Could Congress be Gearing up for Real Tax Reform?

As noted in the Wall Street Journal, the Senate Finance Committee Democrats have named a new co-chief tax counsel.  Victor Fleischer, a law professor with the University of San Diego, was named the new co-chief tax counsel.  FYI, Fleischer is best known for a law review article which examines the taxing of private equity funds, and according to the Wall Street Journal, started the debate on how fund managers are taxed.  See the article here.  The WSJ article names several sources that commented that if Congress does choose to begin true tax reform, this post would be quite influential.

In case you didn't know, fund managers are paid via the "two and twenty" rule meaning that they take a two percent management fee and twenty percent profits interest.  Because the twenty percent profits are considered a partnership interest, the fund managers can convert ordinary income into long-term capital gain income.  What that means for the rest of us is that instead of paying tax as wages (brackets beginning at 0% up to 39.6% for the highest bracket) the fund managers get to pay a reduced tax rate of 20% for long term capital gains.

Does naming Fleischer to this post signal that Congress is serious about implementing tax law changes that will address the Tax Gap and complexity problems of the current code? And whose model will prevail, the Republican nominee (Donald Trump), or the Democratic nominee (Hillary Clinton)?  See previous blog reviewing the two plans.  Or will Congress be proposing a more radical model (i.e. Bernie Sanders' model, or Ted Cruz model)?  Time will tell, but at least Congress (the Democrats) seem to have a plan to address tax reforms by first selecting someone versed in explaining complex tax policies.

If you now someone who is not paying their tax liabilities, or is converting their tax liabilities from ordinary income to capital gains income to reduce their tax liabilities, you should contact us to file a tax whistleblower claim.  The IRS pays between 15-30% of collected proceeds (tax, penalties, interest and additional amounts) for specific and credible used by the IRS in prosecuting tax violators.