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Epoch Times
10-05-2025
- Business
- Epoch Times
What Is ‘Fair' Taxation of Corporate Enterprises?
Commentary Whenever tax policy comes to public attention, the issue of fairness arises. That is just as true in regard to the taxation of corporate enterprises – the subject of this article – as it is for personal taxes. With President Trump taking steps to revoke Harvard's tax-exempt status, we are confronted with the question of when it is 'fair' to bestow or withdraw such an exemption. There is also the related fairness question of whether granting a non-profit enterprise tax-exempt status gives it an unfair advantage vis-à-vis for-profit enterprises. And, of course, there is the perennial question of what is a 'fair' tax rate for those for-profit businesses. Let us examine these three questions separately before looking at a possible solution. Is It 'Fair' to Grant or Deny Tax-Exempt Status to an Enterprise Classified as 'Not for Profit'? The Trump administration's clash with Harvard and other universities about their tax-exempt status will seem fair to some and unfair to others. Section 501(c)3 of the U.S. Internal Revenue Code stipulates that tax exemption may be granted to corporations 'organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes ... no substantial part of the activities of which is carrying on propaganda ... and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.' We have seen examples in the past of how the tax code can be weaponized for partisan purposes. During the Obama years, we had the notorious case of the IRS withholding or delaying the granting of tax-exempt status to not-for-profit organizations that were deemed too conservative. Today, Team Trump is threatening to withdraw the tax exemption from universities that are deemed too woke. There are those on the left who would like to revoke the tax-exempt status of, say, churches whose pastors openly support Donald Trump from the pulpit. And there are those on the right who would be quite happy to see the revocation of the tax-exempt status of churches where the sermons preach that progressive candidates are God's true messengers. Is It Fair to Grant Privileged Tax Treatment to Nonprofits While Continuing to Tax For-Profits? In practice, according to many analysts, such as the Related Stories 3/24/2025 5/4/2025 The fundamental problem here is widespread ignorance of how important profits are for a society's well-being. I groan every time I hear a college student answer the question, 'What are you going to do after graduation?' with the piously delivered refrain, 'I'm going to find a non-profit to work for.' Such young adults have had professors who have inoculated them with the poisonous Marxian dogma that profits are somehow unnecessary, illegitimate, and morally tainted. They truly believe that they are being virtuous by not participating in a for-profit enterprise. Nothing could be further from the truth. A quick review of the ABCs of profit: 1) Profits are not a transfer of wealth from one party to another, but are mutual. The first rule of voluntary exchange is that both sides profit; otherwise, the exchange would not take place. 2) Thus, the larger the profit earned by the producer, the greater the value received by the consumer. 3) Profits are new wealth; entrepreneurial vision has found a way to combine inputs with a total market value of A and turned that value into more than A, thereby increasing the total wealth of society. The person who despises profits despises wealth creation and human prosperity. It is hard to think of a more misanthropic case of economic ignorance than the ignorant dogma that profits are immoral. What Is a Fair Rate of Taxation of For-Profit Businesses? As I have written before (see The Only Truly Fair Solution The anti-wealth left will hate this, but there is a single simple solution to all three of the contentious questions about tax fairness examined herein. It is the solution mentioned in the previous paragraph: to make the tax rate zero—not just on what are today classified as for-profit firms, but on the so-called not-for-profits, too. Then Harvard et al. wouldn't have to worry about a president withdrawing their tax exemption, because they never would be subject to taxes on their income in the first place. There would be no need for squabbling about whether Enterprise A should be classified as not-for-profit, since there would be no advantage to it. [Note: There is one other wrinkle, and that is that, currently, donations to not-for-profits are tax deductible. But such contributions comprise only about 12 percent of not-for-profit income, and the government has no business tilting the table in favor of certain enterprises. It is the same unfairness as government subsidies. In both cases, government alters the cost structure so as to confer a benefit on favored constituents. It's time for that corrupt practice to end. As the old economic truism states, 'Corporations don't pay taxes; only people do.' Let's set free thousands of accountants and lawyers to do other work instead of playing the complicated game of seeing who can extract the most favors from government. If you argue that the government needs more revenue, then have the courage and honesty to call for individual tax rates high enough to fund your grandiose government spending plans, and see if the American people agree that taxes should be that high. Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Forbes
30-03-2025
- Business
- Forbes
Foreign Stock Options: 6 Things American Expats Should Know
As more Americans take on international roles, stock options have become a key part of the expatriate executive's compensation package, especially when working for foreign employers. These options offer exciting opportunities to benefit from a company's growth, but they also come with complex U.S. tax implications that can catch the unwary off guard. Imagine you're an American executive at a tech startup in London, and your employer offers you stock options as a perk. It's a chance to share in the company's success, but what does it mean for your U.S. taxes? The rules differ from those for traditional wages, and missteps can lead to unexpected tax bills. This article breaks down the U.S. tax treatment of non-statutory stock options. These are the most common type received from foreign employers as they are not granted under either an employee stock purchase plan or an incentive stock option plan. Each stage of stock options given in connection with employment from grant, to exercise, and a later sale of purchased shares has tax implications. This article highlights the key U.S. tax considerations at every step and reviews a tax planning strategy that could save money. When a foreign employer grants an individual non-statutory stock options, the individual typically does not owe U.S. tax because of the option grant. This assumes the options lack what is called a 'readily ascertainable fair market value', which is common with private companies since options on such stock are not publicly traded. A potential pitfall lies in Section 409A of the U.S. Internal Revenue Code, which governs deferred compensation. If the options defer compensation in a way that triggers Section 409A, the individual could face taxes and penalties because of the option grant. Section 409A commonly applies when stock options have an exercise price below the stock's fair market value at the time of grant or if they include features that allow deferral of income beyond standard vesting and exercise terms. The significant tax event typically occurs when the individual exercises the options by purchasing the stock. The difference between the stock's fair market value at exercise and the price the individual pays is treated as ordinary income. For example, if the individual pays $30 per share and the stock's FMV is $100, the individual reports $70 per share as income. For Americans living and working overseas, this income might qualify for the foreign earned income exclusion (up to $130,000 in 2025) if the work tied to the options was performed abroad. Determining how much of this income is foreign versus U.S-source, can become complex and depends on the individual's specific circumstances. An examination of the individual's services, and where and when they were carried out in relation to the options being granted is needed. This complexity makes expert advice essential. If the stock purchased by the employee upon exercise of the option is considered 'substantially nonvested' then the employee will not be taxed at the time he exercises the option. In order for the stock to be considered 'substantially nonvested' there are two requirements. The stock must be: (i) nontransferable and (ii) 'restricted' so as to be 'subject to a substantial risk of forfeiture' (e.g., the individual loses the stock if he leaves the company within a certain time period). If both of these restrictions are met, the employee will not be taxed at the time he exercises the option. Taxation will occur at a later time when either one of the restrictions lapse. At that time, the individual is taxed on the difference between the FMV of the stock at time of lapse minus the option price he paid. Assuming the value of the stock has risen in the meantime, the employee will pay higher tax. This is so because he will have more compensation income and compensation income is treated and taxed as 'ordinary income' with a current maximum rate of 37%. In contrast, when the employee reports income at the time he exercises the option (for example, because the stock he acquired by exercising the option was not 'substantially nonvested'), he would acquire a basis in the stock equal to the FMV of the stock at that time. When the stock is later sold, any future appreciation after the option was exercised would generally be taxed as capital gain. If the gain is taxed as 'long term' capital gain, it is taxed much more favorably (generally at top rates of 15% or 20%) in comparison to 'ordinary income' rates. Here is an example: Assume the individual exercises options when the stock is worth $100, paying $20, but restrictions prevent selling for two years, and the stock rises to $150 when the restrictions lift. The individual is taxed on $150 - $20 = $130 as ordinary income (with a top rate of 37%). If taxation had occurred at exercise, the individual would owe tax on $100 - $20 = $80 of ordinary income. Any later gain would be capital gain. The delay can result in a higher tax bill if the stock rises, so timing is significant. If the stock is substantially nonvested, the individual can make an election under Code Section 83(b) to pay tax at exercise of the option instead of waiting for the restrictions to lapse. The individual would report the FMV at exercise minus the option price as ordinary income at that time. Future appreciation would be treated as capital gain. Using the earlier example, electing at exercise taxes the individual on $80 ($100 - $20) upfront. If the stock rises to $150 by the time restrictions lapse and the individual sells at $200, the $100 gain ($200 - $100) is capital gain. The election is not free of risk. The individual pays tax upfront, even if the stock value declines or if the stock is forfeited later. If the value of the stock drops to $50, the individual would have paid tax on $80 that was never realized. It is a calculated risk and one that must be carefully evaluated. When a U.S. person owns shares in foreign entities, special tax considerations come into play. These include foreign information return reporting, for example, on Form 8938. Such reporting gets confusing with the grant to an employee of options on foreign stock or restricted foreign stock itself. Reporting on Form 8938 may be required if the option or shares are treated as a 'specified foreign financial asset.' Unvested shares and options generally may be disregarded for purposes of Form 8938 until the time of vesting, unless the individual makes a valid election to include the assets in income under Code Section 83(b). The foreign country where the taxpayer is living and working may also tax the stock option at grant, exercise, or sale, depending on local tax laws. Some countries tax options as employment income upon vesting or exercise, while others treat gains as capital gains upon sale. This can lead to double taxation if both the U.S. and the foreign country tax the same income. To mitigate this, proper tax planning is essential to maximize the use of foreign tax credits, avoid timing mismatches, and ensure compliance with both U.S. and foreign tax rules. A tax professional familiar with cross-border taxation can help structure the reporting to minimize overall tax liability and take advantage of tax treaties where applicable. Stock options can enhance an expatriate's wealth, but the tax rules are intricate. From the timing of taxation to the interplay of U.S. and foreign tax laws—including the risk of double taxation mitigated by tax treaties—the stakes are high. Understanding the basics is a starting point, but personalized advice from a tax professional familiar with international rules is essential to maximize benefits and ensure compliance. The complexity should not overshadow the value of stock options. Stay on top of tax matters around the globe. Reach me at vljeker@ Visit my US tax blog It is an invaluable guide in all areas of U.S. international tax. Stay on top of legislative developments and tax reform, (including impact on foreign stock options) and keep ahead of U.S. tax changes impacting your life, family or business.
Yahoo
07-02-2025
- Politics
- Yahoo
A convicted felon and a former judge want to run for Jackson mayor. See why they may not qualify
The candidacy of two Democratic hopeful challengers in Jackson's mayoral election are being questioned: one is a former municipal judge, the second is a former City of Jackson employee who was convicted of embezzlement. The Jackson Municipal Democratic Executive Committee met Thursday night at Jackson City Hall to hear from the two candidates in question. The committee also voted to qualify the remaining 11 Democratic mayoral candidates, as well as the Democratic candidates running for a seat on the Jackson City Council. The two candidates whose candidacy is being questioned are Ali Shamsiddeen and Keyshia Sanders. Sanders worked previously as Jackson's constituent services manager. In December 2023, she pleaded guilty to one count of federal wire fraud, engaging in a scheme to embezzle city grant money. She accepted a plea deal, receiving five years of probation and was ordered to pay $54,000 in restitution. On Thursday, Sanders addressed her felony conviction to the committee. Jackson bribery scandal: Evidence in Jackson's bribery scandal can't be made public until trial, judge says "In 2023 I was involved in a court case that has since been resolved, and I want to emphasize that that matter has been resolved, and all issues have fully been resolved within the justice system," Sanders said. "I believe that every challenge presents an opportunity for growth, and I am committed to using my experiences to foster transparency, inclusivity and integrity in our local government." Sanders said she was "passionate" about the Jackson community and "dedicated to bring positive change." Convicted felons are not allowed to hold office, according to Section 44 of the Mississippi Constitution, excluding convictions of manslaughter and violations of the U.S. Internal Revenue Code or state tax laws. It's unclear what Sanders meant when she said "all issues have fully been resolved within the justice system." After Sanders spoke, committee member Jacquie Amos requested the vote on Sanders' candidacy be tabled until further review of her court case, which was approved unanimously. The committee told Sanders she would know of the decision by 5 p.m. Monday, Feb. 10. Shamsiddeen's candidacy is being questioned because of concerns of where he lives. A former Jackson municipal court judge, Shamsiddeen said he moved to Byram in 2007, but moved back to Jackson and has lived in the city "for the past three years." Candidates hoping to qualify to run for office "must be registered voters, and live in the district, county, or city of the office they seek," according to the Mississippi Secretary of State's website. Shamsiddeen said has been living at 367 Elms Court Circle, which is in West Jackson, with his fiancee who deeded him the property. He also brought along utility bills in his name of the residence that he has been paying. He still owns his Byram house, which he called a farm, and uses it to keep his animals there. Ole Miss student murder: Human remains found in Carroll County confirmed to be Ole Miss student Jimmie 'Jay' Lee Further, Shamsiddeen said he was involved in previous elections Jackson, including helping to get both former Jackson mayor Frank Melton and state legislator Henry Kirksey elected. "I voted for Frank Melton, who put me on the (judge) bench," he said. Like Sanders, the Democratic committee decided to table a vote on Shamsiddeen's candidacy to allow for more time to review his residency. He will be notified of of the decision by 5 p.m. Monday, Feb. 10. This article originally appeared on Mississippi Clarion Ledger: Two Jackson MS mayoral hopefuls have candidacy questioned
