A mysterious and unexpected entry in the US Treasury’s daily reports has caused a stir among financial analysts and the public alike. On February 28, 2023, a whopping $7 billion deposit was recorded in the category of “estate and gift” taxes – the highest collection of this kind of tax since at least 2005.
While it’s possible that multiple ultra-high-net-worth individuals were hit with massive tax bills on the same day, insiders say this one deposit is too large to be a mere coincidence. This has led many to speculate that a previously unknown billionaire has come forward to pay an enormous sum in taxes, which could have resulted from the death of the billionaire or a gift to a loved one.
Government Officials Are Keeping Quiet And Not Sharing Any Information
Government officials are staying tight-lipped about this super-wealthy individual’s identity due to Privacy rules. However, a Treasury spokesperson has confirmed this was not a reporting error, while an Internal Revenue Service spokesperson has dismissed suggestions that it could have been caused by a backlog of returns.
The mysterious tax payment has reignited the debate about the power of billionaires and their influence over our lives. While they may often make headlines for their extravagant lifestyles, it appears that some ultra-wealthy individuals have managed to fly under the radar – at least until now.
Exploring The Surprising Increase In Estate Tax Collections
The discovery of this massive tax return was first made by John Ricco, the associate director of budget analysis at the Penn Wharton Budget Model, a highly respected group at the University of Pennsylvania that tracks the impact of economic policy changes. Ricco has been keeping a close eye on estate tax deposits due to a peculiar natural experiment that has resulted in an unexpected surge in estate tax collections.
Despite the estate tax being reduced in 2017 during President Donald Trump’s tax overhaul, collections have skyrocketed in recent years, most likely due to the excess deaths of elderly individuals during the pandemic. However, the current fiscal year’s high collections are nothing compared to the massive tax return that has been collected, leaving financial experts and analysts scrambling to determine its origins.
What’s even more surprising is that the two potential sources for the payment, gift, and estate taxes, can be significantly reduced through the type of strategic planning usually employed by wealthy individuals. Since the 2017 law change, estates have been taxed at 40%, but significant exemptions exist. For instance, the first $11.58 million of an estate is exempt from taxation, and estates can benefit from flexible rules for valuing private companies. Tax payments can also be reduced by creating trusts and charities to shield income from taxes.
Based on the tax rate, the $7 billion payment implies an estate or gift of around $17.5 billion. However, the Tax Policy Center, a prestigious think tank in Washington, DC, estimates that estates usually pay a 17% effective tax rate after exemptions and other forms of avoidance. Even if only 50% of the estate was taxable, it would still have a potential value of $35 billion, making the estate’s owner one of the 100 richest people globally, according to Bloomberg News.
Speculations On The Identity Of The Ultra-Wealthy Individual
Gabriel Zucman, an esteemed economist at the University of Berkeley, who is well-known for his research on tax policy and the ultra-wealthy, has proposed several plausible hypotheses. He believes the deposit could be the result of a missed billionaire by Forbes, a significant gift, or delayed payment by a deceased billionaire due to enforcement efforts.
However, the gift tax can also be triggered by divorces involving spouses without American citizenship, but payments within a year of divorce are generally excluded. Alternatively, Ray Madoff, a tax law professor at Boston College, suggests that someone with a large estate might make a taxable gift now to avoid future estate taxes on their entire net worth. This planning could be an effective way to save money in the long term.
Forbes, which tracks net worth using public assets or through the often-dubious cooperation of the wealthy individuals in question, has not been able to provide any concrete answers to this question. The publication’s list of billionaires who passed in 2022 does not include any Americans with estates large enough to account for this deposit.
Edward ‘Ned’ Johnson III, the former CEO of Fidelity mutual fund, was the only American billionaire who died that year with a net worth exceeding $10 billion, at $10.9 billion. Under his leadership, the managed assets of Fidelity grew from $3.9 billion in the early 1970s to $1.7 trillion in 2014, when he retired after nearly four decades at the helm.
However, even with his substantial net worth, he did not surpass the estate tax threshold of $7 billion.
Non-US citizens can be billed for estate taxes if they own US assets in their names. But it would be rare for a foreigner to have investments of that size without sophisticated planning.
The typical deadline for filing estate tax is nine months after the death, with an additional six-month extension. However, a legal battle with the IRS could potentially prolong the process. Despite the various theories put forth, the source of the $17.5 billion deposit remains a mystery. Unless ProPublica, who recently leaked IRS data, has the answer, the truth may remain unknown.