End Tax-Free Monetization of Wealth

Abstract

This proposal would treat cash received for writing an option, a short sale, or future as boot or recognition of gain on the underlying property held by the taxpayer or a related party. If, however, the taxpayer does not yet own the underlying property, the cash received would be treated akin to borrowed cash and would not taxed until the transaction is completed.

The proposal is made as a part of the Shelf Project, a collaboration by tax professionals to develop and perfect proposals to help Congress when it needs to raise revenue. By reasonable estimates, Congress must raise $4 trillion in revenue in the coming decade. The $4 trillion is hard news, but it can either be handled disastrously or with some wisdom. Shelf Project proposals are intended to raise revenue, defend the tax base, follow the money, and improve the rationality and efficiency of the tax system. The tax community can propose, follow, or edit proposals at http://www.taxshelf.org. A longer description of the Shelf Project can be found at ‘‘The Shelf Project: Revenue-Raising Projects That Defend the Tax Base,’’ Tax Notes, Dec. 10, 2007, p. 1077, Doc 2007-22632, or 2007 TNT 238-37.

Shelf Project proposals follow the format of a congressional tax committee report in explaining current law, what is wrong with it, and how to fix it.

Keywords: tax reform

JEL Classification: H20