Bloomberg Tax
March 8, 2022, 9:45 AM

Seven Takes on the Tax Impacts of the War in Ukraine

Jared  Johnson
Jared Johnson
White and Williams LLP

The world has met Russia’s invasion of Ukraine with an avalanche of sanctions, boycotts, and financial countermeasures. While the actions are aimed at addressing the clear and present danger, there will be impacts felt in the longer term as we move through what was intended to be a post-Covid-19 recovery year and into 2023. Individual investments and financial planning will inevitably be affected, as will domestic legislation and international treaties.

The initial week of chaos saw both public and private actors rushing to Ukraine’s aid. Banks were removed from the SWIFT system, tariffs were levied, and Warner Brothers excluded Russia from a blockbuster movie. Elon Musk accelerated deployment of Starlink, and Apple, Exxon, and Ford closed their doors to the Russian market. All of these will have direct and rippling effects on the American tax system from both administrative and revenue perspectives.

Here are seven tax areas that will be affected by the week’s events.


The iron is hot for Treasury Secretary Janet Yellen to resurrect her battle cry for increased bank account transparency. However, her desire to be bold will be tempered by the Democrats in an uncertain midterm election cycle where they stand to lose control of Congress. Bank account transparency was not popular when she came for account data last year and will continue to be unpopular in the midterms.

However, there is also a window of bipartisanship in the name of security reminiscent of Capitol Hill in the wake of Sept. 11. Key legislators were more willing to negotiate off of their positions to increase financial transparency. The most significant consensus to come from that era was the extent to which the full power of the Department of the Treasury could be exercised, of which the IRS is a key component. Congress has taken steps showing that it is willing to tap that power again. Even in the shadow of heated midterms, this window does provide an opportunity to introduce measures that push bank transparency in Yellen’s direction.

Further, Yellen may have some cover behind Senate Finance Committee Chair Ron Wyden’s (D-Ore.) March 1 press release calling to financially strengthen IRS Criminal Investigation. The primary purpose of the increased funding would be to pursue Russian oligarchs and root out their illicit transactions. However, we can expect that the byproducts of increased funding would be collateral information gathered on “bystander” taxpayers that would be shared with other areas in the agency. Once the funding goes up, it will be difficult to reduce to pre-conflict levels.


The Department of Justice has created Task Force KleptoCapture comprised of agents and analysts from the IRS and other federal agencies. Its purpose is to target “the crimes of Russian officials, government-aligned elites, and those who aid or conceal their unlawful conduct.” This moves resources away from an agency that spent much of last year claiming to be too strapped to fulfill its mission. As a result, don’t be surprised to hear more about the need for increased funding, despite having collected a record $1,516,952,000 in the first four months of the 2022 fiscal year.


The international sanctions targeted at inhibiting the flow of cash into and out of Russia have pushed those with means—particularly oligarchs—into the cryptocurrency market. While the KleptoCapture task force will include cryptocurrency investigations in its focus, we can expect to see a push for greater transparency in digital transactions via legislation and enforcement, particularly after the midterm elections.

U.S. senators last Wednesday delivered a letter to Yellen expressing deep concern over Russia’s use of cryptocurrency to avoid sanctions. They posed five questions regarding how the Treasury will address loopholes in digital currency to ensure that those sanctions remain effective. A response is anticipated by March 23, and the tone of that response will provide insight into the future of cryptocurrency for the ordinary taxpayer.

Tax Treaties

Various congressional committees have prioritized limiting Russian financial maneuverability. The Senate Foreign Relations Committee is proposing a review of the current U.S.-Russia tax treaty. As the lists of Russian sympathizers—such as Belarus—and neutrals—such as India—grow, similar calls may be issued for their respective tax treaties. As a side note, the U.S.-Belarus tax treaty continues to be the old U.S.-USSR tax treaty.

The committee isn’t clear on what action will or can be taken, but the purpose remains consistent with that of Task Force KleptoCapture, to target “oligarchs and their ill-gotten gains, identifying them, and then seizing them.” Many of the actions already being taken serve this objective, so if the committee proposes action resulting from the review, it is likely to be innovative, contribute to developing precedent in international law, or both.

Loss Harvesting

A short-term result of the invasion has been a downturn in investment markets that hold Russian assets. Many advisers have seized the opportunity to capture losses to offset taxable gains incurred by their clients in a process known as loss harvesting. The result is that investors can afford to incur capital gains this year or carry those losses forward for another positive year. One loss-harvesting strategy that we may see in qualified deferred compensation plans is an uptick in Roth IRA conversions and account withdrawals in excess of required minimum distributions.

Income Taxes

The voluntary boycotts by private companies, divestitures of Russian equity, and market downturns will bring the inevitable decrease in revenue, which will result in depressed tax liabilities. The boycotts have the twofold effect of positive brand recognition and greater revenue offsets.

However, the extent of the revenue loss will depend on the organizational and transfer pricing structures these brands have implemented. The conflict comes at a time when the U.S. is reconciling the OECD’s BEPS 2.0 and its own GILTI regime. Companies and hedge funds had been assessing their ideal structure to accommodate the two plans, which will need to be reconsidered for at least 2022 to maximize their conflict losses.

Provided government spending on the war remains proportional to the reduced revenue, the historic collection deficit should remain consistent. However, if the U.S. commits troops and military resources as it has in previous conflicts, Congress will begin looking for other revenue streams and turning to the corporations that already claimed losses as a result of their participation in financial war won’t be easy.

Bonus for the Ukrainians

Finally, some Ukrainian citizens have received a healthy tax break, as their government recently announced that any citizen who captures Russian tanks or military equipment does not have to declare income tax on the bounty. The rationale provided by the Ukrainian National Agency on Corruption Prevention was that as scrap, its value does not “exceed 100 living wages,” or roughly equivalent to $8,300. Some Ukrainians are taking full advantage of the opportunity, with one placing a Russian tank on eBay for $400,000.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jared Johnson is a partner in the Philadelphia office of White and Williams LLP, where he provides tax representation and guidance on complex tax laws and disputes, corporate transactions, reporting, asset protection, and cross-border issues.

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