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One track mind

The New York Times runs yet another story by David Cay Johnston on a method for reducing taxes. This one involves the purchase of high-priced life insurance to avoid the estate tax. Quick, without reading the article -- three guesses for Johnston's opinion on the method.

While you're pondering that, here's a question for those of you with a good memory, or enough (too much) free time on your hands to go through the Times' archives: has David Cay Johnston ever met a tax he didn't like? Because (in case you couldn't guess), Johnston sure doesn't like this one. And, as usual, he lets us know it, despite (ostensibly) writing a news story:

The technique is legal, blessed by the I.R.S. in 1996. But some leading tax lawyers, as well as some accountants and insurance agents, say it shouldn't be. They say it effectively disguises a gift to one's heirs that should be taxed like any other gift. They also say it is but one example of how a tax exemption on life insurance that was approved by Congress in 1913 to help widows and orphans has been stretched to benefit the very richest Americans.

[...]

Sanford J. Schlesinger of the law firm Kaye Scholer said he passed up a chance to collect a six-figure fee for advising on one of these deals because he thinks the deals should not pass muster with the I.R.S. "My mother taught me that if something seems too good to be true, it isn't true," he said.

Other leading estate tax lawyers, as well as some accountants and insurance agents, say Mr. Blattmachr's insurance technique should fail because it is wholly outside the intent of Congress in giving tax breaks for life insurance, the I.R.S. ruling on the plan notwithstanding.

"If the I.R.S. understood this they would say that it relies on a disguised gift and if you have to pay gift taxes, then Jonathan's insurance deal does not work," said an estate partner at a tax firm in New York, who like others, said they could not be identified because they have signed confidentiality agreements that are part of all such insurance deals.

Another legal expert said paying 10 times too much for insurance in a plan like this reminds him of a matriarch selling the family business to her granddaughter for $10 million when it was actually worth 10 times that amount. "The I.R.S. wouldn't let a family get away with selling the business for a dime on the dollar," this lawyer said, "and they should not allow it to work in reverse through insurance."

Certainly, that's an unbiased selection of quotes there. Now, don't get me wrong; it's okay for Johnston to want to raise everyone's taxes, particularly those of the wealthy -- but shouldn't he put that opinion on the op/ed page, rather than the front page?

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This page contains a single entry from the blog posted on July 28, 2002 3:32 AM.

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