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It’s the fourth day of our 12 Days of Charitable Giving! In December, I’ll be focusing on twelve charitable organizations that my readers have nominated as most deserving of your charitable donation. You have a couple more weeks to squeeze in your charitable deduction for tax purposes in 2014 – so why not consider one of our twelve?

Today’s featured charity is Pet Food Pantry of Eastern North Carolina.

The Pet Food Pantry was established to help prevent the abandonment or surrender of animals when their families cannot afford to feed them. The organization understands that during difficult economic times, some families – those who have lost a job, are dealing with an illness or disability, or are hit with an unexpected medical emergency or high electric bill – are forced to decide between feeding themselves and feeding their pets.

The Pet Food Pantry offers temporary pet food assistance program to provide help through difficult economic times. Assistance is income-based.

So how can you help?

The Pet Food Pantry encourages groups and individuals to organize pet food drives to collect food and supplies. Remember that you can’t deduct the cost of the time you spend as a volunteer (even if you can put a value on your time) but you can deduct related out of pocket expenses. For example, money spent to promote a pet food drive, including advertising expenses, as well as costs spent on supplies for the pet food drive would be deductible. Get receipts and document appropriately.

You can make a cash or credit card donation online. You can also send a donation by mail:
Pet Food Pantry
PO Box 2492
Greenville, NC 27836

In order to help control pet populations and promote responsible pet ownership, Pet Food Pantry requires that all pets in the monthly assistance program be spayed or neutered. For those who can’t afford the procedure, Pet Food Pantry provides assistance, including surgery and paid medications, when funds are available. If you’d like to help, you can earmark your donation for the spay/neuter program – just write spay/neuter in the memo section of your check (or online).

In addition to cash donations, Pet Food Pantry also appreciates in-kind donations, including dry or wet cat food and cat litter. You can find a wish list for donations here.

Remember to value donations of non-cash items for tax purposes. If you donate unopened bags of food or litter or other new pet supplies, for example, save your store receipts as support documentation. Any used items should be valued at thrift shop values or other appropriate value.

No matter whether you donate cash or in-kind items, be sure to get a receipt from Pet Food Pantry to confirm your donation for tax purposes.

As always, you want to make sure that your donation is going to a qualified charitable organization. A search using the IRS’ Exempt Organizations Select Check reveals that Pet Food Pantry of Eastern North Carolina is on the list. To find out more about the work of the organization, check out their website, or like them on Facebook.

Remember, submissions to the 12 Days of Charitable Giving are made by readers and in most cases, I can’t personally vouch for the good work that these folks do. So be generous. But be smart. Do your homework.

It’s the third day of our 12 Days of Charitable Giving! In December, I’ll be focusing on twelve charitable organizations which my readers have nominated as most deserving of your charitable donation. You have a couple more weeks to squeeze in you charitable deduction for tax purposes in 2014 – so why not consider one of our twelve?
Today’s featured charity is Neighborhood Bike Works.
Neighborhood Bike Works (NBW) started in 1996 and organized as a separate nonprofit in July 1999. Since 1996, NBW has introduced more than 4,5000 young people in the greater Philadelphia area, primarily ages 8 through 18, to cycling. NBW provides educational, recreational, and career-building opportunities through a series of programs.
The NBW Youth Bicycle Education Program provides a safe haven where inner-city youth learn about basic bicycle maintenance, safe riding skills, and nutrition. Youth enter the program through Earn-a-Bike, a free program which gives participants the opportunity to ‘earn’ a bike they are repairing. Many Earn-a-Bike graduates attend weekly drop-in sessions, go on monthly group rides and field trips, or join the race team. This offers participants the opportunity to have a mentor and develop strong positive relationships.
Other programs include bike safety checks at community events and valet bike parking at events. These community programs provide a positive way for youth to give back to the community.
So how can you help? Each year, NBW organizes, the “Ride of Dreams,” a fundraising bike tour that brings together NBW youth, volunteers, staff, and cyclists. In 2014, the Ride of Dreams was a four day loop (approx. 250 miles) from Philadelphia taking riders into the rolling hills of Lancaster. The event raised $24,370.11. NBW encourages cyclists to participate in the “Ride of Dreams” as fundraisers. If cycling isn’t your thing, however, they also appreciate those who are willing to donate their time or become a sponsor.
Sponsorships can be great ways to work with charitable organizations. While pure out of pocket donations may sometimes be limited, depending on income and other circumstances, sponsorships that are promotional in nature may qualify as a business expense. Promotions may include web and social media exposure, organization’s name appear in marketing collateral like event programs and of course, seeing your name appear on signs, tee shirts and/or ad spots – opportunities vary depending on the organization. These kinds of promotional opportunities are often advantageous for small to mid-size businesses as a win-win-win (making a difference + good publicity + tax deduction) allowing your dollars to go even further.
When it comes to NBW, in addition to sponsorships and volunteering your time, financial donations are also appreciated. You can make a donation online. Be sure to get a receipt if you plan to claim a charitable donation for your donation.
As always, you want to make sure that your donation is going to a qualified charitable organization. A search using the IRS’ Exempt Organizations Select Check reveals that Neighborhood Bike Works is on the list. To find out more about the work of the organization, check out their website, like them on Facebook or follow them on Twitter.
Remember, submissions to the 12 Days of Charitable Giving are made by readers and in most cases, I can’t personally vouch for the good work that these folks do. So be generous. But be smart. Do your homework.
For more on making charitable donations, check out some of these prior posts:

It’s the second day of our 12 Days of Charitable Giving! In December, I’ll be focusing on twelve charitable organizations which my readers have nominated as most deserving of your charitable donation. You have a couple more weeks to squeeze in you charitable deduction for tax purposes in 2014 – so why not consider one of our twelve?
Today’s featured charity is The American Foundation for Suicide Prevention (AFSP).
AFSP was nominated by a reader who lost her son to suicide. Founded in 1987, AFSP funds research, creates educational programs, advocates for public policy and supports survivors of suicide loss. In 2012, 40,600 suicides were reported. Statistically, that works out to one suicide every 12.9 minutes making it the 10th leading cause of death for Americans. Suicide is currently the third leading cause of death among young people age 15 to 24.
AFSP organizes hundreds of events in communities across the country to raise money and advocate for social change and support policies that contribute to reducing and preventing suicides nationwide. Among the most popular events is the Out of the Darkness walks. Two major overnight walks are held each year: in 2015, walks are planned for Dallas and Boston. To register or get more information, click on over to their webpage.
If an overnight walk isn’t your thing, AFSP also holds community walks (find one near you) and campus walks.
Fundraising efforts have made AFSP the leading private supporter of suicide research. AFSP has funded almost $20 million in scientific investigations on the causes and prevention of suicide, and the treatment of those at risk for suicide. Funded studies include the genetic, neurobiological and behavioral factors that contribute to suicide, and testing interventions aimed at reducing suicidal behavior and suicide deaths.
So how can you help? In addition to participating in the walks, donations are appreciated. You can make a donation online or donate by mail or phone. To donate by mail, send your contribution to:
American Foundation for Suicide Prevention
120 Wall Street, 29th Floor
New York, NY 10005
To make your donation by phone, call: (212) 363-3500 Ext. 2013
Be sure to get a receipt if you plan to claim a charitable donation for your donation.
You can also support AFSP by shopping at linked portals like Amazon Smile and iGive.com. It’s easy – and there’s no additional cost to you. However, while you might get warm fuzzies from shopping through these portals, you won’t get the benefit of a tax deduction. You can only claim a tax deduction for donations when the value of what you’re giving exceeds the value of what you receive. When you shop through a portal, you’re not spending more money for the same items: the portal merely gifts a portion of your shopping total to the charitable. organization. Usually, as with Amazon Smile, it’s a percentage: for example, Amazon donates 0.5% of the price of your eligible AmazonSmile purchases to AFSP whenever you shop on AmazonSmile. That’s not money out of your pocket, it’s money out of the portal’s pocket. The bottom line is the same to you. As a result, you don’t get the benefit of the tax deduction – but it’s still a free and easy way to benefit the organization.
As always, you want to make sure that your donation is going to a qualified charitable organization. A search using the IRS’ Exempt Organizations Select Check reveals that The American Foundation for Suicide Prevention is on the list. To find out more about the work of the organization, check out their website, like them on Facebook, follow them on Twitter or check out their YouTube page.
Why support AFSP? My reader says, “No one should have to live with the loss of a child, especially in such a devastating manner. More importantly, no one should have to hurt the way my little boy did before he finally just couldn’t take it anymore. Supporting organizations such as AFSP may not wipe out mental illness and suicide, but it can certainly make a great contribution towards helping those who suffer on both sides.”
Remember, submissions to the 12 Days of Charitable Giving are made by readers and in most cases, I can’t personally vouch for the good work that these folks do. So be generous. But be smart. Do your homework.
For more on making charitable donations, check out some of these prior posts:

There are, as of this writing, 12 days until the end of the taxable year. That means that you have 12 days to squeeze in most of your remaining tax deductions for 2014 (there are a few exceptions like those for IRA contributions). One of the easiest ways to get a deduction, assuming you itemize, is to make a charitable donation.
With that in mind, today we kick off the first of my 12 Days of Charitable Giving. Readers have suggested deserving charities over the past few weeks and I’ll be posting one a day for – well, 12 days (I’m clever that way). Today we start with … Goodwill Industries.
Goodwill was founded more than 100 years ago in Boston by Rev. Edgar J. Helms. Dr. Helms wanted to go beyond handouts: he collected used goods and hired the poor to repair and resale the times, offering both a job and a marketable skill. He described his idea as an “industrial program as well as a social service enterprise.”
Last year, nearly 10 million people accessed Goodwill services. More than a quarter million earned a job with Goodwill’s help, boosting their collective lifetime earning potential by $15 billion. Retail sales hit $3.79 billion last year in 2,900 stores and online – to put that into perspective, retail giant Sears generated just 10 times more than that number.
Goodwill is made up of 165 independent, community-based locations. Each local Goodwill must be accredited, apply for membership and meet certain criteria established by Goodwill Industries International (most individual locations have a 4 star rating from Charity Navigator, an online site which rates charities based on financial health, accountability and transparency). You can find your local Goodwill here.
To keep stores stocked, Goodwill Industries relies on donations. In 2013, the organization reported 87 million donors (including repeat donors). That’s more than the combined populations of California and Texas.
So how can you help? Donations keep the program going.
To make a donation, you can take your gently used items to any Goodwill location. To find a location near you, check out the map and donation site locator at the top of the home page. When you drop off your items, you’ll be asked to complete a form that you can use as a receipt for your taxes. Remember that the Internal Revenue Service (IRS) requires a receipt to substantiate all non-cash donations.
You can also drop your items at a Goodwill donation bin (be sure to verify that it’s a Goodwill donation bin). You’ll find contact information on the bin to use for obtaining a receipt for tax purposes. Again, you’ll need that receipt come tax time.
This year, Goodwill also offers a new option for donations: the Give Back Box®. Online retailer Overstock™ and Give Back Box® have partnered to allow Overstock customers the option of re-using their shipping box, along with Give Back Box’s free shipping label, to ship gently used items directly to Goodwill via UPS or USPS at no charge (yes, free). A shipping label can be found in Overstock shipments (I got one!) or printed online. And that receipt for tax purposes? It’s available online.
Valuing donations of used goods can be tricky. Generally, estimating the “thrift shop value” of the items is a good way to value your items (be measured, not greedy). If you’re looking for an easy way to value your donations, Goodwill has partnered with CharityDeductions.com. They have a database of more than 100,000 values from online retailer eBay to help with valuations. The values are said to be compliant with IRS fair market value guidelines, and according to the site, “IRS auditors have reviewed and accepted our methodology.” There is a cost of $24.95 per year for the service but if you want to give it a whirl, you can try it for free and use promo code goodwill later to save 20% off of a one year paid membership.
For more information on valuing donations, check out IRS Publication 561 (downloads as pdf)>
You can also volunteer to help out. Goodwill is in need of both virtual mentors and on the ground help. For more, check out their volunteer page.
As always, you want to make sure that your donation is going to a qualified charitable organization. A search using the their website, like them on Facebook or follow them on Twitter.
Remember, submissions to the 12 Days of Charitable Giving are made by readers and in most cases, I can’t personally vouch for the good work that these folks do. So be generous. But be smart. Do your homework.
For more on making charitable donations, check out some of these prior posts:

There’s just under a month left until the end of the year. That means you have a few weeks left to whittle down your taxable income. Sure, you could buy your friends and family matching taxgirl coffee mugs for the holidays (because who wouldn’t want those?) – or you could make a nice charitable donation. It’s the “feel good” tax deduction of the year!
It’s still tough out there for many folks. When adjusted for inflation, median household income is at its lowest level since 1995 and the poverty rate is up. Unfortunately, however, for many charitable organizations, donations are down. I want to both encourage you to make your charitable gifts by the end of the tax year (this is, after all, a tax blog) and to spread the word about some pretty deserving organizations.
As I do every year, I’m asking readers to submit, via email to charity@taxgirl.com, the name of a charity that most deserves a boost this year for the 12 Days of Charitable Giving. Ideally, it would be one that you have supported financially over the past year or that you plan to support before the year end. In addition to the name, I’ll need the city where the charity is located, what it does and why you support the charity (a personal story would be great). Please also link to the web site if the organization has one (Facebook is okay, too): the more information that you can provide, the better.
The charity must be a bona fide 501(c)(3) organization, meaning that deductions are tax deductible to the donor. Examples include schools, libraries and purely public charities like the Red Cross. If you’re not sure about the tax status of the organization, you can check it using the Internal Revenue Service’s Select Check Tool. Additionally, most charitable organizations will post evidence of tax-exempt status on their web site.
Convince me why your favorite organization is a deserving charity. I’ll review the emails and choose twelve to feature at my discretion. I might even involve the brain trust (i.e. my colleagues) in the pick. The winning choices will be featured, one per day, for 12 days in December – with some tips for charitable giving mixed in. It’s a great way to get some exposure for the charity of your choice. The hope is that one donation (yours) turns into more (readers) and a big win for the charitable organization.
The deadline for nominations is December 13, 2014, which doesn’t give you much time. What are you waiting for? Go, do something good!

I’m often asked about whether I accept guest posts. I do. Once per year. And it’s that time of year!
Earlier this year, I announced my annual call for guest posts where I offered readers the chance to answer one of six tax-related questions. I chose, out of all of the submissions, thoughtful posts that represented a mix of viewpoints on each of the issues. That mix means that there might be opinions that differ from yours – and that’s okay. Feel free to chime in with your own thoughts as a comment. Remember, however, that the normal terms and conditions for Forbes apply to comments: additionally, I have my own rules (they can be summed up in two words: play nice).


Giving Up Citizenship Because Of Taxes
By Tisha*
Would you be willing to give up your citizenship if it meant you would save money in taxes?

“No, of course I wouldn’t!”
The newspaper article in front of us was about rich people expatriating to avoid taxes. My friend pushed it away and spoke reassuringly: “It’s ok, I didn’t think you would….”
That was around 15 years ago. I felt a bit indignant at her question, and that may have been because I used to experience a sort of gladness when doing my taxes, a feeling that the experience made me part of something significant.
My earnings as a typist, and then later as an artist/small business owner, were never high. But the act of preparing my 1040EZ or 1040A, and later also the Schedule C, felt important and they created in me a sense of belonging as well as duty.
One thing that made this possible was the very clear design and instructions of the federal tax forms.
But by far the most important factor in boosting my loyalty and confidence was the obvious fairness of the penalty structure. As I recall, penalties then were only taken if tax was actually owed but had not been paid in time. They were assessed by adding a percentage of the tax overdue at a rate that seemed moderate and fair.
It was a tax system that inspired confidence and loyalty, which I found especially important during the startup of my business, when I was working 18-hour days but not yet turning a profit. Exhausted and hungry I might have been, but frightened of the IRS I wasn’t. I saw the system as fair and considerate, and was happy to be part of it.
Oh what an innocent time that was. How little we knew of the tragedy soon to come our way on 9/11.
The ensuing restrictions ended my business. My mother was also becoming increasingly unwell, so I went to live with her.
Fast forward eight years: My poor mother’s illness had become so severe that I was nursing her night and day, unable to leave the house, utterly exhausted. We had no broadband access and very little contact with the outside world. If I thought about taxes at all during that time, it was to thank Heaven that my income (from a tiny pension taken early) was well below the filing threshhold.
Inevitably, my mother’s illness drew to its close and we said our saddest goodbye. Then gradually, as my exhausted mind recovered, I began to re-enter the outside world.
I started researching at the public library to find out what, if anything, would be required in taxes as a result of my mother having bequeathed me a share of her assets.
The information was reassuring: My income (under $4,000) was indeed too low to require the 1040, and inheritances were received tax free.
What a relief. I had already passed the age of 60, so if I could find a very cheap place to live, and could eke out her bequest without drawing on my social security until age 70, its rate should then have risen j-u-s-t enough to live on. There seemed little hope of finding a job, since my skills and references were more than 10 years out of date; but once settled in, I would definitely try.
Such are the plans of mice and men….
Then, further research at the library revealed absolutely devastating news: Not only would I have to file a tax return after all (***Why? – you may well ask. Soon to be explained.***), in fact I would have to file THREE returns annually, covering two different tax periods, two different exchange rates, two currencies, three different sets of rules, three filing deadlines, with risk of $60,000 in penalties if filing late in the first year, and risk of $30,000 in late filing penalties each subsequent year for several years thereafter.
Even more horrifying was the realization that IF I had held power-of-attorney to manage my mother’s multiple small accounts, I would have been looking at a potential $360,000 in penalties already accrued, even though the accounts would have been managed entirely for her benefit. In other words, with zero tax due, I could face bills totaling four times my mother’s entire bequest to me.
I began to feel abject horror, and then bitter hatred of the system I had once admired and praised so readily.
Except it WASN’T the same system at all. There had been more than 5,000 changes to it since the day my friend had asked the question about expatriation.
Legislators had found themselves struggling to respond to multiple traumas: 9/11, the ensuing Iraq war, bank failures, the recession, financial globalization, and last but not least the desperate plight of those workers whose occupations had been wiped out by automation, leaving an ever-widening gap between have’s and have-not’s. Legislators desperately sought to find funds, and they hoped that constraining financial criminality might provide some.
Laudable goals, BUT alas their implementation was tainted by a mechanism that reoccurs throughout our history in times of famine and scarcity: Xenophobia. Things foreign come to be seen as intrinsically “threatening” and “criminal.” Foreigners are assigned the role of scapegoats.
Now, if you recall my earlier note: “(***Why? – you may well ask. Soon to be explained.***),” well here is that explanation:
Had my mother lived in Florida, or Maine, or any one of the US states, when I moved from Pennsylvania to care for her, I would now be living out my final years entirely free of tax and reporting obligations.
But she didn’t. She lived in Europe and was solely a citizen of the country where she lived. I now live there, too, feeling that I am too old to start over yet again, and expect I will end my days here.
This meant that her local accounts (and now my local accounts too) are considered “foreign accounts” under current US law, and therefore in current US law can attract reporting requirements with horrendous, punitive, vindictive penalties for failure to file, even if absolutely no tax is owed, if there is any connection with any “US person”.
So will I renounce to avoid taxes? Not exactly, because I DON’T OWE taxes due to my very low income. BUT IN ORDER TO AVOID THE CONSTANT THREAT, like a huge hammer hanging over my head, of “INFORMATION FILING PENALTIES” as I grow older and less able to cope. To protect my executors from those same things?
YES, I’m afraid I shall have to. I have put off taking this step until now, partly because of the cost and my fear of the long journey to the embassy in a distant city; but mainly in the hope that my beloved homeland would regain its wisdom and fix its mistakes by switching to an equitable system of residence-based taxation with penalties that reflect only a percentage of tax actually owed.
And now it seems I have waited too long. A price increase from $450.00 to $2,350.00 was just announced. I may be trapped. I am becoming desperate to escape, but unable to afford it.
What a silly situation this would be, if it weren’t so very tragic.
Oh my dear, sad homeland. I do so wish you happiness and a return to shared prosperity. Please do the same for me. Thank you.
*Tisha (who prefers not to be identified by last name) remembers fondly her years in Pennsylvania and its wonderful people. She now feels she is too old to start over again, and so remains in her mother’s country.

I’m often asked about whether I accept guest posts. I do. Once per year. And it’s that time of year!
Earlier this year, I announced my annual call for guest posts where I offered readers the chance to answer one of six tax-related questions. I chose, out of all of the submissions, thoughtful posts that represented a mix of viewpoints on each of the issues. That mix means that there might be opinions that differ from yours – and that’s okay. Feel free to chime in with your own thoughts as a comment. Remember, however, that the normal terms and conditions for Forbes apply to comments: additionally, I have my own rules (they can be summed up in two words: play nice).


IRC 107 – Ripe for Repeal
By Robert Baty
Congressmen, Senators and the President may not openly discuss the subject, but it is being discussed by them and lobbyists are actively using their influence regarding the matter. That such is the case is evident by one congressman, Bill Cassidy (R-LA) having introduced H.R. 4493 in a rather lame effort to pacify the lobbyists, appeal to his base, and claim he at least made an effort to thwart the litigation that is on-going regarding the future of IRC 107.
IRC 107 states, in relevant part:

In the case of a minister of the gospel, gross income does not include the rental value of a home furnished to him as part of his compensation; or the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home…

The 1st Amendment states, in relevant part:

Congress shall make no law respecting an establishment of religion…

 
To many tax and legal scholars, IRC 107 is unconstitutional on its face; a law written solely for the benefit of and, as a result, the establishment of religion (through what is an effective government subsidy of those being paid by churches and other religious organizations).
There is no, was no good constitutional reason for writing such a law for the sole benefit of individuals who are “ministers”.
The in-kind housing benefit has been around for almost 100 years; the cash benefit for about 60 years.
How has it managed to avoid challenge?
I propose 2 fundamental reasons:
First, congress and the president, democrats and republicans, dare not challenge their religious constituencies and propose IRC 107 cannot withstand constitutional muster. Some may recall that Senator Grassley, after conducting a years’ long investigation of certain million dollar ministries and outsourcing to his religious friends what might be done regarding his findings, including IRC 107 issues, was told in no uncertain terms by his religious friends to keep his hands off of IRC 107 and how it has been/is administered by the IRS. And so Congress and the President got the message and have kept their hands off of IRC 107.
Second, until recently, no one else was able muster the will, the financing, and the legal strategy to prosecute a judicial test of the statute.
The Freedom From Religion Foundation (FFRF) gets credit for taking on the challenge and has already been successful in getting Wisconsin Federal District Court Judge Barbara Crabb to declare the cash benefit unconstitutional. The Justice Department has appealed and been joined by hundreds of religious organizations and churches as amici to try and defeat Judge Crabb’s ruling.
Oral arguments in the case are scheduled to be heard in Chicago before a panel of judges of the 7th Circuit Court of Appeals on September 9, 2014.*
If Congress and the President don’t step up to do their duty and simply repeal IRC 107, the case will no doubt proceed to the U.S. Supreme Court regardless of who prevails in the 7th Circuit.
There is also an election coming up in November 2014. Who among the candidates are willing to publicly come out with a vision for the future of IRC 107 as part of their platform and public commitment to the Constitution, however they may see it?
I venture to say not any!
I’m still looking for one.
IRC 107 is ripe for repeal, but what is it going to take to get Congress and the President to rise above their desire to pacify their religious constituencies and simply do what is right?
I don’t know!
I tried!
Didn’t work!
Now I support the FFRF litigation in hopes that the 7th Circuit Court of Appeals will uphold Judge Crabb’s ruling the the U.S. Supreme Court will ultimately, if Congress and the President don’t act to repeal IRC 107, declare IRC 107 unconstitutional.
Robert Baty is a retired Internal Revenue Service Appeals Officer and Christian.
*This post was submitted on August 30, 2014, prior to the hearings. For more on the hearings, see this prior post from my colleague, Peter J. Reilly.

I’m often asked about whether I accept guest posts. I do. Once per year. And it’s that time of year!
Earlier this year, I announced my annual call for guest posts where I offered readers the chance to answer one of six tax-related questions. I chose, out of all of the submissions, thoughtful posts that represented a mix of viewpoints on each of the issues. That mix means that there might be opinions that differ from yours – and that’s okay. Feel free to chime in with your own thoughts as a comment. Remember, however, that the normal terms and conditions for Forbes apply to comments: additionally, I have my own rules (they can be summed up in two words: play nice).


The Inverted Talk about Tax Inversions—They’ve Got it All Upside-Down
By Matthew Litz
Who knew taxes could get people this excited?
Taxes have the bad rap of being boring, but the public conversation this past summer about corporate tax inversions surely belies that reputation. We heard people call companies “unpatriotic” and “corporate deserters”— the kind of hot-headed words that tend to rise more quickly on hot summer nights, AM radio stations, and the floors of Congress. Politicians from both sides of the aisle got into the hyperbole game, calling out companies who are publicly considering reorganizing overseas in order to reduce or avoid their US tax liability.
As autumn approaches and more tempered breezes prevail, there’s talk of legislation to fix the problem, but lawmakers seem at a loss for a good approach. They’re having trouble getting past the rhetoric and don’t seem to want to talk about the real root of the issue. In my opinion, we need to ask why more companies seem to be considering tax inversions right now.
Why tax inversions are the hottest thing since, well, drive-through coffee:
The Congressional Research Service has reported that nearly 50 US companies have inverted in the past 10 years. Most recently, Burger King announced its intent to pursue an inversion transaction with Tim Hortons, a Canadian entity, with the new entity headquartered in Canada. Evidently, maintaining the status quo is not the answer.
With increased tax rates, a complex tax code, and other measures enacted to expand the US corporate tax base, companies increasingly see tax inversion transactions as one way to reduce their effective worldwide tax rates. Being acquired by a foreign company allows the US company to reorganize as a new company with foreign headquarters subject to (presumably more favorable) foreign tax rates. Tax inversions offer an opportunity to become more competitive with foreign-based competitors that are not subject to the higher US income tax rates.
It’s all semantics: Your unpatriotic corporate deserter is my multinational
A tax inversion transaction is not a new trick. US companies are bought and merged with foreign companies frequently. Sometimes this is celebrated as an example of a healthy global economy. A company may, for example, place its manufacturing facilities in various parts of the world where the company leaders believe they can make a local economic impact through new jobs and additional capital investment. They aren’t running away from anything; they embrace global corporate citizenship as a value as abstract—and compelling—as patriotism.
This summer for some reason (maybe it’s international political unrest, confusion about corporate personhood, or just a rainy 4th of July), the thought of companies leaving the US to avoid paying their fair share of tax felt unpatriotic.
Playing the patriotism card is too easy
Most of the companies contemplating an inversion are already multinational corporations with significant operations outside the US. They are rarely solely owned by US shareholders. Corporate leaders considering inversions are attempting to compete with other multinational companies that they see as having a competitive advantage. Are these companies unpatriotic or are their actions merely a symptom of a complex tax system that needs to be updated?
Solve the right problem, not the popular problem
Here are a few of the solutions that have been proposed…and the additional challenges that they might create:
Increase the tax and penalties on inversions
The US Internal Revenue Code already includes provisions intended to deter companies from implementing inversion transactions. These provisions subject a company to taxation and penalties if certain ownership thresholds are met. The fact that, despite these rules, some companies are willing to take a significant tax hit to escape the US tax system, suggests that adding more penalties may not be enough. For companies that are already inclined to leave the US, this option may further encourage them to invert or encourage them to develop new technologies and operations in affiliated foreign entities, thereby sidestepping these rules. This policy could have a significant adverse effect on future US growth and the competitiveness of the US in the global marketplace.
Enact proposed measures to prevent companies from leaving the US
In the recent cases of Citizens United and Hobby Lobby, the US Supreme Court held that a corporation has a First Amendment right to exercise free speech and to enjoy religious freedoms granted under the 1993 Religious Freedom Restoration Act. Given this trend toward corporate personhood, it is questionable whether courts would uphold legislation preventing companies from renouncing their status as US entities altogether while continuing to allow individuals the right to renounce their US citizenship.
Congress can’t legislate patriotism, but it can reform the tax code
Reforming the tax code will be challenging, and it seems there hasn’t been a strong incentive for Congress to get it done. It’s easier to talk about defending patriotism than to tell constituents that they may not get that mortgage interest deduction they counted on when they bought their homes.
Regardless of whether inversions are unpatriotic or just good business, it’s clear we need an overhaul of the Internal Revenue Code with a policy focused on fostering US growth and eliminating the competitive advantage foreign-based companies have over their US-based counterparts. Maybe the inversion debate will be the catalyst for such change.
Matthew Litz is a tax senior manager and member of BerryDunn’s Tax Consulting and Compliance Group, serving corporate and individual tax clients with federal and state tax planning and compliance. His experience includes the identification of federal tax planning opportunities, focusing on tax accounting methods and periods and international corporate taxation.

I’m often asked about whether I accept guest posts. I do. Once per year. And it’s that time of year!
Earlier this year, I announced my annual call for guest posts where I offered readers the chance to answer one of six tax-related questions. I chose, out of all of the submissions, thoughtful posts that represented a mix of viewpoints on each of the issues. That mix means that there might be opinions that differ from yours – and that’s okay. Feel free to chime in with your own thoughts as a comment. Remember, however, that the normal terms and conditions for Forbes apply to comments: additionally, I have my own rules (they can be summed up in two words: play nice).


Do You Support Repeal Of The Federal Estate Tax?
By Jean Gordon Carter
It already has been repealed—at least for most Americans. The current exemption from the federal estate tax is $5,340,000, which a married couple can double for $10,680,000 going, for example, to their children without a death tax. Few Americans have estates in excess of the exemption, particularly the doubled exemption for couples. And most of the states have also eliminated their estate taxes.
Now for true confession: I am an estate planner, a lawyer who for more than 30 years has helped clients plan their estates. While the federal estate tax is often discussed in estate planning, the increase in the exemption has made little difference in my practice. Parents still provide trusts for their children, and people want to make special gifts or donate to charity. The repeal of the estate tax does not significantly affect me professionally. But because of my profession, I have heard hundreds of people with estates in excess of the exemption discuss their concerns on passing their property at their deaths.
The recurring theme of clients with larger estates is not to leave too much property to their children too soon. They fear that the sudden influx of wealth to their children would take away the incentive of their children to work to succeed on their own. They consider their children’s personal success to be vital to their children’s happiness. The result is they place property in trusts until children are well beyond the milestone ages or they go further and direct significant wealth away from children, generally to charity.
I often know these children about whom my clients are worried—they are solid citizens—and yet the theme from the parents is there: My children don’t need that much money—it might hurt them and it won’t help them, but it can help others, through charitable gifts. Clearly the concern of parents is taking care of their children and the existing exemption from the estate tax does that—i.e. a couple leaving in excess of $10,000,000 to their children does protect them. Assets beyond the exemption seem to have a limited role in protecting children and are perceived as potentially causing harm.
The historic reason for the estate tax has been avoiding massive accumulation of wealth in families—the estate tax serves to break up that dynastic wealth accumulation. I will leave to economists and sociologists whether this goal of the estate tax is valid, but in a human sense it does seem to be part of the ethos in estate planning for many wealthier clients.
I have scratched my head often over the popular cry to “repeal the death tax”—the name, of course, intended to paint the tax as evil and unfair. The majority of the repeal supporters will never be subject to this tax. Perhaps their hope is someday to have an estate well in excess of $10,000,000 so that they can pay the death tax. Yet my experience shows me those wealthier people often decide that the estate tax is a minor consideration as they look at their family’s future.
The irony is that if the estate tax is repealed, the federal budget will not drop by that amount—the estate tax would likely be replaced by another tax—perhaps an increase in the income tax. Personally I would rather pay my taxes when I am dead, not while I am alive. So my answer is “No, I do not support repeal of the federal estate tax.”
Jean Gordon Carter is a partner with the law firm Hunton & Williams LLP in Raleigh, NC and advises clients on estate planning and tax issues.

I’m often asked about whether I accept guest posts. I do. Once per year. And it’s that time of year!
Earlier this year, I announced my annual call for guest posts where I offered readers the chance to answer one of six tax-related questions. I chose, out of all of the submissions, thoughtful posts that represented a mix of viewpoints on each of the issues. That mix means that there might be opinions that differ from yours – and that’s okay. Feel free to chime in with your own thoughts as a comment. Remember, however, that the normal terms and conditions for Forbes apply to comments: additionally, I have my own rules (they can be summed up in two words: play nice).


Inversions, Planning & Corporate Tax Rates
By John Richardson
To combat inversions and other tax planning techniques for corporations, do you think Congress should lower corporate tax rates?
With or without “inversions” Congress MUST lower corporate tax rates.
There are at least two reasons for this:
First, U.S. corporate tax rates are the highest in the world, with the obvious consequence that almost every other country on the planet offers a more competitive tax environment; and
Second, U.S. corporate rates are so high that the primary business of U.S. corporations has become finding ways to create a lower “effective tax rate” and NOT about selling the products of the corporation. Anecdotal evidence suggests that corporate tax planners have been successful and that most U.S. corporations pay less than the official 35% rate. That said, U.S. tax rates are NOT the reason for corporate inversions. U.S. tax rates do NOT affect the rate of tax paid on profits earned in the U.S.
What “inversions” have done is to have drawn attention to BOTH the problem of high U.S. corporate tax rates AND the reality that the U.S. claims the right to tax “foreign profits” that are NOT earned in the United States. Yes, the U.S. is the only country in the world that claims the right to tax profits that are earned in other countries. In the same way that the U.S. requires American citizens who do NOT live in the U.S. to pay U.S. tax on earnings outside the U.S., American Corporations are required to pay tax on profits that are earned outside the U.S. Significantly Americans living abroad are renouncing their citizenship in unprecedented numbers. (In fact the U.S. Government has just increased the “renunciation fee” by more than 400%.) President Obama has implied that “inversions” are the corporate equivalent of “renouncing citizenship”. U.S. companies are performing “inversions” – renouncing citizenship – at an unprecedented rate.
It is important to note that these “renunciations of citizenship” (whether personal or corporate) are NOT the result of high U.S. tax rates. They ARE the direct result of the uniquely American policy of claiming the right to levy taxes on money earned in other countries and (at least in the case of Americans abroad) on people who are NOT residents of the U.S. (Because U.S. citizens abroad also pay tax in their country of residence, they may be subjected to significant double taxation.) Once again, the United States of America is the ONLY modern country that has such a tax policy.
How U.S. Corporate Taxation Works (At the risk of oversimplification)
We will assume the standard 35% U.S. corporate tax rate and see how this applies for profits earned in the U.S. and outside the U.S.
Profits earned in the U.S. – Assuming a 35% tax rate
All companies (U.S. or foreign) will pay 35% tax on profits earned in the U.S. An “inversion” does not affect this principle.
Profits earned outside the U.S. – Assuming a 15% Local tax rate
Imagine a U.S. corporation carrying in business in Country X which has a 15% tax rate. Further imagine that the U.S. company must compete with a German company in Country X. Each company will pay a 15% tax to the Government of Country X.
The German company will pay no further taxes. It is free to do what it wishes for the benefit of the company and for the shareholders. This includes investing all it’s “after tax” profit in the U.S.
The U.S. company is NOT finished. If the U.S. company attempts to bring its profits back to the U.S. it will be required to pay the difference between the 35% U.S. tax and the 15% Country X tax (35% – 15%) = 20% as a U.S. tax for the privilege of bringing the profits to the U.S. (It is easy to understand the reluctance to bring the profits back to the United States.) To bring the profits back to the U.S. is to transfer 20% of PROFITS EARNED OUTSIDE THE U.S., to the U.S. government. To pay this 20% is to lose that money for future investment use IN THE UNITED STATES. Yet, the German company could actually take it’s complete “after tax earnings” and invest those earnings in the U.S.
By claiming the right to levy taxes on profits earned outside the U.S., the U.S. has created an environment that:

– discriminates against U.S. companies by imposing costs on them that are NOT shared by non-U.S. companies; and

– makes it harder for U.S. companies to pay dividends to its U.S. shareholders (the company can’t bring the money back to the U.S.)

– restricts the investment of productive capital in the U.S.

– makes it more difficult to finance dividends to U.S. shareholders

The sad reality is that: U.S. tax policy discriminates against U.S. companies and punishes them for being American.
U.S. corporate tax policy means that every U.S. company carrying on business outside the U.S. carriers a U.S. tax discount, making it worth less than non-U.S. companies.
For that matter, the U.S. policy of citizenship-based taxation means that every U.S. citizen residing outside the United States, carries a “U.S. tax discount”.
This point needs to be repeated in two different ways:

  1. The U.S. tax policy of attempting to tax profits earned outside the U.S., earned by people who earned those profits outside the U.S., has made U.S. citizens and corporations abroad, worth less than the citizens and corporations of any other country.
  2. It is therefore quite understandable for corporations to NOT want to be treated as U.S. persons. This is what they hope to achieve through an “inversion”.

Corporate Inversions 101 – A Simplified Explanation
In its simplest terms an “inversion” will result in the Corporation ceasing to be a U.S. corporation. After the inversion, the corporation will no longer be subject to the U.S. policy which levies taxes on earnings outside the U.S. It will be free to invest its profits in the U.S. and will NOT be subject to U.S. discrimination based on U.S. citizenship. (It is incredible that the German company is free to invest it’s Country X earnings in the U.S. and that the U.S. company must first pay the repatriation tax). A primary motivation for the corporate inversion is to allow U.S. companies to compete more effectively against non-U.S. companies in markets outside the U.S. Inversions will also free U.S. companies to invest more “after tax” profits in the U.S.
Of course, both the U.S. company and the German company will be subject to the full 35% U.S. tax rate on profits earned in the U.S. After the inversion, the U.S. company will no longer be subject to U.S. tax on profits earned OUTSIDE the U.S. Furthermore, it will be easier for the U.S. company to both:

  1. Invest its profits in the U.S. (the U.S. does want investment doesn’t it?); and
  2. Make it easier for U.S. companies to pay dividends to its shareholders (this is a desirable policy isn’t it?).

A “Wake Up Call” for U.S. Tax Policy
Although U.S. tax rates are important and must NOT be uncompetitive, the recent discussion of “inversions” and of Americans abroad “renouncing citizenship”, should prompt a rethinking of how the U.S. tax system should work. Who should be subject to U.S. tax? For what reason? On what kind of income?
U.S. tax policy follows U.S. citizens and U.S. corporations into other countries
U.S. tax laws follow their citizens and companies into other countries (where they also pay significant tax) and levy U.S. taxes on the capital base of other countries. The increasingly aggressive position of the IRS and extraterritorial legislation like FATCA (which imposes frightening obligations of disclosure and threats of penalty on Americans abroad) has made the problem more urgent. In fact, there is strong evidence that FATCA (AKA the worldwide hunt for U.S. persons) is a primary reason that Americans abroad believe that they must renounce their U.S. citizenship).
In the case of “DNA” Americans abroad: U.S. tax policy of taxing Americans abroad imposes a capital tax on other nations
For example for individuals (who pay the U.S. tax when the money is received):

– capital gains are NOT taxed in Switzerland,

– the sale of a principal residence is NOT taxed in Canada.

The decision to not tax these transactions is a policy decision made by these countries to allow their taxpayers to retain their capital. It is obviously intolerable to allow the U.S. to THEN extract this capital from these countries on the basis that it was a U.S. citizen who sold the house. As FATCA makes this a bigger issue, one can expect that U.S. citizens will become less welcome in other countries.
In the case of “non-DNA” U.S. corporations abroad
The profits are not subject to U.S. tax until the profits are brought back to the U.S. It makes no sense for corporations to bring their “offshore profits” back to the U.S. U.S. tax policy does not encourage investment, in America, by American companies. (Better to let the non-American companies do this.)
In conclusion …
The question is NOT whether U.S. corporate tax rates should be lowered (although they obviously should) to combat inversions, the question is whether the U.S. should:

  1. Continue its destructive and anti-competitive policies of being the only country in the world which attempts to levy taxes on profits earned in other countries by people (in the case of Americans abroad) who do NOT live in the U.S.; or
  2. Join the rest of the world by taxing ONLY the profits and property that are within its jurisdiction. This is called “territorial taxation”.

The answer to this question depends on whether the U.S. believes that it is PART of the world or whether the U.S. believes that it is THE world.
The answers are:

  1. No, the U.S. should not lower tax rates in order to stop inversions. The issue is not the tax rate. The U.S. should stop attempting to tax profits earned in other countries which are already taxed in the country where the profits are earned.
  2. Yes, the U.S. should lower tax rates to make “tax planning techniques” for corporations less relevant. The primary business of
    corporations should NOT be about tax reduction.

The U.S. must stop attempting to tax profits and incomes earned in other countries. To do so is (like FATCA) “territorial overreach.
John Richardson is a lawyer based in Toronto, Canada with Citizenship Solutions.