Reforming the tax code will be a pitfall-studded affair, asserts the New York Times, which today offers up the tax break for "like-kind exchanges" as proof. This particular break was established nine decades ago as a way to help family farmers. It permitted them to sell land, equipment, or animals without paying capital gains taxes, so long as the money made was used to acquire new similar assets. But the break, which keeps at least $3 billion a year out of the Treasury's coffers, is now being used by art dealers and real estate developers—and companies ranging from Wells Fargo to GE, which may not just be using it, but abusing it.
Among the key stipulations of the tax break: Companies can only spend the money they receive from selling an asset on a replacement, and that money must be kept in an escrow account controlled solely a third party. But evidence used at a federal trial involving JPMorgan Chase shows that those companies may not abide by those rules. In fact, Volkswagen and BMW's American subsidiaries had so much control of their escrow funds they were able to use them as collateral when obtaining credit lines. Their ability to do so reveals what the Times calls "one of the greatest vulnerabilities of the United States tax system: it depends on voluntary compliance." Click to read the full piece.