How al­paca farms are be­ing used for tax loop­holes

Se­na­tor seeks to close com­plex code dodges

The Washington Times Daily - - POLITICS - BY STEPHEN DINAN

The num­ber of al­paca farms has surged in the U.S., and Sen. Jeff Flake thinks he’s fig­ured out the rea­son: in­cred­i­bly gen­er­ous fed­eral tax breaks that lit­er­ally pay Amer­i­cans to raise the an­i­mals.

It’s be­come one of the odder dodges in a tax code lit­tered with loop­holes and work­arounds.

Col­lect­ing chicken poop to turn into en­ergy, al­low­ing pro­fes­sional gam­blers to write off mas­sive losses, or “mov­ing” to Puerto Rico to keep U.S. cit­i­zen­ship but avoid main­land U.S. in­come taxes are also on Mr. Flake’s list of ar­eas where the fed­eral gov­ern­ment en­cour­ages bizarre be­hav­ior through its tax code.

“This is not an ex­haus­tive list nor the worst loop­holes, but rather anec­dotes in­tended to show how the com­plex­ity of the tax code pro­vides shel­ters for nearly any in­dus­try, in­ter­est, ac­tiv­ity or in­di­vid­ual,” Mr. Flake said in his lat­est re­port Wed­nes­day.

Com­piled from pub­lic re­ports and gov­ern­ment doc­u­ments, his anal­y­sis iden­ti­fied more than 200 tax breaks that short the gov­ern­ment $1.23 tril­lion a year in money it could col­lect, but for the loop­holes. The ones Mr. Flake high­lighted av­er­age $5 bil­lion a year.

The al­pacas write-off ap­plies to small busi­ness own­ers of all stripes, let­ting them speed up de­pre­ci­a­tion write-downs of busi­ness ex­penses, such as equip­ment. Al­pacas were treated the same way — be­cause they were ex­pen­sive but low main­te­nance, and could live in rel­a­tively small ar­eas, they made for won­der­ful tax breaks, Mr. Flake said.

One Ver­mont cou­ple he doc­u­mented paid $10,000 for an al­paca, and earned a $4,000 write­off. The Penn­syl­va­nia Al­paca Own­ers and Breed­ers As­so­ci­a­tion says al­pacas can help earn write-offs for barns, fences and other spend­ing, too.

“Let Un­cle Sam buy your al­pacas for you!” ex­claimed one al­paca sell­ing op­er­a­tion Mr. Flake high­lighted. An­other owner said on­line that she bought $300,000 worth of al­pacas, and said even though the sales from the fleece weren’t enough to break even, the de­pre­ci­a­tion of the cost left her with “a huge carry over loss, al­low­ing my in­come to be be­low zero … and there­fore no tax li­a­bil­ity.”

She also said keep­ing the an­i­mals meant her prop­erty was deemed agri­cul­tural, sav­ing her an­other $10,000 a year in prop­erty taxes. And since her in­come showed as zero, she qual­i­fied for mas­sive as­sis­tance in send­ing her chil­dren to col­lege.

The Al­paca Own­ers As­so­ci­a­tion said Mr. Flake was be­smirch­ing hard-work­ing small busi­ness own­ers with the re­port. The as­so­ci­a­tion said al­paca own­ers are only claim­ing the same tax ben­e­fits that other live­stock own­ers claim, and said it was un­fair to sin­gle the farm­ers out for scru­tiny.

“Al­pacas are a busi­ness ven­ture that peo­ple have made a suc­cess­ful liv­ing from,” the as­so­ci­a­tion said. “When com­pared to other live­stock, al­pacas are a safe an­i­mal for chil­dren to work with as well — the en­tire fam­ily can get in­volved. It is a shame that dur­ing th­ese dif­fi­cult eco­nomic times, the se­na­tor can­not cel­e­brate the fact that Amer­i­cans are suc­ceed­ing in a busi­ness that makes them happy.”

Mr. Flake said al­pacas are at­trac­tive be­cause their high ini­tial cost makes them a good write-off, and their low main­te­nance costs make them eas­ier to main­tain than other agri­cul­tural write-offs.

The ex­pens­ing pro­vi­sion was de­signed to be a short-term boost to the econ­omy in Bush-era tax cuts, but has been ex­tended re­peat­edly.

Gam­blers, mean­while, are ben­e­fit­ting from pro­vi­sions that al­low busi­ness losses to be writ­ten off. That in­cludes travel ex­penses to reach a casino or race­track, the cost of meals and en­ter­tain­ment, Mr. Flake said.

But the real scam comes in non-win­ning scratchoff lot­tery tick­ets, which the IRS says can count as proof of gam­bling losses. Pro­fes­sional gam­blers have taken to buy­ing non-win­ning tick­ets on eBay and Craigslist, us­ing them to re­duce their tax­able in­come from their win­nings.

Mr. Flake said gam­blers claimed nearly $19 bil­lion in de­duc­tions for gam­bling losses in 2015, cost­ing the gov­ern­ment as much as $2.8 bil­lion in lost rev­enue.

“Our out­dated tax code pro­vides shel­ters for nearly any in­dus­try, in­ter­est, ac­tiv­ity or in­di­vid­ual,” Mr. Flake said. “Scrub­bing the tax code for other un­fair tax ex­pen­di­tures would un­doubt­edly iden­tify many more loop­holes cost­ing hun­dreds of bil­lions of dol­lars that could be closed with the sav­ings more evenly dis­trib­uted.”


Sen. Jeff Flake, Ari­zona Repub­li­can, ar­gues that the gov­ern­ment is los­ing out on bil­lions in rev­enue be­cause of ma­jor loop­holes in the cur­rent tax code.

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