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Guy who finds loopholes in the tax code
Published on December 20, 2003 By russellmz In Politics
There is a neat article in the New York Times(free registration required) on Jonathan Blattmachr. Apparently he is a superstar lawyer who specializes in finding loopholes in the tax code for the rich. Normally I hate these guys, but at least he speaks out on some of the biggest loopholes.

And when he sees something in the code he considers egregious, he speaks up, as he did when he objected to the repeal of the estate tax. The repeal would ''shift the tax burden from the wealthy to everyone else,'' Blattmachr said one morning in one of his two offices, this one a sunny Park Avenue aerie from which he can look down on the great wealth machine that is Manhattan.
Everything Blattmachr does is legal within US law. One of the amusing bits in the article is that when studying Soviet law in college Blattmachr found it was not "unprincipled" and not "written to advance the interests of the ruling elite," but the administration was what made it so terrible. Meanwhile the US tax code was like the opposite: "favors the ruling elite but is administered objectively."
But some loopholes are too big, even for his liking. He was the first to expose one such opportunity buried in the first tax-cut bill sponsored by President Bush. The loophole -- invisible to all but a very few whose brains could conceive the pick-up-sticks consequences of the proposed law changes -- would have allowed the very rich to avoid paying capital gains taxes at all and would have cost everyone else dearly. Thanks in large part to Blattmachr's sounding the alarm, the Senate did not change that part of the law.
My favorite one involves charities:
The rich can do this by manipulating charitable trusts. These trusts are a common enough device used by generous people who own an asset, usually stock, that has appreciated in value. Instead of selling the stock, paying capital gains taxes, and then investing the after-tax proceeds, a person can instead donate the stock to a charitable trust that he controls. The trust can sell the assets tax-free and invest the untaxed proceeds. The income from that investment -- typically 6 percent annually -- is paid to the donor for life. When the donor dies, what remains in the trust goes to charity.

Blattmachr took this clever gimmick and supersized it. He figured out a way to turn that nice little 6 percent annual income stream into a torrent -- 80 percent returns a year for two years. So on stock gains of $100 million, the owners would get back at least $96 million, as opposed to the mere $72 million they would have gotten if they had sold the stock outright and paid capital gains taxes. Then the trust would fold, and some charity would get the remaining $4 million. The government would get less than nothing since the gift to the charitable trust would create an income tax deduction.
Fun fact about taxes:
Few of us also know that this means that the 400 Americans who reported the biggest incomes in 2000 paid just 22.3 cents out of each dollar in federal income taxes. That is about the rate paid by a single person making $125,000.

All quotes are from the NY Times article, "The Loophole Artist".

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