List of legal loopholes

This is a list of legal loopholes, categorized and alphabetized.

General

• Antitrust loopholes allow U.S. compaines to purchase foreign companies without adhering to anti-monopoly regulations.^[1]

• The Gun show loophole or Private sale loophole is a loophole in 40 U.S. states that doesn't require background checks on, or record the sale of, firearms to private buyers. Felons are able to use this loophole to purchase otherwise unobtainable firearms.^[2][3]

• FIFO and LIFO accounting are accounting techniques used in managing inventory.

• The Hummer Tax Loophole grants a $25,000 tax credit for purchasing a business vehicle weighing in excess of 6,000 lbs.

• In 2005 Wal-Mart planned a store in Calvert County, Maryland. While a law in the county restricted the size of a retail store to 75,000 square feet (7,000 m²), Wal-Mart considered a plan that would dodge this restriction by building two separate smaller stores. Though Wal-Mart later withdrew this controversial plan, the plan highlighted a legal loophole.^[4]

Ford Transit Connect

• Parts of the interiors of U.S.‑bound Ford Transit Connect were stripped immediately upon importation to circumvent the 1963 Chicken Tax, which imposes a 25% tariff on imported light trucks. Ford imports all Transit Connects as "passenger vehicles" with rear windows, rear seats, and rear seat belts.^[5] The vehicles are exported from Turkey, arrive in Baltimore, and are converted into "light trucks": rear windows are replaced with metal panels and rear seats removed.^[5] The process exploits a loophole in the customs definition of a commercial vehicle. As cargo does not need seats with seat belts or rear windows, the mere presence of those items exempts the vehicle from light truck status. The conversion process costs Ford hundreds of dollars per van, but allows it to save thousands of dollars' worth of taxes.^[5]

• Although the sale of untested drugs is illegal in the US and UK, manufacturers have circumvented legislation by labelling products "not for human consumption". Consumers still buy and use the products as drugs but vendors cannot be prosecuted as they have no control over the consumer after the point of sale.

• YouTube has blocked some copyrighted music from being uploaded; similarly, Limewire shut down for similar reasons concerning music copyright and the free circulation of it online. However, the Nunica Internet Social Alliance was founded as a method to exploit a loophole in YouTube's song blocking by making promo videos for freely downloadable MP3 albums from Nisa Records which contain the blocked music, but without the blocked music in the promo videos, in which the albums can be found on underground file hosting sites. With the release of Nisa's YouTube Rejects Volume 3, Nisa Records has also marketed music to a Germany YouTube audience with music that was formerly blocked in Germany.

• Drzymała's wagon: In eastern Germany during the 19th and early 20th centuries, the authorities pursued an active policy of Germanisation. Prussian law required that government permission was obtained before erecting a house, but this provision was often selectively used against ethnic Poles. Under the law, any dwelling place would be considered a house if it stayed in one place for more than 24 hours. In 1904, Michał Drzymała, an ethnic Polish peasant from Grätz (now Grodzisk Wielkopolski), bought a circus caravan and set himself up in it. To get around the rule, each day he moved the caravan a short distance, thereby exploiting the legal loophole and frustrating all attempts to evict him, until in 1909 he was finally granted permission to buy a house. Drzymała has become something of a folk hero in modern-day Poland for his ingenuity.

• Spousal Benefit: Allows couples to receive an extra $50,000 in social security benefits.^[6]

U.S. taxation

• A tax haven is a state, country or territory where, on a national level, certain taxes are levied at a low rate or not at all.^[7]

• Shell Corporation: A corporation the provides little to no actual services and is used to funnel an individual's purchases and avoid paying international taxes.^[8]

• The ‘No Sale’ Sale: When cashing out a stock, investors borrow the full amount of the stock from an investment bank and use the stock as collateral. Thus avoiding capital gains taxes.^[9]

• Grantor Retained Annuity Trust: A method of avoiding the estate tax through a trust.^[10]

• Permanent Life Insurance: Whole life, universal life, and variable universal life insurance combine a life insurance policy with an investment vehicle that allows tax-free returns.^[11]

• Deferred-Compensation Plan: Allows employees to receive their earnings in a delayed manner, reducing the overall tax rate.^[12]

• Mortgage interest deduction: Allows mortgage interest to be deducted from a homeowner's, houseboat owner's, or yacht owner's taxes.^[13][14]

Capital gains

• Capital losses: As capital losses occur, investors may realize them and write off $3,000 worth per year to offset capital gains.^[15]

• Carried interest special tax treatment: Managers of private equity funds can get a percentage of the funds' net gains as a management fee. The fee is known as carried interest and is taxed like capital gains instead of normal income.^[16]

• Primary residence exclusion: Individuals can write off $250,000 from the sale of their primary residence.^[17]

• Familiar stock exchange: Individuals in higher income brackets may transfer their stocks to a family member in a lower tax bracket prior to selling them. Thus, reducing the capital gains taxes on the assets.^[18]

• Stock donation: A charity donation in stock will be untaxed and allow a tax write off for the value of the stock before taxes.^[19]

• Trust fund loophole: Allows heirs to sell a trust's assets without paying capital gains.^[20]

References

1. "11 Loopholes the World's Biggest Corporations Use to Skirt the Rule of Law". Policy MIc. Retrieved 17 April 2015.
2. "The legal loophole that allowed Dylann Roof to get a gun". Washington Post. Retrieved 20 June 2015.
3. Hale, Steven. "Gun shows, Internet keep weapons flowing around background checks". nashvillecitypaper.com. Retrieved 27 February 2015.
4. Paley, Amit R. (May 17, 2005). "Wal-Mart Drops Plan for Side-by-Side Calvert Stores". Washington Post. Retrieved May 11, 2010.
5. "To Outfox the Chicken Tax, Ford Strips Its Own Vans". Wall Street Journal, Matthew Dolan, September 22, 2009. September 23, 2009.
6. "Obama's New Budget Plan Proposes Closing Social Security Loophole". NPR. Retrieved 12 June 2015.
7. "11 Loopholes the World's Biggest Corporations Use to Skirt the Rule of Law". Policy Mic. Retrieved 17 April 2015.
8. "10 Accounting Tricks the 1% Use to Dodge the Taxman". Retrieved 21 June 2015.
9. "How to Pay No Taxes: 10 Strategies Used by the Rich". Bloomberg. Retrieved 21 June 2015.
10. "How to Pay No Taxes: 10 Strategies Used by the Rich". Bloomberg. Retrieved 21 June 2015.
11. "How to Pay No Taxes: 10 Strategies Used by the Rich". Bloomberg. Retrieved 21 June 2015.
12. "How to Pay No Taxes: 10 Strategies Used by the Rich". Bloomberg. Retrieved 21 June 2015.
13. "Tax Loopholes the President Left Out – for Now". The Fiscal Times. Retrieved 22 June 2015.
14. http://www.bankrate.com/finance/taxes/tax-loopholes-mainly-benefit-rich-2.aspx. Retrieved 22 June 2015. Missing or empty |title= (help)
15. "14 Ways To Avoid Paying Capital Gains". Forbes. Retrieved 22 June 2015.
16. "Tax loopholes that mainly benefit the rich". Bankrate. Retrieved 22 June 2015.
17. "14 Ways To Avoid Paying Capital Gains". Forbes. Retrieved 22 June 2015.
18. "14 Ways To Avoid Paying Capital Gains". Forbes. Retrieved 22 June 2015.
19. Baldwin, William. "Six Ways To Avoid Capital Gains Tax". Forbes. Retrieved 22 June 2015.
20. "Obama Attack On "Trust Fund Loophole" Could Increase Tax Advantage Of Trusts". Forbes. Retrieved 22 June 2015.