Is it possible for Batman to do everything he does and not commit tax fraud?
Note: This was written after 3 consecutive 65 hour work weeks.
If there’s one thing we’ve all learned from the college admission scandal is that two people can arrive at the same outcome, but one uses a strategy which is illegal (bribing a coach) and one uses a strategy which is not (donating a bunch of money to the University). Laws can only cover so much, and sometimes it’s about using the legal strategy over the illegal one. And usually this is how taxes work. There’s the legal strategy to avoiding the estate tax (valuation discounts) and then there’s illegal strategy (not declaring relevant assets in an estate tax return).
So I think my answer as to whether Batman committed tax fraud is whether he used the legal strategy or the illegal one because I think he could go either way.
So Batman, could he have not committed tax fraud?
The biggest concern is Wayne Enterprises. I can’t remember what Wayne Enterprises claimed to do, but generally with billionaires, Wayne Enterprise is not just one company, it’s like lots of little companies. When you have multiple things going on and a lot of assets to protect, you do lots of little entities, so that if one blows up, you don’t blow up the whole domino chain.
So let’s assume Bruce Wayne has some fancy advisors, most of Wayne Enterprises would consist of LLCs, with some corporations mixed in to serve as general partners to certain partnerships.
Actually, I just went to the Wikipedia article for Wayne Enterprises and apparently Wikipedia has all the difference subsidiaries which make up what is called Wayne Enterprises. Though, it’s incredibly problematic that none of companies are noted as being LLCs, which in the real world would be highly unlikely. But I guess, we’re in DC Universe now.
Interestingly, Wikipedia mentions a Batman Incorporated, meaning it is a corporation. Not clear whether it’s an S Corporation or C Corporation. Though, perhaps Batman Incorporated was because Batman could see the future of the C Corporation tax rate dropping from 35% to 21%.
My apologies, back to the question at hand. Could Batman have not committed tax fraud? The creation of Batman, Incorporated is a plus in Batman’s favor as though Bruce Wayne is trying to do everything on the up and up.
The first thing to consider for Batman is are the activities related to Batman rise to the level of trade or business. This has been problematic for tax preparers everywhere this past year, because the new passthrough deduction only applied to activities which rose to the level of a trade or business. Basically the difference between trade or business and not is are you really doing a business. Does your activity keep separate books? Do you engage in your activity continuously, regularly and substantially? Is there a for profit motive?
For Batman, I think getting over the trade or business threshold is going to be a hard one. Yes, he engages in this activity on a regular, continuous, and substantial basis, but he has no mechanism to make it profitable, unless he starts selling the action figures. If he can’t get over the trade or business threshold then all his expenses related to Batman activities are mostly non-deductible. So if he was using equipment bought by a subsidiary of Wayne Enterprises, you’d want something in the books to show that this equipment was removed for personal use and not being deducted in the subsidary’s tax return. If Batman was not making adjustments for this then this would be tax fraud. But also even with an adjustment in the subsidary’s books to reflect the equipment removed for personal use, you wouldn’t want too much of these shenanigans going on because it begins to taint the books of the subsidiary. It’s sort of like when a taxpayer uses the company checking account to pay for personal items. Yeah, you can do it and classify these as a loan to the shareholder, non-deductible, but too much of this and it’s concerning.
Personally Batman, should just have the vendors invoice him separately for Batman activities, vs. using equipment purchased through a subsidiary that is not Batman activity related.
If Batman activities can get over the trade or business threshold, then Batman is in a much better tax position. All expenses related to Batman’s activities should then be deductible (except entertainment expenses), but also you wouldn’t want to continuously run a loss in Batman Inc year after year. This thing must make money eventually or have a plan to make money.
The conclusion is if Batman knew the appropriate arbitrary thresholds he had to meet to be tax compliant, then he probably isn’t committing tax fraud, however one misstep on one of these arbitrary rules, and bam! tax fraud. It’s like missing the ledge on a jump. One misstep and you’re a goner.
Okay, that’s all I can think of, but here’s some final places where Batman might commit tax fraud
1. Does Gotham City have a special tax for super heroes? Given all of Batman’s damage to the city, you’d think they would have enacted one by now. More and more cities are enacting strange and unusual taxes to capture one particular industry who they think is not paying their fair share. For example, the Chicago amusement tax which tries to tax streaming services into residents of Chicago.
2. Is Batman paying use tax on equipment he brings in? Is there a China in the DC Universe? If there is and Batman is ordering his supplies from China to use (regardless of whether personal or business) then he should be paying the appropriate use taxes?
3. Any foreign financial accounts, foreign financial assets, a passive foreign investment company? A incorrect or non-reporting of any of these for Batman would be problematic.