After Billionaire Abuse of Retirement Accounts, US Considers New Regulations

U.S. Senate Finance Committee Chairman Ron Wyden said last week "he is revisiting proposed legislation that would crack down on the giant tax-free retirement accounts amassed by the ultrawealthy," reports ProPublica, "after a ProPublica story exposed that billionaires were shielding fortunes inside them." Earlier ProPublica had reported that PayPal founder Peter Thiel turned his retirement account "into a $5 billion tax-free piggy bank." Wyden said ProPublica's stories have shifted the debate about taxes at the grassroots level, underscoring a "double standard" that would have a nurse in Medford, Oregon, dutifully paying taxes "with every single paycheck" while the wealthiest Americans "just defer, defer, defer paying their taxes almost until perpetuity..." Wyden's proposal also targeted the stuffing of undervalued assets into Roths, which congressional investigators had flagged as the foundation of many large accounts. Under the Wyden draft bill, purchasing an asset for less than fair market value would strip the tax benefits from the entire IRA. ProPublica's investigation showed that Thiel purchased founder's shares of the company that would become PayPal at $0.001 per share in 1999. At that price, he was able to buy 1.7 million shares and still fall below the $2,000 maximum contribution limit Congress had set at the time for Roth IRAs. PayPal later disclosed in an SEC filing that those shares, and others issued that year, were sold at "below fair value...." Daniel Hemel, a tax law professor at the University of Chicago who has been researching large Roths, said that Congress should simply prohibit IRAs from purchasing assets that are not bought and sold on the public market... He added that lawmakers should go beyond reforms targeting the accounts directly and address a potential estate tax dodge related to Roths. If the holder of a large Roth dies, the retirement account is considered part of the taxable estate, and a significant tax is due. But, Hemel said, there's nothing to stop an American who has amassed a giant Roth from renouncing their citizenship and moving abroad to a country with no estate taxes. It's rare, but not unheard of, for the ultrawealthy to renounce their U.S. citizenship to avoid taxes. Under federal law, U.S. citizens who renounce their citizenship are taxed that day on assets that have risen in value but are not yet sold. But there's an exception for certain kinds of assets, Hemel said, including Roth retirement accounts. Thiel acquired citizenship in New Zealand in 2011. Unlike the United States, New Zealand has no estate tax. It's not clear whether estate taxes figured into Thiel's decision... Patching the hole in the expatriation law, Hemel said, "should be a top policy priority because we're talking about, with Thiel alone, billions of dollars of taxes." Wyden's proposed legislation to regulate Roth IRA accounts was excoriated in at least one 2016 editorial that complained everything in it was "opposed to capitalism and economic freedom."

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