A recent court case suggests that corporations have been abusing a tax break, known as like-kind exchanges, in which companies can avoid paying capital gains on an asset sale so long as they use the proceeds only to buy a replacement for the asset, according to a story on the front page of today's New York Times.
Companies using the break, also known as a Section 1031 asset exchange tax break, are required to put the proceeds of the asset sale into an escrow account controlled by a third party. But according to evidence presented in the court case, a unit of JPMorgan Chase that provided such escrow accounts allowed some large corporations access to the money in their accounts. For example, according to the Times, U.S. units of Volkswagen and BMW used the money in their escrow accounts as collateral for credit lines.
See the full story here.
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