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Comment by ElProlactin | Hacker News Reader

I put "loophole" in quotes for a reason.

The person in question was arrested and charged with tax evasion and filing a false sales tax return. What he is alleged to have done is illegal.

The state was under no obligation to alert him to the fact that they believed he had committed tax evasion and filing a false sales tax return before they arrested him and charged him with a crime.

What he seems to have expected was an opportunity to pay to settle a criminal charge before it landed him in cuffs. This I should be able to pay to make it go away attitude seems especially prevalent in American society today.

This Montana car registration scheme is, I believe, often referred to as "loophole" not because it's legal but because so many people have been able to get away with it without consequence that it is seen by many as relatively low-risk.

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Creating a LLC or other entity with no purpose except [checks notes] tax avoidance is not legal. That’s about as fundamental of a tax law as there is.

Setting up the LLC is not illegal. On its own, this is not tax evasion.

The tax evasion comes in when you fail to pay the use tax due and make false declarations or intentionally omit information when you make representations to the government (i.e. in tax filings).

The individual in question could have set up a Montana LLC, purchased a vehicle through it, paid the use tax due when he moved it to Tennessee and changed the registration within the 30 day limit.

Of course, there is no benefit of going out of your way to buy a car in Montana if you don't intend to drive it there, but the charges against this person relate to his failure to pay tax, not the mere fact that he set up an LLC.

Whats the penalty though?

If its just a monetary fine then there’s little reason to arrest somebody to immediately release them when you could’ve just told the accountant he needs to pay a fine or he’s going to be arrested.

Generally-speaking, this type of tax evasion is not treated the same as, say, making a mistake on a tax return that results in you owing a bunch of money to the state.

It's akin to intentionally defrauding the state.

A quick Google search indicates that willful tax evasion is a Class E felony in Tennessee, with a potential prison term of 1-6 years.

You could say that about a lot of crimes, but that's not how it works.

Sounds sensible but I don't think that's actually a law. If doing something via a business legally reduces your tax bill then it is, by definition, legal.

As mentioned in the article, the exception is intended for when the majority of the business is conducted in the other state. If in fact you don't do any business in the other state at all, then you are lying and evading taxes. The law is not about how you set things up on Day 1, it's about whether your ongoing behavior is actually consistent with the requirements of the law.

Fair enough, but that just proves my point: that's a specific law about when you're allowed to do this.

The parent commenter seemed to be saying that if you could reduce your tax burden by putting something through a business then that's illegal even if you've not broken any specific laws.

In current terminology, tax avoidance is legal, tax evasion is not.

I think that could be actually illegal. The fact that you can do it, and also avoid taxes is different than doing specifically to avoid taxes.

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."

Gregory v. Helvering, decided by the US Supreme Court in 1935.

Edit: So if it's a legal arrangement that reduces taxes, then yes, it's legal.

At least in some jurisdictions, arrangements solely for the purpose of avoiding taxes (barring explicit carve-outs) are not permitted.

https://www.canada.ca/en/revenue-agency/programs/about-canad...

TLDR: if the only reason for a transaction is tax avoidance, it may not be "illegal", but it may be disallowed (and presumably incorporated in subsequent legislation).

Similar is "wash sale" legislation: for example, selling a security for a tax loss and

- buying it back within 30 days

- buying a call option on that security.

I will guess that the former might get you just a reassessment (the first time). The latter... well, you're smart enough to know about options and tax-loss sale, now you need to demonstrate that you didn't do it for tax avoidance.

Not sure what US law (federal and gazillion states) has on this.

There's probably a law that makes this arrangement illegal.

> This I should be able to pay to make it go away attitude seems especially prevalent in American society today.

It works for the billionaire class, why shouldn’t it work for everyone else?

This is what’s ultimately going to kill what’s happening in the US today: when people in power decide that the rule of law is just a suggestion, they’re going to find that there are people willing to use that against them in ways that they’re not going to like.

> It works for the billionaire class, why shouldn’t it work for everyone else?

As George Carlin said, "It's a big club...and you ain't in it!"

When it comes to financial crime, billionaires get benefits, plebs get prison.

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