. online for free, so a P.T.I.N. alone isn’t indicative of the person’s skill or experience.

However, the I.R.S. maintains a directory of P.T.I.N. holders — such as C.P.A.s, enrolled agents (E.A.s), and attorneys — who have current credentials recognized by the I.R.S. The directory also includes people who have completed the Annual Filing Season Program, a series of voluntary continuing education classes covering federal tax law and ethics. Search the directory by ZIP code to find a C.P.A. or credentialed tax professional near you.

Many state boards of accountancy and state C.P.A. societies maintain online directories of members or can provide a list of tax pros in your area when asked. Not every C.P.A. prepares taxes, so you may need to do some research online or call to see if the people on your list provide the type of tax services you need.

E.A.s are federally licensed tax practitioners who are authorized to advise, represent, and prepare tax returns for individuals and businesses. The National Association of Enrolled Agents (N.A.E.A.) maintains a directory of E.A.s. You can search the directory by location, specialties, language, experience, and more.

If you make less than $56,000 per year or are age 60 and older, you may want to look into having your tax return prepared through the Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (T.C.E.) programs.

These programs are sponsored by the I.R.S. and staffed by volunteers trained to provide basic tax-prep services to the public free of charge. If you qualify, use the VITA/T.C.E. locator tool to find a provider near you.

According to the I.R.S., most VITA and T.C.E. sites won’t appear in your search results until about three weeks before they’re scheduled to open. If you search for a site outside of mid-January through April, you may have a difficult time finding one near you.

Once you find a location, check out the I.R.S.’s list of what to bring to your tax appointment before you go.

Once you’ve made a list of potential tax preparers near you, it’s time to zero in on who’s best. Here’s what to do:

If you got the tax preparer’s name from the I.R.S., your state board of accountancy, a state C.P.A. society, or the NAEA, their credentials are most likely legitimate. However, if you got the name through a referral, it’s a good idea to find out whether the person holds the certifications they claim to have.

Forty-seven states, Washington, D.C., Puerto Rico, and Guam participate in C.P.A. Verify, an online central repository of information about licensed C.P.A.s and public accounting firms. Search cpaverify.org or your state’s board of accountancy website to verify the credentials of a C.P.A.

You can double-check the status of an E.A. at EATax.org.

Look at your potential C.P.A. or tax preparer’s website and social media accounts to see what sorts of things they post online. Read online reviews on Yelp, Google, Angie’s List, Thervo, and Facebook. Google their name to see what comes up — and scroll through the first few pages of search results to make sure nothing is buried.

Anybody who works with the public probably has a negative review posted by a disgruntled client. But if your research uncovers red flags like a pattern of client complaints, unprofessional social media posts, or an arrest record, move on to your next candidate.

Now that you’ve narrowed down your list to the most promising prospects, reach out and ask them to meet in person as soon as possible. But be warned: If you wait to make an appointment until the 2020 tax season is well underway, you may have a hard time finding someone who has time to sit down with you. Set up a meeting as soon as possible, even if you don’t yet have all of your tax documents ready.

When you meet with a potential accountant, bring a copy of your most recent tax return. Reviewing your latest return is one of the best ways for the tax pro to evaluate your situation and give you an idea of how much they might charge.

Be prepared to let your potential accountant know about any significant life changes you’ve experienced in the past year, like if you got married (or divorced), invested in rental property, or started a business.

Here are some key questions to ask during your meeting:

  • How long have you been preparing taxes? If your tax return is relatively simple, someone with just a couple of years of experience under their belt should be capable of handling it. But if your return is complicated or you’ve had problems with the I.R.S. in the past, you might want someone more experienced.

  • Do you have any specialties? If you have specific needs — maybe you own a small business or rental property, or you hold foreign investments — you should work with someone who specializes in working with clients like you.

  • How do you bill for your services? The accountant may not be able to give you an exact price at this initial meeting, but they should be able to give you an estimate — especially if you show them last year’s return. Find out whether they charge a flat fee or an hourly rate; either is fine, as long as you get an idea of how much it’ll cost you to have your return prepared.

  • Are you available for questions outside of tax season? Some tax preparers set up shop during tax season, only to disappear shortly after April 15. If something goes wrong after you file your return or you need help planning for next year, a seasonal tax preparer won’t be much help. Look for someone available year-round.

  • Who will prepare my return? If the accountant is part of a firm, the person you meet with might not be the one who prepares your return — they may hand it off to a less-experienced associate and merely review their work. While this can help keep your costs low, it’s good to know who’s actually doing the work.

If you don’t find a tax preparer or C.P.A. near you whom you feel comfortable working with, consider looking outside of your geographic location. Though many people prefer face-to-face meetings, you aren’t limited to C.P.A.s and tax advisors in your town.

Mr. Henn said he’s worked with many clients who feel funny about sharing their personal financial information with a tax preparer in their own town, so they work with someone in another city or state. “Because of technology like Skype and Zoom, secure portals, and electronic filing, you can work with accountants anywhere in the country,” he said.

It may be time to decide how important that face-to-face connection really is to you.

No matter who prepares your tax return, remember: You are ultimately responsible for its contents. Never sign a tax return before checking that it’s accurate. If you’re not sure about something, ask the preparer to explain it. When you sign your return — whether with a pen or electronically — you’re asserting under penalty of perjury that it’s complete and accurate.

Take the time to hire a reputable tax pro and review their work carefully to help ease your worries this tax season.

Sign up for the Wirecutter Weekly Newsletter and get our latest recommendations every Sunday.

A version of this article appears at Wirecutter.com.

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How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

Image
Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

Source:

NYT > Business > Economy

Posted on

How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

Image
Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

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No Line to Board Private Jets, but There Is a Line to Buy Them

No lines to check in for your flight, barely any security, certainly no jockeying at the gate waiting for the moment your boarding group is called. It’s a fantasy, perhaps, unless you’re rich enough to be part of the private-jet set.

There’s no denying that flying private is easier, faster and more comfortable than sitting in even the nicest first-class seat, environmental concerns aside. But to have space in a cabin filled with people you picked comes at a steep price — as much as tens of thousands of dollars an hour.

Yet despite the hefty costs, this has been a banner year for private planes.

Sales of business jets were up 15 percent at the end of the third quarter over the same period last year, said the General Aviation Manufacturers Association, the aircraft makers’ trade group. Experts in private aviation said sales of both new and used airplanes were up, driven by an economy that is thriving for the super rich and a huge tax break in the 2017 tax law.

Not to mention the status conveyed by owning a private jet. A recent Vanity Fair piece called private jets “the singular fetish object of the modern billionaire.”

As odd as it may sound, there were even end-of-year deals this season on “white tail” jets, which the makers build without a buyer’s order. But the aviation experts said buyers needed to budget for not just the purchase price but many millions more each year to fly and maintain the plane.

“Throughout the year, some of our most well-heeled clients were in a great position to capitalize on excess inventory,” said Dan Drohan, chief executive of Solairus Aviation. “People are taking advantage of year-end acquisitions of white tails. We’re taking delivery of several in the last five days of the year.”

Deciding whether to buy your own jet requires extensive calculations based on the hours and distance you want to fly as well as the operating costs, which are substantial. The annual operating budget starts at just under $1 million for lighter jets like Embraer’s Phenom 300 and rises to $4 million or more for jets, like the Gulfstream G650 and Bombardier Global 6500, that offer the most flight range, speed and amenities.

Aside from the wow factor, the biggest motivator to buy a jet in the last year has been a tax break in the 2017 overhaul. The break is intended primarily for business expenses. So a private jet owner must use the plane at least 50 percent of the time for business purposes to deduct the entire purchase price of the plane in the first year. Personal use is allowed — as in transporting your family across the country to join you at a meeting — but not entertainment use, as in going to the Super Bowl.

This deduction also applies to used aircraft. “The fact that Trump let you take 100 percent depreciation Year 1, you’re in a $5 million plane for $2.5 million,” said Bill Papariella, chief executive of Jet Edge, a jet charter and management company. “They’re flying off the shelves.”

When the plane is eventually sold, the owner needs to pay income tax on the sale price. And if the owner doesn’t use the plane at least 50 percent of the time for business, the deduction goes away. The lost deduction means a restatement of that year’s tax filing. It could also mean that the value of that plane would be depreciated over a longer period, greatly reducing the tax benefit.

Strict record-keeping becomes essential to preserve a remarkable tax break, said Jerald D. August, tax partner and head of the international tax and wealth planning practice group at Fox Rothschild.

The least expensive way to get onto a private jet is through fractional ownership with companies like NetJets or Flexjet. With that type of ownership, a person buys a portion of an aircraft — in eighths, quarters or halves. Depending on the aircraft, this could translate to about $1 million for a quarter of a jet.

But that doesn’t include flight costs, like fuel and pilot time. Those hourly fees are more expensive than the hourly cost if you operated the plane on your own — sometimes more than double. There are also fractional fees. Of course, you’re sharing the expense of the plane with other owners. The fractional jet company is making a profit as well as taking care of maintenance.

When it comes to buying your own jet, there are a minimum number of flight hours that make it cost efficient. Mr. Drohan said the total was about 150 hours. An aviation lawyer pegged it at 300 or more. The most a jet flies in a year are 1,200 to 1,400 hours.

Mr. Papariella said his company, Jet Edge, worked to charter planes to offset fixed costs to owners, but those savings come at the cost of hours on the plane’s engines. He said the company’s fleet of under 100 jets flew a total of 1,100 hours in September and 1,460 in October.

Charters offer a balance between having more control over when you fly and lowering some of the costs of ownership. Jet Edge’s average client has a minimum net worth of $50 million, which is low in the private jet world.

Mr. Papariella’s clients often look to buy used jets, some decades old, that still perform at a high level but cost less up front, he said. A Gulfstream G4 from 2002 might cost $3 million — far better than $60 million plus for the current G650. But that old Gulfstream still costs $1 million or more a year to operate, he said.

“Even if you’re very wealthy, you could still be shocked by a monthly bill,” he said. “We want to include the owner in how we make money. It’s for guys who are used to having information at their fingertips.”

Still, some buyers don’t want to share.

A lawyer who advises on jet purchases said the plane was just another asset for his billionaire clients. Many of them are happy for the plane to sit idle when they’re not using it, even if it entails paying for a crew to be at the ready.

Management companies like Executive Jet Management, a part of Berkshire Hathaway’s NetJets, and Solairus Aviation focus primarily on managing jets for the owners, which includes negotiating down fixed costs like fuel and pilot training but also ensuring compliance with flight and safety regulations.

“First and foremost, owning an aircraft is a very technical ownership experience,” said Brian Hirsh, president of Executive Jet Management. “Unlike real estate, there’s a lot of regulatory compliance factors to consider like pilot training, standards, certification, aircraft airworthiness. The role of the management company is to make it hassle free.”

EJM, as it is known, charges $5,000 to $20,000 a month for its management services. Additional costs like fuel, pilots and crew are passed through to owners but at discounts achieved by buying alongside NetJets.

“Collectively, we have 766 aircraft, which makes us the fifth-largest airline between United and Southwest,” he said. “We take those discounts and pass them through to owners.”

Mr. Drohan said clients needed to consider the three Ms in buying a jet: mission (where and how they’re flying), means (how much they want to spend) and motivation (which, he said, “is a nice way of saying ego”).

“The last thing I say to people before a purchase is buy the airplane you want,” he said. “You’d be surprised how many people try to talk themselves into something smaller or less expensive.”

The private jet world is the domain of the have-mores and have-the-mosts. But the costs may make that airline premium economy seat more attractive.

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