Re:The ETF Tax Dodge
by sokoloff on Sunday March 31, 2019 @02:52PM
(#19537470)
My example conflates (or does not clearly distinguish between) partnerships (taxed as passthrough) and companies (taxed twice possibly). In the place I referenced taxed twice (only possible as a company), assume the federal rate on everything is 40% [to make the math forum-calculation-friendly].
Company starts with $200K, held 50:50 by two shareholders, losslessly buys two house for that, those go to $300K, company losslessly sells one of them for $150K, company pays $20K tax on $50K gain, and then owns a $150K house and $130K in cash. Shareholder B sells their 50% share in the company to shareholder A for $140K cash, realizing a $40K capital gain on their original shares investment [incurring $16K in taxes on the gain in their shares]. Shareholder A now owns all the shares with a basis of $240K for a company value of $280K.
I argue that Shareholder B’s economic interest in a single gain has been taxed twice.
Company starts with $200K, held 50:50 by two shareholders, losslessly buys two house for that, those go to $300K, company losslessly sells one of them for $150K, company pays $20K tax on $50K gain, and then owns a $150K house and $130K in cash. Shareholder B sells their 50% share in the company to shareholder A for $140K cash, realizing a $40K capital gain on their original shares investment [incurring $16K in taxes on the gain in their shares]. Shareholder A now owns all the shares with a basis of $240K for a company value of $280K.
I argue that Shareholder B’s economic interest in a single gain has been taxed twice.