Last year’s tax reform legislation disproportionately benefits the wealthiest Americans, including President Trump. However, Trump’s ongoing refusal to disclose his tax returns ensures that Americans cannot know the full extent to which the new tax legislation directly benefits Trump. For example, a newly discovered loophole shows Trump could benefit even more than previously known–one that could make some of his foreign income functionally tax-free. The President’s lack of transparency raises questions about his motives for supporting the bill and is yet another reason why presidential candidates and presidents typically disclose their tax returns to the American public.

One of the giveaways to millionaires and billionaires in the Trump tax bill allows shareholders in Subchapter S corporations, also known as “pass-throughs” (because the income passes through the corporation to the shareholder’s income tax return, instead of being taxed separately at the corporate level) to only pay tax on 80% of their domestic income. Not only is this a giveaway to the wealthiest among us, but it will also likely benefit President Trump enormously, as the many entities that fall under the umbrella of The Trump Organization are likely pass-through corporations.

But, another lucrative loophole, one designed precisely for businesses that are organized as pass-throughs and make money abroad, has largely escaped notice. President Trump has numerous foreign-based entities, such as DJ Aerospace Limited incorporated in Bermuda, Turnberry Scotland LLC incorporated in Turnberry, Scotland, TIGL Ireland Enterprises Limited incorporated in Doonbeg, Ireland, and THC Barra Hotelaria TLDA incorporated in Brazil, likely generating income overseas. The foreign companies, in turn are owned by his domestic entities, which are organized as passthroughs. Thus, this loophole will almost certainly directly benefit him.

This new loophole allows shareholders of pass-through entities to pay zero tax indefinitely on their accumulated, pre-2018 foreign income. This is even more generous than the terms afforded to Subchapter C Corporations, the corporate form commonly used by publicly traded companies, whose income is taxed at the corporate level. Under the new tax bill, C Corporations must bring their accumulated, pre-2018 foreign earnings back to the United States, and they receive a not-too-stingy eight years to spread out the tax liability. Rather than spreading out payment of income tax over eight years, Shareholders of S Corporations pay not a penny in tax on unlimited amounts of accumulated, pre-2018 foreign income until an indefinite point in the future when the S Corporation dissolves, the S Corporation liquidates substantially all of its assets, or until the shareholder decides to transfer the shares or dies. See 26 U.S.C. 965(i)(1)-(2).

Even the death of the shareholder, however, may not trigger payment of tax. The law allows heirs of Subchapter S corporations stockholders to step into the shoes of the taxpayer and continue to defer the tax indefinitely. See 26 U.S.C. 965(i)(2)(C). Furthermore, it is not clear whether the IRS can even assess the tax to the shareholder until the S Corporation dissolves, liquidates its assets, or the shares are transferred.

At best, this constitutes an indefinite, interest-free loan to people with pre-2018, accumulated foreign income from S Corporations. At worst, this constitutes a complete giveaway. Because the IRS cannot collect tax until far in the future, there is no legal mechanism to stop the shareholder from depleting their assets before the tax bill becomes due. And, even if the shareholder still has funds, other creditors may have a superior claim to those funds than the taxing authorities do. Even under the best of circumstances, the passage of time makes it difficult to collect debts.

This blog post has been updated for clarity, including to specify that the tax provision at issue applies to pre-2018, accumulated income.

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