Week in Insights: Tax Frauds Aren’t Always Conceptually Complex

Curated by Daniel Xu

Some schemes to avoid or evade tax are complicated and require a deep understanding of tax law and precise timing to execute.

Others just amount to shipping an empty box around the country and calling it a Renoir.

This practice is known as using a tax box, which physically is nothing more than an empty crate. But it’s a means of illegal tax evasion that can provide major sales and use tax savings for art collectors.

It works due to how sales and use tax is calculated on art purchased from galleries and auction houses. In many cases, the tax rate applied is the rate of the buyer’s residence. This gives an opening to potential evaders: Shipping the art to a state with no sales tax could yield substantial, albeit fraudulent, savings.

Of course, shipping a priceless piece of art to some distant warehouse and waiting can make a collector nervous. So, some evaders go all-in on the fraud and ship an empty box purporting to contain the artwork—while the real deal comes home with them.

Shady tax advice isn’t limited to ordinary people on TikTok—it can spread through even the most elite circles. The simpler the scam is in practice, the easier it is to fall victim to, as there’s less separation between receiving bad information and being an actual fraudster.

Here at Bloomberg Tax, we aim to distill intricate policy into understandable terms, such that if you ever contemplated mailing an empty box across the country for the tax savings, you’d have an inkling it steps into the territory of illegal non-compliance.

—Andrew Leahey

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social

A visitor looks at the painting, “The Skiff (La Yole),” by French painter Pierre-Auguste Renoir at the Fondation Louis Vuitton in Paris, on Feb. 15, 2019.

Photographer: Francois Guillot/AFP via Getty Images

State Insights

Ballard Spahr’s Christopher Jones summarizes recent tax developments in Pennsylvania, including wage tax and property tax cases in Philadelphia.

Howard University accounting professor Jean Wells says proposed changes to the tax code in Washington, D.C., would remove barriers to entry for some businesses but could hamper others with a proposed business activity tax.

Philip Olsen of Davis Malm reviews recent tax developments in Massachusetts including cases involving the state’s Appellate Tax Board and enforcement efforts from the Department of Revenue.

Federal Insights

Companies that walk back ERC claims through the IRS’s voluntary disclosure program must understand that the terms are taxpayer-favorable but no criminal protection is offered, Benjamin Eisenstat of Caplin & Drysdale says.

As the SEC scrutinizes all facets of executive compensation, undisclosed executive perks continue to be in its enforcement crosshairs, Jones Day’s David Peavler and Evan Singer say.

Reed Smith’s Ian Sherwin identifies the roles employee and executive compensation, tax, and securities may play for targets and buyers in a merger or acquisition.

More companies are issuing carbon emissions disclosures in their financial reports, but the industry still needs to rethink its carbon accounting ecosystem, says chartered accountant Eric Israel.

Global Insights

Ann-Maree Wolff of Business at OECD explains challenges of the new global minimum tax rules and what multinational enterprises and governments can do to successfully implement the new reporting system.

Columnist Corner

Intuit Inc.’s $94 million request for R&D credits in tax year 2022 coinciding with the IRS’s funding to develop its Direct File system illustrates the need for more transparency in tax expenditures, Andrew Leahey says in his Technically Speaking column. He argues that entities seeking to expense R&D should be required to disclose details on its research—from expected company benefits to public impacts.

Career Moves

Ben Eaton has joined Mayer Brown as partner in the London tax practice.

Stephen Josey has joined Vinson & Elkins as counsel with the tax and executive compensation and benefits practices in New York.

Carol Wang has joined Shartsis Friese as senior counsel in the tax practice.

David Nisbet is joining Squire Patton Boggs as partner with tax strategy and benefits practice group in London.

Jennifer Speck has joined Bracewell as partner in the tax department in the Houston office.

If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team (login required).

• Lawmakers unveiled a framework for a long-sought tax package that pairs renewed business breaks with an expansion of the child tax credit, leaving open the possibility the legislation could soon be ready to get tacked onto a larger legislative package.
• The proposed budget bills New York Gov. Kathy Hochul (D) released provide more insight on the tax incentive she is seeking to encourage affordable housing construction in New York City.
• IRS Commissioner Danny Werfel said he is prioritizing a set of high-impact—and high-visibility—initiatives in the face of continued political headwinds threatening future funding cuts.
• Hong Kong Financial Secretary Paul Chan said he has no plans to impose a departure tax on residents, rejecting a proposal aimed at easing the government’s widening deficit.

The Peak Tower shopping mall, right, on Victoria Peak in Hong Kong, on Jan. 9, 2024.

Photographer: Paul Yeung/Bloomberg via Getty Images

Tax Journals

(Bloomberg Tax login required)

Tax Management International Journal

Notice 2024-16 is welcome guidance for US corporations considering an inbound liquidation or asset reorganization of a first-tier controlled foreign corporation, while many questions on previously taxed earnings and profits remain that may be answered by the forthcoming proposed rules, says Amanda Pedvin Varma of Steptoe & Johnson.

Tax Management Memorandum

ASC 740 as updated by the Financial Accounting Standards Board represents an improved design for reporting companies’ requirements, says tax accounting consultant and university instructor Yosef Barbut.

Our Team

We talk about tax a lot. But you would hear much more if you popped into one of our Teams meetings. Here’s a quick look at what some of us are watching, reading, and listening to this week.

Watching
Katharine Butler (Acquisitions Manager): “Tel Aviv on Fire,” a comedy-drama set in Jerusalem about an aspiring writer on a popular soap opera. It’s laugh-out-loud funny.

Reading
Andrew Leahey (Columnist): “Beethoven in the Bunker: Musicians Under the Nazi Regime” by Fred Brouwers. It examines the relationship between the Third Reich and music—for example, the promotion of long dead artists viewed as furthering Nazi ideology.

Listening
Daniel Xu (Content Editor): “Heavy Rocks” (2002) by Boris, whose work is extremely varied. I’d compare this album to Black Sabbath’s early music, but faster and messier.

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