Loophole

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Related to Loopholes: Tax Loopholes

Loophole

An omission or Ambiguity in a legal document that allows the intent of the document to be evaded.

Loopholes come into being through the passage of statutes, the enactment of regulations, the drafting of contracts or the decisions of courts. A loophole allows an individual or group to use some gap in the restrictions or requirements of the law or contract for personal advantage without technically breaking the law or contract. In response, lawmakers and regulators work to pass reforms that will close the loophole. For example, in the federal tax code, a long-standing loophole was the socalled tax shelter, which allowed taxpayers to reduce their tax debt by making investments. Although not closed entirely, this loophole was substantially reduced by the tax reform act of 1986 (Pub. L. No. 99-514, 100 Stat. 2085 [codified as amended in numerous sections of 26 U.S.C.A.]).

Loopholes exist because it is impossible to foresee every circumstance or course of conduct that will arise under, or in response to, the law. Loopholes often endure for a time because they can be difficult to close. Those who benefit from a loophole will lobby legislators or regulators to leave the loophole open. In the case of Election Campaign Financing, it is the legislators themselves who benefit. The Federal Election Campaign Act Amendments of 1974 (Pub. L. No. 93-443, 88 Stat. 1263 [1974] [codified as amended in scattered sections of 2 U.S.C.A. §§ 431–455 (1988)]) were passed to limit private financing of federal election campaigns. But loopholes in the law allow these limits to be circumvented. Through one loophole, intermediaries can pool or "bundle" contributions so that the limit is not legally exceeded. Through another, money raised specifically for building political parties (soft money) is funneled into campaigns.

Further readings

Burke, Debra. 1995. "Twenty Years After the Federal Election Campaign Act Amendments of 1974: Look Who's Running Now." Dickinson Law Review 99 (winter).

Wardle, Geoffrey M. 1996. "Political Contributions and Conduits after Charles Keating and Emily's List: An Incremental Approach to Reforming Federal Campaign Finance." Case Western Reserve Law Review 46 (winter).

Cross-references

Lobbying.

References in periodicals archive ?
It is 'stupid' for Panelo to claim that China was unaware of the loopholes in the loan agreements, as the templates were prepared by China, Colmenares said.
The bank acknowledged that he had been testing the loophole but admitted that some activities were not reported which was in violation of the formal procedures.
"Let us publicize these candidates and politicians taking advantage of this loophole. Maybe they will feel ashamed," Caritos noted.
Trump's one-page tax reform outline was "full" of tax breaks for the wealthiest Americans but it did not include any reference to closing the carried interest loophole, they said.
The (https://www.cbo.gov/budget-options/2016/52258) Congressional Budget Office estimates that the loophole permitting this maneuver will cost federal taxpayers $20 billion in lost revenues over the next decade.
As the plan worked its way through Congress, both Democrats and Republicans changed it to preserve some loopholes. However, the final bill that emerged was a remarkable piece of legislation that, on the whole, embodied tax policy that promoted the common good instead of special interests.
While loopholes in the system exist, we'll continue to see many businesses exploit them."
The loopholes mean some bus companies can operate unfit vehicles by transferring public service vehicle (PSV) licences between vehicles, the report from the House of Commons Transport Committee said.
I would have been even more relieved if they had tried to eliminate these loopholes and not cashed in on them.
Testifying at the hearing, Sidney Shapiro, associate dean for research and development at the Wake Forest School of Law, cited several loopholes in FACA, which he argued allow the work of advisory committees to be completed in settings not subject to FACA regulations.
To paraphrase the late great Yogi Berra, it could be "deja-vu all over again." On the brink of a historic move by the governor, House and Senate to close corporate tax loopholes and correct fundamental flaws in our tax code, an 11th-hour floor amendment tacked on to the House version of the bill threatens significant reform.