Wealthy and Aspiring to Join the Trump Administration? There's a Tax Break for You
A little-known regulation permits appointees to postpone taxes on assets they relinquish to prevent conflicts of interest.
TroibNews 
Democrats’ aspirations to impose significant tax hikes on the wealthy have evaporated, and now several affluent individuals who supported Donald Trump may benefit from a favorable tax break merely for taking positions in his administration.
An obscure provision within the tax code permits individuals who enter federal service to sell stocks and other assets while deferring the capital gains tax that would typically apply to the sale.
This provision could serve as a valuable incentive for Trump supporters like Scott Bessent, a hedge fund manager currently considered for the role of Treasury Secretary.
The tax break is designed to mitigate the challenges posed by federal ethics regulations that often require appointees to divest assets that could lead to conflicts of interest.
To qualify for this benefit, proceeds from asset sales must be invested into government-approved vehicles such as index funds, an arrangement that may not appeal to everyone.
Recently, billionaire investor John Paulson withdrew his name from consideration for Treasury Secretary, citing his financial portfolio. Additionally, it seems Elon Musk, the richest person in the world who appeared set to join the administration, may not be eligible for the tax deferral after being appointed to an external commission focused on budget cuts.
However, this tax deferral can benefit those looking to diversify their investments, especially now that the stock market is performing well, allowing individuals to exit high-performing assets before potential shifts in market sentiment.
“Where it becomes very useful is when people are heavily invested in one company — the company they started, or something like that,” explained Robert Rizzi, a tax attorney at Holland & Knight with years of experience advising nominees for executive branch roles, including some now being considered for the upcoming Trump administration.
“Some people think it’s quite useful to diversify their holdings without paying tax.”
Numerous individuals have utilized this provision in the past, including members of the Biden administration. Records indicate that Treasury Secretary Janet Yellen and Energy Secretary Jennifer Granholm were approved for the tax deferral. Yellen was instructed in 2021 to sell stocks in companies like Conoco Phillips, Pfizer, Raytheon, and Dow, among others.
As many wealthy individuals seek roles in the Trump administration, the tax deferral option is likely to come under increased scrutiny, particularly since these individuals may require Senate confirmation. Lawmakers are expected to closely analyze their financial situations.
Others in consideration include Howard Lutnick, CEO of the financial services firm Cantor Fitzgerald, professional wrestling mogul Linda McMahon, who is co-leading Trump’s transition team, and Jay Clayton, a former Wall Street lawyer recently appointed as U.S. attorney for the Southern District of New York. It remains uncertain whether Trump or Vice President-elect JD Vance could benefit from this tax provision.
Federal employees must often divest assets that create conflicts of interest in their roles to prevent situations where, for example, a Treasury Secretary has a financial stake in a matter before the department.
However, mandatory sales can lead to hefty tax bills come April, which Congress aimed to alleviate in 1989 by introducing a provision that allows individuals to defer capital gains taxes if they reinvest in Treasuries or mutual funds.
Here’s how it works: If someone purchases stock at $10 and it appreciates to $100, they would typically owe taxes on the $90 gain upon selling. However, under Section 1043 of the code, they can sell the stock and invest in an index fund without incurring tax until they sell the index fund. Upon selling, they would owe taxes on both the original $90 gain and any additional gains from the index fund. The maximum tax rate on capital gains is nearly 24%.
If the individual never sells their investments, they incur no tax liabilities, although they could opt to do so even without taking advantage of this provision.
The arrangement is not without its complications and uncertainties.
Nominees cannot access the benefit until they are officially in the government and must be approved to utilize it.
“The agency [they work for] makes the determination as to whether something is a conflict, and the only way they can figure that out is to know what you’re going to be doing,” Rizzi noted. "Not everything is a conflict."
The Office of Government Ethics is tasked with determining eligibility for a “certificate of divestiture,” which allows individuals to take advantage of this tax break, as it is one of the few tax provisions not governed by the IRS.
There have been instances where individuals were required to divest but were deemed ineligible for the tax deferral. The guidelines can also pose challenges for those with illiquid assets that are difficult to sell quickly.
Additionally, the provision does not apply to all compensation types—stock options, for example, are excluded. Thus, someone joining the Trump administration could be compelled to divest them without receiving any associated tax benefits.
If Musk were to formally join the administration, he might be ordered to sell his stake in Tesla or SpaceX, a major federal contractor, which could pose a disincentive for him, especially considering what would likely be a brief period in government service. Selling large quantities of Tesla stock could also negatively impact its market price.
Trump stated that Musk would serve on a commission “to provide advice and guidance from outside of government” on objectives like “dismantling government bureaucracy, slashing excess regulations, cutting wasteful expenditures, and restructuring federal agencies.”
Upon withdrawing from consideration for Treasury Secretary, Paulson remarked that “my complex financial obligations would prevent me from holding an official position in President Trump’s administration at this time.”
Rizzi emphasizes that while the tax break is intended to soften the financial impact of government service, it is not a sole motivation for individuals to enter public office.
“I have never seen anybody go into the government just for this,” he stated.
Olivia Brown contributed to this report for TROIB News
An obscure provision within the tax code permits individuals who enter federal service to sell stocks and other assets while deferring the capital gains tax that would typically apply to the sale.
This provision could serve as a valuable incentive for Trump supporters like Scott Bessent, a hedge fund manager currently considered for the role of Treasury Secretary.
The tax break is designed to mitigate the challenges posed by federal ethics regulations that often require appointees to divest assets that could lead to conflicts of interest.
To qualify for this benefit, proceeds from asset sales must be invested into government-approved vehicles such as index funds, an arrangement that may not appeal to everyone.
Recently, billionaire investor John Paulson withdrew his name from consideration for Treasury Secretary, citing his financial portfolio. Additionally, it seems Elon Musk, the richest person in the world who appeared set to join the administration, may not be eligible for the tax deferral after being appointed to an external commission focused on budget cuts.
However, this tax deferral can benefit those looking to diversify their investments, especially now that the stock market is performing well, allowing individuals to exit high-performing assets before potential shifts in market sentiment.
“Where it becomes very useful is when people are heavily invested in one company — the company they started, or something like that,” explained Robert Rizzi, a tax attorney at Holland & Knight with years of experience advising nominees for executive branch roles, including some now being considered for the upcoming Trump administration.
“Some people think it’s quite useful to diversify their holdings without paying tax.”
Numerous individuals have utilized this provision in the past, including members of the Biden administration. Records indicate that Treasury Secretary Janet Yellen and Energy Secretary Jennifer Granholm were approved for the tax deferral. Yellen was instructed in 2021 to sell stocks in companies like Conoco Phillips, Pfizer, Raytheon, and Dow, among others.
As many wealthy individuals seek roles in the Trump administration, the tax deferral option is likely to come under increased scrutiny, particularly since these individuals may require Senate confirmation. Lawmakers are expected to closely analyze their financial situations.
Others in consideration include Howard Lutnick, CEO of the financial services firm Cantor Fitzgerald, professional wrestling mogul Linda McMahon, who is co-leading Trump’s transition team, and Jay Clayton, a former Wall Street lawyer recently appointed as U.S. attorney for the Southern District of New York. It remains uncertain whether Trump or Vice President-elect JD Vance could benefit from this tax provision.
Federal employees must often divest assets that create conflicts of interest in their roles to prevent situations where, for example, a Treasury Secretary has a financial stake in a matter before the department.
However, mandatory sales can lead to hefty tax bills come April, which Congress aimed to alleviate in 1989 by introducing a provision that allows individuals to defer capital gains taxes if they reinvest in Treasuries or mutual funds.
Here’s how it works: If someone purchases stock at $10 and it appreciates to $100, they would typically owe taxes on the $90 gain upon selling. However, under Section 1043 of the code, they can sell the stock and invest in an index fund without incurring tax until they sell the index fund. Upon selling, they would owe taxes on both the original $90 gain and any additional gains from the index fund. The maximum tax rate on capital gains is nearly 24%.
If the individual never sells their investments, they incur no tax liabilities, although they could opt to do so even without taking advantage of this provision.
The arrangement is not without its complications and uncertainties.
Nominees cannot access the benefit until they are officially in the government and must be approved to utilize it.
“The agency [they work for] makes the determination as to whether something is a conflict, and the only way they can figure that out is to know what you’re going to be doing,” Rizzi noted. "Not everything is a conflict."
The Office of Government Ethics is tasked with determining eligibility for a “certificate of divestiture,” which allows individuals to take advantage of this tax break, as it is one of the few tax provisions not governed by the IRS.
There have been instances where individuals were required to divest but were deemed ineligible for the tax deferral. The guidelines can also pose challenges for those with illiquid assets that are difficult to sell quickly.
Additionally, the provision does not apply to all compensation types—stock options, for example, are excluded. Thus, someone joining the Trump administration could be compelled to divest them without receiving any associated tax benefits.
If Musk were to formally join the administration, he might be ordered to sell his stake in Tesla or SpaceX, a major federal contractor, which could pose a disincentive for him, especially considering what would likely be a brief period in government service. Selling large quantities of Tesla stock could also negatively impact its market price.
Trump stated that Musk would serve on a commission “to provide advice and guidance from outside of government” on objectives like “dismantling government bureaucracy, slashing excess regulations, cutting wasteful expenditures, and restructuring federal agencies.”
Upon withdrawing from consideration for Treasury Secretary, Paulson remarked that “my complex financial obligations would prevent me from holding an official position in President Trump’s administration at this time.”
Rizzi emphasizes that while the tax break is intended to soften the financial impact of government service, it is not a sole motivation for individuals to enter public office.
“I have never seen anybody go into the government just for this,” he stated.
Olivia Brown contributed to this report for TROIB News
