Defenders of the executive branch claim that U.S. Persons abroad should direct their anger at Congress, and not the IRS, for the current holy crusade against people who dare to live and save outside of the United States. But over at Tax, Society & Culture, tax prof Adam Rosenzweig makes an interesting argument which points to the hole in that logic:
Conventional wisdom seems to hold that Congress must act for there to be any reform of the taxation of “carried interest” (the type of fees earned by investment fund managers such as Mitt Romney) But if the goal is to tax carried interest at the same rate as, say, salary earned by auto workers, Congress need not act at all. Rather, the Treasury Department could accomplish this on its own today.
This somewhat surprising conclusion comes from the fact that the Code already authorizes the Treasury Department to prevent taxpayers from using partnerships to convert certain types of income that would have been taxed at the ordinary 35% rate into income taxed at the preferential 15% tax rate. For somewhat technical reasons, carried interest requires a partnership to be used for tax purposes. Thus, Treasury could simply issue a regulation disallowing the 15% rate for carried interest. Voila! Carried interest fixed.
So what other ridiculous aspects of the U.S. tax system might Treasury be able to fix through its power to issue regulations? Perhaps something related to U.S. Persons abroad?