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Rich paying their fair share of tax, study concludes
Main Post: Rich paying their fair share of tax, study concludes
Top Comment:
The writer has chosen to use the word 'rich' here, when the article is exclusively talking about income tax and not wealth. It does mention that high income earners are in a position to minimise their tax through investments generally only open to those with money, and of course that the truly rich predominately own appreciating assets where no tax is applicable until they decide to sell - rather than income tax being discussed. A person who owned $500M in assets but had zero income tax would, for the purposes of this review - pay no income tax and be considered to be paying their fair share.
This study is suggesting the current income tax structure (which includes the current highest tax bracket) is fair for the purposes of the income tax paid - but doesn't delve into whether those who have appreciating assets or other forms of wealth that aren't taxed - are paying their 'fair share'.
[CAN] CFE Prep - What to study for Tax?
Main Post:
I didn't take the tax elective so I haven't had to deal with tax since Core 1. I feel like I've completely forgotten everything about tax and it was never my strongest area.
What are the main things I should be studying and trying to re-learn in regards to tax?
EDIT: I took Assurance/PM as electives and will be choosing PM as my Day 2 Role, but I still need to brush up on the tax topics that could be tested for all candidates.
Top Comment:
Some general personal and corporate. If you do the Assurance role in Day 2, you'll have to make adjusting entries that could impact taxes payable. This last year, Day 3 asked for discussing tax implications, tax credits, and filing/payment dates. They have the CFEs up on the cpa canada website to look at.
The marking rubrics for tax items are pretty simple, you basically just have to attempt a calculation and/or attempt an explanation to get a C.
PFIC - two weeks of study on tax implications and filing requirements (long)
Main Post:
Seems that the excitement (and concern) has subsided about the tax implications of SPACs that might be a PFIC. I have spent the last couple weeks digging into the topic and share the conclusions that I settled upon for myself.
Obligatory disclaimer: I am not a CPA. I am not a (tax) lawyer. I am not any kind of financial adviser. I am an electrical engineer. To you, I am also a random person on the internet. This post contains my opinions on the matter - which the IRS might agree or disagree. Use this information as you might - but, I would recommend that you verify the information in your own manner.
1/11 EDIT: Thanks to the discussion yesterday, it appears that my #2 is incorrect; I will fix below. Also, it appears that you do not receive a monetary penalty if you do not file the Form 8621; however according to section 6501(c)(8)(A) your tax return remains 'open' until 3 years after submitting the form if required.
The TL;DR summary:
- It is easy to determine if a SPAC is not a PFIC - look at the S-1 filing to state an US incorporation
- Form 8621 reporting is not required if you held a (potential) PFIC for less than 30 days incorrect see comment 1, comment 2 thanks u/chstrfld1 and u/Rossoneri
- Otherwise Form 8621 reporting is required - there are 3 methods: QEF, mark-to-market, excess distribution.
- You have to fill an individual Form 8621 for each PFIC
- Requires paper filing
- These methods are listed in increasing tax burden (ie. excess distribution is the most punitive) - however more information is required to decrease the tax burden
- If you bought a PFIC position and completely sold this PFIC position in a single tax year (ie. held the position in 2020 only), then you still have to do a Form 8621, but it is simply an excess distribution that is taxed as ordinary gains (or losses)
- If you cross a tax year boundary, then you need to make a timely election (QEF or MTM) to avoid punitive taxation at the highest marginally rate plus interest.
I have nearly completed a program that will fill a Form 8621 for each of my PFICs based (search the SEC reports, categorize my holding, generate the completed form). I plan to pay someone to review my forms, but I figure if I can do the leg work of filling these forms, then (hopefully) it will cost less.
I hope to fully show in detail how I came to each of these conclusions. Again - don't take my word - verify for yourself!
First thing that I noticed in my study. There are several postings online that discuss PFICs and how to file. The tax code in regards to PFIC was updated in 2018 and several of the online posts pre-date this change. The tax code change in 2018 mostly dealt with insurance companies, so in general it didn't change the impact on PFIC SPACs - however, I had to double check the tax code prior to 2018 with the latest version.
Links to the primary sources of information:
- Tax Code Section 1.1291-1298
- IRS instructions for Form 8621
- Hodgen Law Blog (Multiple) Posts on PFICs
Continue if you dare .... :)
1. It is easy to determine if a SPAC is not a PFIC - look at the S-1 filing to state an US incorporation
Simple process to determine if a SPAC is not a PFIC. Go to SEC Report ; find the S-1 filing and search for the location of incorporation. If this location is in the US, then the SPAC is not a PFIC, otherwise it possibly will be considered a PFIC. If you are only checking a few tickers, then going to the web site is not too timely of a process to check. However, I had a large enough list that I create a program to check these tickers for me. Time permitting, I can check other tickers for folks - right now I'm only working on the one that I held in 2020.
No need to repeat the things that could or could not make a non-US incorporated SPAC a PFIC - this was discussed in detail around the new year in this sub.
My plan of attack for my 2020 tax filings is to assume any non-US SPAC is a PFIC and hope to be pleasantly surprised if any are not. I emailed the investor relations for each of my non-US SPACs to see if they thought they would be a PFIC. It's only been 10 days, but only 2 SPACs replied back: CRHC said they will be considered a PFIC but expect to be exempt via the "start-up exemption". FTOC said they will be considered a PFIC but will not be exempt via the "start-up exemption".
2. Form 8621 reporting is not required if you held a (potential) PFIC for less than 30 days
According to paragraph (c)(7) of Section 1298-1:
(7) Exception for certain short-term ownership of PFIC stock. A shareholder is not required under section 1298(f) and these regulations to file Form 8621 (or successor form) with respect to a section 1291 fund (as defined in § 1.1291-1(b)(2)(v)) for a taxable year when the shareholder - (i) Acquires the section 1291 fund in the taxable year or the immediately preceding taxable year; (ii) Is a shareholder of the section 1291 fund for a total of 30 days or less during the period beginning 29 days before the first day of the shareholder's taxable year and ending 29 days after the close of the shareholder's taxable year; and (iii) Is not treated as receiving an excess distribution (within the meaning of section 1291(b)) with respect to the section 1291 fund, including any gain recognized that is treated as an excess distribution under section 1291(a)(2) as a result of the disposition of the section 1291 fund.In particular, line (ii) says that if you had the PFIC shares for 30 days or less, then you are not required to fill a 8621 Form. 1/11 EDIT: Line (iii) is the key; if you have an excess distribution (ie. a gain) then you must do the form.
For the 2020 tax filing purposes, if you own a PFIC for 30 days or less between December 2, 2019 through January 29, 2021, then you do not need to submit the form. Notice that it wraps around the tax year boundaries.
This means that if you bought a SPAC in the last week of December that might be a PFIC, then you could sell the position on Monday and remove your 8621 Form requirement.
There is another benefit of this exception clause - if you take on shares of a non-US incorporated SPAC and sell within 30 days, then you will not need to fill out a 8621 Form. (Again, I am not a tax advisor, so this is an opinion on my reading of this language)
Note, this interpretation is repeated by others: here here here here
3. Otherwise Form 8621 reporting is required - there are 3 methods: QEF, mark-to-market, excess distribution.
- You have to fill an individual Form 8621 for each PFIC
- Requires paper filing
- These methods are listed in increasing tax burden (ie. excess distribution is the most punitive) - however more information is required to decrease the tax burden
The default taxation is excess distribution (link). This needs to be avoided as you will be taxed at the highest marginal rate (regardless of your true tax bracket) and you have to pay deferred interest.
The best method to prevent an excess distribution is to make a "timely election" to either the QEF or mark-to-market (MTM). Also, opening and closing your position in a single tax year can avoid the punitive taxation.
A timely election means that you fill the Form 8621 by time your tax filing is due in the first year of PFIC ownership. I will focus on a MTM as it seems the easiest. It also requires less information than doing a QEF.
Depending on your tax situation, you might want to do the QEF since it can reduce your tax burden further; however, the PFIC needs to provide correct information to you in a timely manner. Both of which might not happen and might be in error and apparently it is hard to remove the taint of filling the Form 8621 incorrectly.
Quoting from (link) again
OK. Remember that. When you sell your PFIC stock, your gain is an “excess distribution” and taxed as such, until you can find a reason to have it taxed in some other way.
... we are trying to find some other reason.
4. If you bought a PFIC position and completely sold this PFIC position in a single tax year (ie. held the position in 2020 only), then you still have to do a Form 8621, but it is simply an excess distribution that is taxed as ordinary gains (or losses)
Given that most plays on a SPAC involve a short-term holding, this will hopefully be the clause that applies to most in this sub. The assumption is that the holding was longer than 30 days and contained within a single tax year.
From the Form 8621 Instructions here:
Portions of an excess distribution are treated differently. The portions allocated to the days in the current tax year and the shareholder's tax years in its holding period before the foreign corporation qualified as a PFIC (pre-PFIC years) are taxed as ordinary income. The portions allocated to the days in the shareholder's tax years (other than the current tax year) in its holding period when the foreign corporation was a PFIC are not included in income, but are subject to the separate tax and interest charge set forth in section 1291(c).The second sentence says that the excess distribution in the current tax year is taxed as ordinary income.
But what about the separate tax and interest in Section 1291(c) - last sentence. Okay, go to Section 1291. Paragraph (c) basically says to aggregate the tax increase from 1291(a)(1) by current tax year and prior to current tax year - very circular, but the point is that if you only hold the PFIC in the current tax year, then there is not additional taxation. Again this link probably describes this point better, but I wanted to go through the Tax Code to convince myself (you should too!).
5. If you cross a tax year boundary, then you need to make a timely election (QEF or MTM) to avoid punitive taxation at the highest marginally rate plus interest.
This topic deals with when you hold a PFIC across tax year boundary. I am going to assume that 2020 was the first tax year in the position (because that is the case for me). If you crossed the 2019/2020 tax boundary and you didn't submit a Form 8621 (correctly) with your 2019 return, then you likely have a headache ahead of you. I am also planning to do a MTM as it requires the least amount of information.
You are not able to make a MTM on all PFICs - however, for SPACs traded on a market, you can do a MTM ... so pretty much anything considered in this sub.
A mark-to-market election operates as if you sold you position on Dec 31st at 11:59pm and then immediately bought the position back on Jan 1st at 12:00 am. It is a pretend transaction. Effectively you are taxed on your position gains (or losses) that occurs in the current tax year relative to your adjusted cost basis. In position year 1 the adjusted cost basis is simply your cost basis to open the position. After the first MTM election, the cost basis is adjusted to the share price of the "pretend buy back".
For example, I bought AACQ for $10.02. The end-of-year close of AACQ was $10.63. My MTM will show that I had a $0.61/share gain in 2020 which goes into the "other income" line of my return. My adjusted cost basis on AACQ is now $10.63 for 2021. I must track this adjustment - the $0.61/share gain is called the "unreversed inclusions".
Now two outcomes can occur in 2021 when I sell AACQ - it will be either lower than $10.63 or higher than $10.63!
If I sell higher than $10.63, then on my 2021 tax return, I must complete another Form 8621 where my gains will be taxed as ordinary in excess of $10.63. Again, not an excess distribution because I will perform a timely MTM election of AACQ in 2020.
If I sell lower than $10.63, then we need to look at paragraph (c)(4) of Section 1296-1
(4) Character of loss - (i) Losses not in excess of unreversed inclusions. Any mark to market loss allowed as a deduction under paragraph (c)(3) of this section, and any loss on the sale or other disposition of section 1296 stock, to the extent that such loss does not exceed the unreversed inclusions attributable to such stock, shall be treated as an ordinary loss, deductible in computing adjusted gross income. (ii) Losses in excess of unreversed inclusions. Any loss recognized on the sale or other disposition of section 1296 stock in excess of any prior unreversed inclusions will be subject to the rules generally applicable to losses provided elsewhere in the Internal Revenue Code and the regulations thereunder.The loss needs to first account for the unreversed inclusions from the 2020 MTM. Basically, if I sell below $10.63 but not less than $10.02, the unreversed inclusions will cover those losses - resulting in an ordinary loss. ... effectively I am reversing the inclusion of the gains into my cost basis due to the pretend transaction from the 2020 MTM election.
However, if I sell for loss under $10.02, then, first, the unreversed inclusions are wiped away ($10.63 going down to $10.02). Then any additional losses below $10.02 is a capital loss. The length of my holding will determine if it is short-term capital loss or long-term capital loss.
Section 1296-1 provides several examples that you can review - here is one, they are pretty good examples to help with the intuition:
Example 5. Long-term capital loss treatment of losses in excess of unreversed inclusions. The facts are the same as in Example 3, except that A sells his FX stock for $900. At the time of A's sale of the FX stock on December 1, 2006, A's unreversed inclusions with respect to the FX stock are $200. Accordingly, the $300 loss recognized by A on the disposition is treated as an ordinary loss to the extent of his unreversed inclusions ($200). The amount of the loss in excess of A's unreversed inclusions ($100) will be treated as a long-term capital loss because A's holding period in the FC stock for non-PFIC purposes was more than one year.One aspect that can become tricky is when several purchases and sells occur at different dates and prices. You must provide the accounting of these lots.
Open issues in my research:
Option contracts - Section 1298(a)(4)
(4)Options To the extent provided in regulations, if any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option, and each one of a series of such options, shall be considered as an option to acquire such stock.IMHO, the statement "an option to acquire stock" covers warrants and long call contracts. Short call, short put, and long put does not give you the option to acquire; even though assignment of a short put will give you shares. I will likely just treat this statement as a blanket on all option contract types. But that is simply my unqualified assessment.
Another topic that I cannot quite resolve - what happens when the merge occurs? For example CCH was a non-US incorporated SPAC that became UTZ (incorporated in US).
Say I bought CCH for $11, the last market price of CCH was $18 (just making up a number) and then I sold UTZ in December for $20. Ultimately the realized gain in 2020 is $9 - which will be taxed as ordinary income. However, do I fill a form 8621 and MTM the gain from $11 to $18 - then my adjusted basis for selling UTZ is $18 for a gain of another $2? OR, does the fact that CCH via UTZ is no longer PFIC? This is the last issue that I am trying to determine.
Closing thoughts (finally!):
- I don't think we need to be afraid of PFIC-possible SPACs
- It is not guaranteed that a non US-SPAC is a PFIC
- If you hold a non-US SPAC for less than 30 days, then nothing special is required
- If you hold a non-US SPAC only in one tax year, then the Form 8621 is 'easy'
If you made it to this point, then great and thanks for reading! Again, this is my research at being an arm-chair tax accountant. Obligatory disclaimer (repeated): I am not a CPA. I am not a (tax) lawyer. I am not any kind of financial adviser. I am an electrical engineer. To you, I am also a random person on the internet. This post contains my opinions on the matter - which the IRS might agree or disagree. Use this information as you might - but, I would recommend that you verify the information in your own manner.
Top Comment:
It is not necessary to fill out extra forms (depends) if it does not affect your tax liability. Taxing authorities can only penalize you for not paying the correct tax, not for missing forms. They can audit you and request you do it anyway later, but there will be no additional liability if the tax reported is correct.
EG: In the case you held it for less than a year in one tax year, you report your PFIC gain as a regular short-term capital gain on your Schedule D without submitting Form 8621.
If you do your own taxes, this is what I would do cause I'm lazy.
If you're already paying a CPA, just let them do what you paid them for.
Source: I work in the industry...shhh..
Study suggests sugar tax results in lower BMI increase in Seattle residents
Main Post: Study suggests sugar tax results in lower BMI increase in Seattle residents
Top Comment:
which has been attributed to the Seattle sugary beverage tax of 2017.
Lol...you can't just "attribute" things like this in science, so this must be politics not science.
Study suggests sugar tax results in lower BMI increase in Seattle residents
Main Post: Study suggests sugar tax results in lower BMI increase in Seattle residents
Top Comment:
This is very misleading.
It clearly depicts that no difference in consumption can be linked to the tax, and in fact consumption decreased more in the study’s comparison areas which did not have the tax.
EDIT: I also found this interesting.
In 2019, the average price of a can of soda (12 ounces) was USD 0.35. The same product now goes for USD 0.51, a considerable rise of about 46% in the past three years. Inflation had the most considerable effect on soft drink prices, starting in early 2020 when consumers were panic buying due to the pandemic.
I’m wary of a sugary beverage test which was performed during a period in which soda pop was among products with the most highly inflated prices.