The IRS last month proposed rules that would impose a 1% excise tax on remittance transfers—essentially cross-border money transfers—in amounts greater than $15 that are funded with cash or cash-like instruments. There are some exceptions to the tax, including general-use prepaid cards.
This raises the question of what happens when a person seeking to send money overseas simply buys a prepaid card with cash and then uses the card to fund a remittance abroad.
The proposed regulations handle the obvious cases straightforwardly: If the transaction is effectively a cash-to-card, card-to-remittance chain, the IRS may disregard or recharacterize those steps under its anti-avoidance rule.
But the more difficult question is how much time is enough to render a purchased-for-remittance taxable card into a non-taxable transaction. An hour? A day? A week? This is where the policy strays into dangerous territory.
Time is a terrible proxy for intent, because time is cheap for people who have the resources to plan around it. A rule that can be avoided through delay rewards taxpayers who can sequence, document, and wait—while punishing taxpayers who comply with the spirit of the law. A provider could design a “remittance-ready” prepaid product with a built-in delay, sub-$15 chunking of larger transactions, and enough operational window-dressing to make the transaction look legitimate.
The Treasury Department should replace a policy stopwatch with a substance-based integration rule. It should consider factors such as how the card was purchased and for whom, how the card was marketed, and whether its purchase was part of a single plan to send money abroad.
If Treasury wants to avoid opening a loophole that consumes the rule, the taxable and non-taxable line for remittance transfers should turn on substance and transaction integration instead of time.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed the Justice Department’s $1.8 billion “anti-weaponization” fund, the SEC’s semiannual reporting plan, and more.
By All Accounts
The $1.8 billion taxpayer-funded pool for alleged victims of Biden administration overreach is a questionable settlement for President Donald Trump dropping his data breach lawsuit against the IRS, Danny Werfel writes in his By All Accounts column. “We are in a world where the executive branch can create a fund the size of its choosing and make payments from it within the scope of its choosing. In other words: no checks, no balances.”
This type of arrangement could set a concerning precedent for future presidents and other elected officials who want to sue the government of which they are in charge, Danny writes, adding that “this feels like a constitutional no-fly zone.” Read More
Middle East Conflict and Corporate Tax
Gulf Conflict Creates Tax and Liquidity Risks for Multinationals
As part of a Bloomberg Tax Insights series about conflict reshaping tax priorities across the Middle East, RSM’s Tuhin Chaturvedi says businesses and tax teams in the Gulf region should begin planning for a contraction in economic activity.
Middle East Employee Mobility Is Corporate Strategy Challenge
As part of a Bloomberg Tax Insights series about conflict reshaping tax priorities across the Middle East, KPMG’s Daida Hadzic says that in times of geopolitical instability the ability to decouple work from a fixed location is no longer just an HR perk.
Gulf Instability Tests Multinationals’ Transfer Pricing Policies
As part of a Bloomberg Tax Insights series about conflict reshaping tax priorities across the Middle East, DLA Piper practitioners say multinationals in the region may need to adjust supply chain operations and reassess the transfer pricing frameworks that support them.
New Taxes in Gulf Countries Are a Shield Against War’s Turmoil
As part of a Bloomberg Tax Insights series about conflict reshaping tax priorities across the Middle East, the Gulf’s investment in real-time digital tax infrastructure looks like strategic defense, Dariba Technologies CEO Jay Riche says.
A Diverse Tax Base Can Protect Middle East From Economic Shocks
As part of a Bloomberg Tax Insights series about conflict reshaping tax priorities across the Middle East, international tax experts Manal Abdel-Samad Najd and Daniel Witt say it’s not too early to begin planning tax policies for the postwar period.
Insights
Trump IRS ‘Slush Fund’ Will Expose DOJ Lawyers to Fraud Charges
Trump’s $1.8 billion pact with the IRS has the hallmarks of a collusive settlement, a species of fraud, that could ensnare DOJ personnel involved in designing and administering it, former DC Bar President Philip Lacovara writes.
Shakira’s Spain Tax Win Shows ‘Whenever, Wherever,’ Proof Counts
Shakira’s victory against the Spanish tax authorities emphasizes that tax residency ultimately depends not on formal declarations, but on facts and documents capable of withstanding scrutiny, says NAX Law’s Xavier Segui.
Content Creators Can Pass Business Expense Test Using Paperwork
Writing a business plan, separating financial infrastructure, and documenting pivots will help content creators pass the nine-factor test of whether activities are “for profit,” Josh Hamlet of Clarity Tax Counsel says.
SEC’s Semiannual Reporting Plan Would Shift More than Paperwork
Allowing companies to file semiannual rather than quarterly SEC reports could upend how public companies approach strategic transactions, disclosure practices, and shareholder communications, corporate attorney Brian Daughney says.
Putting Private Assets in 401(k)s Risks Long-Term Investor Harm
A push by private asset managers to access our 401(k)s seems like a blatant effort to transfer the risk of owning overvalued assets to unsophisticated investors ahead of an expected market collapse. Policymakers should do something before it’s too late, says Boston College’s Renée Jones.
Five Questions With Proskauer Tax Partner Kathleen Semanski
Bloomberg Tax Insights & Commentary is featuring a recurring questionnaire of prominent tax professionals who are willing to share their thoughts about their work and the practice of tax these days. Today we feature Kathleen (Katie) Semanski, a tax partner in Proskauer’s New York office.
Technically Speaking
A federal gas tax holiday would worsen a transportation funding gap without doing enough to help households most burdened by rising gas prices, Andrew Leahey argues in his latest Technically Speaking column.
Congress should consider providing refundable credits for low- and moderate-income households or supplementing employer-based commuter assistance instead, Andrew writes. “If lawmakers insist on suspending the federal gas tax, they should at least provide a contemporaneous, dedicated backfill that doesn’t depend on future appropriations theater,” he adds. Read More
News Roundup
Democrats’ 100% Tax Plan on Fund Payouts Zeroes In on GOP Angst
Democrats are trying to force the GOP’s hand by introducing a 100% tax on payments from the Justice Department’s new fund for victims of government weaponization, even as Republicans face increasing pressure on what’s become a politically toxic $1.8 billion pot of money.
IRS Stresses Legal Stance Against Broad Covid Deadline Relief
The IRS issued a memo continuing its legal fight to avoid paying out billions of dollars in refunds to Americans who filed late tax returns or paid interest during the Covid-19 pandemic.
Alaska Legislature Passes Corporate Tax Apportionment Changes
Alaska would use new methodology to calculate corporate income tax—raising more revenue for the state—under a bill passed Wednesday during the final day of the legislative session.
As Australia Wields Its Tax Muscle, Multinationals Squirm
Like tourists who come for the koalas but keep finding spiders and snakes, companies lured to Australia’s singular market are navigating a flip side of doing business Down Under: the Australian Taxation Office.
Tax Management International Journal
How to Attribute Value to AI-Enabled Processes in Operations
Grant Thornton practitioners discuss how enterprises should allocate the value resulting from AI enablement when people, data, and workflows are interdependent and reside globally.
Tax Management Memorandum
Can Disclosure Neutralize Civil Fraud? Enforcements Explored
An examination of the Tax Court’s North Donald case and whether disclosures may be used to avoid civil fraud penalties by Caplin & Drysdale and Meadows Collier attorneys.
Career Moves
Holland & Knight Recruits State Tax Trio From K&L Gates in Texas
Sam Megally, Will LeDoux and Cindy Ohlenforst joined Holland & Knight as members of the firm’s tax, executive compensation, and benefits practice group in Dallas, the firm announced Monday. Megally and LeDoux joined as partners, while Ohlenforst joined as senior counsel.
Holland & Knight Adds Kyle Wingfield as Tax Partner in Virginia
Kyle Wingfield joined Holland & Knight as a partner in its tax, executive compensation, and benefits practice group in Richmond, Va., the firm announced Wednesday.
Cooley Brings on Investment Adviser Jon Brose as Tax Partner
Jon Brose joined Cooley as a partner in its tax practice in New York, the firm announced Thursday.
Greenberg Traurig Adds Tax Attorney John Ormonde as Shareholder
John Ormonde joined Greenberg Traurig as a shareholder in its state and local tax practice in Washington, DC, the firm announced Thursday.
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