My naive understanding is it’s a way of transferring money in return for something supposedly valuable. That might really be payment for something else.
That doesn't work. That's the great myth of donation tax dodging that isn't actually true, yet is endlessly repeated. You ultimately - at best - only save a fraction of your donated value, you'd be better off just selling the asset instead of donating it for a fractional tax saving.
If that actually worked the top 10% wouldn't be carrying such an outsized share of the nation's tax burden on its shoulders via our very progressive tax system, they'd all be busy dodging all of their taxes via donations.
If you really wanted to avoid taxes, you wouldn't donate anything, you wouldn't sell anything.
The single best way to avoid taxes in your lifetime, is to borrow against your assets and only repay the borrowing in death. Your cost will be interest (interest rates are ridiculously low today). You could go much of your lifetime without paying taxes, while enjoying the good life borrowing against eg your stock holdings. Warren Buffett has made this point numerous times, that if he wanted to avoid paying taxes during his lifetime while enjoying his immense wealth, he'd just use that approach. Buffett could have taken out a $1 billion loan 30 years ago, had fun with that cash, and paid zero taxes on it for decades (while also not selling his primary asset - Berkshire Hathaway stock - which has appreciated dramatically).
A fraction of the donated value is still much bigger than the actual value you paid for the art. The important part is to get an appraisal far above the actual value.
> you'd be better off just selling the asset instead of donating it for a fractional tax saving.
The idea of this scheme (which may be exaggerated on the internet) is that you cannot sell the asset.
This is a painting by the cousin of someone who went to the same barbershop as de Kooning. There is zero market. There are approximately zero buyers. There is some story to be constructed that plausibly justifies some "historical value." There is presumably some decorative value.
I keep seeing this discussed, but I have honestly had difficulty getting relatively large loans against assets. All they seemed to care about was income. Yes, Buffet definitely has a better relationship with the bank than I, but I wonder if this is really possible to copy by the average person.
Your assumption is it's only US tax evasion. It's also about getting money out of other countries and evading their taxes, creating values of wealth store. Much like the real estate industry in key markets of the US, foreign investors don't care about paying more if it means they can safely get their cash out of host countries.
1031 Exchanges are one method, buying overpriced items to bring illicit cash into legitimate ownership is another. There are a myriad of ways to make it beneficial. I think we all can agree though that the price is nuts.
Then again The H.Biden paintings are listed for 75 - 500,000 so maybe I just have 0 clue about what super wealthy people want.
You’d think so, and yet it’s come to light Crown Casino in Melbourne was doing just that, knowingly maintaining relationships with known crime organisations, and was actively enabling money laundering.[1]
I argue politics and big business is a front for bad behaviour, as evidenced by the endless stream of corruption news pouring out of the Australian federal government.
I find it difficult to believe the the other G20 nations[2] are markedly better.
I believe it's more like: here's 1.5 million dollars that you can use to explain to the IRS how you're paying for a new house. If you give me 2 million in illicit cash, I can use that elsewhere and the IRS doesn't care because I already have 100 million dollars in assets.
What if the buyer is from outside US - say a foreign oligarch or dictator? I find it hard they refuse to sell to such people altogether, esp. seeing how much real estate in London is being bought by Russian kleptocrats.