One day in July 1985, three young men from Philadelphia, their lawyer and a burly Pinkerton guard arrived at a horse track outside Chicago carrying a briefcase with $250,000 in cash.

Running the numbers on a Compaq computer the size of a small refrigerator, Jeffrey Yass and his friends had found a way to outwit the track’s bookies, according to interviews, records and news accounts. A few months earlier, they’d wagered $160,000, gambling that, with tens of thousands of bets, they could nail the exact order of seven horses in three different races. It was a sophisticated theory of the racing odds, honed with help from a Ph.D. statistician who’d worked for NASA on the moon landing, and it proved right. They bagged $760,000, then the richest payoff in American racing history.

But that summer day, when they presented their strikingly long list of bets at the track window, they were turned away. Their appeal to the track owner got them ejected. Yass, just 27, then sued for the right to place the bets. The track’s lawyer fumed to a federal judge that the men were trying to corner the betting market “through the use of their statistics and numbers.”

Yass lost, but that year he and his friends repeated variations of the strategy at horse and greyhound tracks around the country. Then they decided to turn their focus from a world of hundreds of thousands of dollars to a world of billions: Wall Street.

Four decades later, the firm he and his friends founded, Susquehanna International Group, is a sprawling global company that makes billions of dollars. Yass and his team used their numerical expertise to make rapid-fire computer-driven trades in options and other securities, eventually becoming a giant middleman in the markets for stocks and other securities. If you have bought stock or options on an app like Robinhood or E-Trade, there’s a good chance you traded with Susquehanna without knowing it. Today, Yass, 63, is one of the richest and most powerful financiers in the country.

But one crucial aspect of his ascent to stratospheric wealth has transpired out of public view. Using the same prowess that he’s applied to race tracks and options markets, Yass has taken aim at another target: his tax bill.

There, too, the winnings have been immense: at least $1 billion in tax savings over six recent years, according to ProPublica’s analysis of a trove of IRS data. During that time, Yass paid an average federal income tax rate of just 19%, far below that of comparable Wall Street traders.

Yass has devised trading strategies that reduce his tax burden but push legal boundaries. He has repeatedly drawn IRS audits, yet has continued to test the limits. Susquehanna has often gone to court to fight the government, with one multiyear audit battle ending in a costly defeat. The firm has maintained in court filings that it complied with the law.

Yass’ low rate is particularly notable because Susquehanna, by its own description, specializes in short-term trading. Money made from such rapid trades is typically taxed at rates around 40%.

In recent years, however, Yass’ annual income has, with uncanny consistency, been made up almost entirely of income taxed at the roughly 20% rate reserved for longer-term investments.

Congress long ago tried to stamp out widely used techniques that seek to transform profits taxed at the high rate into profits taxed at the low rate. But Yass and his colleagues have managed to avoid higher taxes anyway.

The tax savings have contributed to an explosion in wealth for Yass, who has increasingly poured that fortune into candidates and causes on the political right. He has spent more than $100 million on election campaigns in recent years. The money has gone to everything from anti-tax advocacy and charter schools to campaigns against so-called critical race theory and for candidates who falsely say the 2020 election was stolen and seek to ban abortion.

ProPublica has pieced together the details of Yass’ tax avoidance using tax returns, securities filings and court records, as well as by talking to former traders and executives. (The former employees spoke on condition of anonymity, with many citing a desire to avoid angering Yass.)

Through a spokesperson, Yass declined to be interviewed for this article. The spokesperson declined to comment in response to a long list of questions for Susquehanna and the firm’s founding partners.

Gregg Polsky, a University of Georgia law professor and former corporate tax lawyer who was retained by ProPublica to review Susquehanna’s tax records, said the tax agency may have more to scrutinize. The strategies revealed in Yass’ records, he said, were “very suspicious and suggestive of potential abuse that should be examined by the IRS.”

More than 35 years after he was booted from the racetrack outside Chicago, Yass still lives to gamble. Not just on horses, but on poker and on the market. He sheepishly admitted, in a podcast discussion, that he has even placed wagers on his children’s sports games.

Asked to describe his approach to trading at Susquehanna, Yass once reached for a poker analogy. “If you’re the sixth-best poker player in the world and you play with the five best players, you’re going to lose,” he said. “If your skills are only average, but you play against weak opponents, you’re going to win.”

That philosophy along with, Yass freely admits, a lot of luck, has made him a billionaire many times over.

Compared to many of his fellow billionaires — he’s richer than Hollywood mogul David Geffen, retail brokerage king Charles Schwab and “Star Wars” creator George Lucas — Yass doesn't seem particularly interested in the trappings of extreme wealth.

Yass and his wife, Janine, raised four children in the leafy college town of Haverford, on the Main Line outside of Philadelphia. Their large but unremarkable house could easily be the home of a successful doctor rather than one of the richest men in the country. In his quarter-zip pullover sweater, Nikes and no-nonsense rimless glasses, he’d be impossible to pick out of a crowd at the suburban country club where he plays golf.

If Yass collects expensive art or maintains a megayacht, he has managed to do so in complete secrecy. What comes closest to an identifiable trophy asset is a house in the ultra-exclusive Georgica Association beach neighborhood of East Hampton on New York’s Long Island. Even that property, purchased for $12.5 million in 2005 and held through an LLC, is in an area known as “bucolic and understated.”

Those who have worked with Yass say he lives less for spending money than for the competition of the market and the thrill of taking calculated risk. Yass softens any impression of ruthlessness by deploying a practiced humility and comedic timing. “Some people like art history,” he once explained, “I like probabilistic analysis.”

Yet when it comes to his philosophical outlook, he eschews the jokes. He speaks of capitalism in religious terms. Making new markets, he likes to say, is a “mission from God.”

Like many religious stories, his begins with a conversion experience. Born in 1958 to two Queens CPAs, Yass said reading the economist Milton Friedman’s “Capitalism and Freedom” as a young man delivered him from an early flirtation with socialism.

By the time Yass graduated from the State University of New York at Binghamton in 1979, he was already captivated by trading. (His father had also helped nurture Yass’ love of horse racing by taking him to local tracks to see harness racing, according to Forbes.) Yass’ college thesis weighed whether the budding market in stock options could be justified as socially useful. “I concluded that it should exist,” Yass later cracked. “I got a B.”

After college, he moved to Las Vegas for a year and a half to play poker professionally. Then he returned to the East Coast and settled in Philadelphia, where he began trading options. The previous decade had seen a burst of academic interest in the financial instruments, including a pioneering model of how to more accurately price them. Yass later called the model, and its broader implications for how to make mathematically sound decisions, “the most revolutionary idea in a long, long time.”

A share of stock is a relatively simple concept: It’s a small ownership stake in a company. An option, by contrast, is a contract that confers the right to buy or sell a given stock at a particular price and time in the future.

Options attract mathematically minded traders since a complex set of variables, including the underlying stock price, volatility, time and interest rates, determine how much one of the contracts is worth.

Options are a versatile tool. They can appeal to the risk-averse: Traders can use them as insurance to guarantee they will be paid at least today’s price when they sell in the future. They are also useful to the risk-embracing — gamblers who want to place outsized bets on how a stock will perform. (Here’s how a speculator would use an option: In early June, shares of Netflix were trading at below $200. If the speculator thinks the company’s fortunes will improve dramatically this summer, they could pay just $4.50 each for options to buy the stock at $250 in mid-August. If the stock soars over that figure, they could make a mint.)

In options Yass found more than a financial instrument. He found a way to view the world. Everything — each decision, each interaction — can be judged based on how much it will cost in money, time or negative consequences and compared with the reward. Then action is taken or avoided accordingly. To Yass’ way of thinking, it’s always worth paying $19 for a 20% chance to win $100 but it’s never worth $21.

Along with his college friends, Yass founded Susquehanna, named after the river that connects Binghamton to Pennsylvania, in 1987. The firm benefited from explosive growth in options markets. Yass later played it down to the Philadelphia Inquirer: “We got lucky being in the right place at the right time.”

One of Susquehanna’s landmark moments — involving perhaps both skill and luck — occurred soon after the firm launched: the Black Monday stock market crash on Oct. 19, 1987. Thanks to an option bet that would pay out if stocks went down, Susquehanna was one of the few firms that made money on one of the worst days in stock market history.

From early on, Yass cultivated Susquehanna’s brand as a home for the biggest brains in finance, hiring Ph.D.s and top students. But the firm wasn’t just looking for raw IQ points. It also wanted instinct. It held poker tournaments to teach traders the idea that taking the measure of your opponents is as important as understanding the odds.

The Binghamton buddies ran a freewheeling office full of arguments and gamesmanship. The office had Super Bowl pools and an officewide lottery. Everyone bet on everything. One time, as recounted in Philadelphia magazine, traders bet on whether Yass could name the last Plantagenet king of England. They called Yass. He spat out “Richard III” and then, according to a witness, yelled, “Get back to work!” But he liked the hijinks.

Still, the firm had an inside vs. outside mentality. If you weren’t with the firm, you were the enemy. When traders left to join a competitor, Susquehanna often sued them for allegedly violating non-compete clauses. Susquehanna stood out for its aggressiveness in trading even by the standards of Wall Street. “If he thinks you’re dumb, he’s betting against you,” one former Susquehanna trader said of Yass. “That’s what makes his blood flow.”

Susquehanna developed a specialty in arbitrage, or finding low-risk profit opportunities in mismatched prices of securities, like stocks or bonds. An early adopter of computers to measure risk and test trading strategies, the firm flourished.

In addition to making his own bets, Yass built his firm into one that stands at the very center of the market and takes bets from other traders. On Wall Street, this job is known as market making.

At its simplest, making a market means offering to buy or sell a thing. The jewelry shop on the corner that will sell you a gold ring and has a “We Buy Gold” sign in the window is making a market in gold. If the store buys a gold coin from a customer for $300, then sells it for $320 to the next person who walks in, the store has made a quick $20.

Susquehanna does the same thing, but with securities. Running a market making firm isn’t always as easy as quickly matching a buyer and a seller. A market maker is expected to post its prices and buy and sell to all comers. If a particular stock has more sellers than buyers, the firm might find itself holding too much, exposing the market maker to losses if the stock price drops. It’s a business that thrives when there’s lots of trading volume but can be dangerous if markets crash.

The market making business in stock options, Susquehanna’s specialty, requires juggling a huge number of trades while constantly keeping an eye on all the various bets to make sure that the firm is protected from unexpected market moves.

In 1996, the year Yass turned 38, he made $71 million, tax records show. By then, the firm was employing hundreds of people. Not long before, Susquehanna staff had gathered in Las Vegas for an annual company celebration. Traders brought their families. The firm’s employees watched the Kentucky Derby together. A Marilyn Monroe impersonator interviewed Yass’ father with some tame double-entendres. The highlight was a skit with a junior trader performing as “Jeff Yass Gump,” after Forrest Gump. “Momma always said I was like the other kids,” the trader said. “But the other kids, they went to Harvard and Yale and the University of Pennsylvania and I said: ‘Momma, why am I at the SUNY Binghamton?’ She said it was because I was special.” The crowd roared, Yass the loudest of all.

Despite losing some star traders in the late 1990s, Susquehanna continued to produce massive profits. Yass and the other co-founders managed to keep their enormous wealth a secret. Even by 2005, when Yass had collected at least $1 billion of lifetime income, he was nowhere to be found in the Forbes list of the richest Americans.

That’s in part because Susquehanna is privately held and trades only its own money, meaning it doesn’t have to publicly disclose much about its business. Like many financial firms, Susquehanna itself is not a single company but a complex and shifting web of legal entities whose profits flow to Yass and a small set of partners.

It has been a remarkably consistent profit machine for the partners, except in 2008, the year of the global financial crisis. Yass alone lost $470 million that year, tax records show. Former Susquehanna traders believe the firm risked going out of business. The danger the firm faced “sent chills through everyone,” said one. Like other big trading complexes that did huge business with investment banks, Susquehanna benefited from the massive federal bailout of Wall Street, which propped up the giant firms that were among its biggest trading partners.

Yass, the free market true believer, now owed the survival of much of his fortune to the U.S. government. On a personal level, Yass also received an extra bonus from the government: a $2,000 child tax credit because he reported losing money that year.

Susquehanna quickly bounced back to profitability. In recent years it has supplanted major banks as one of the firms that sits in the middle of massive daily financial flows in stock and other markets. A Bloomberg profile in 2018 reported that Susquehanna trades 100 million exchange-traded fund shares daily. The firm is a prominent player in cryptocurrencies like bitcoin and, in a throwback to Yass’ origins, the exploding business of sports betting. Susquehanna has also branched out into venture capital. One of those investments came through spectacularly: a large stake in ByteDance, the Chinese company behind the social media app TikTok.

By the 2010s, Yass had become one of the richest Americans. But his ultralow profile meant that almost nobody knew that. At least two of Susquehanna’s other co-founders, Arthur Dantchik and Joel Greenberg, have each made billions of dollars themselves, according to ProPublica's analysis.

Yass hit a new milestone in 2012, pulling in more than $1 billion in a single year, according to tax records; by 2018, his income was $2 billion. In the six years ending in 2018, Yass had the sixth-highest average income in the entire country, according to IRS data.

Court filings and ProPublica’s analysis of tax records suggest that, as of 2018, Yass owned around 75% of Susquehanna, with co-founders Dantchik owning around 19% and Greenberg around 3%. (Greenberg retired in 2016.)

Yass was finally added to the Forbes list last year. The magazine put his worth at $12 billion, which would make him the 58th-richest American. ProPublica estimates his true wealth is likely at least $30 billion — based solely on his income over the decades and stake in ByteDance — which would place him in the top 25.

On a Friday afternoon in April 2010, a Susquehanna trader in Pennsylvania emailed his counterparts at Credit Suisse to make a big bet in the stock market. The email instructed the Swiss bank to buy about $70 million worth of shares in some of Switzerland’s biggest companies on Susquehanna’s behalf.

Three minutes later, the trader sent out a second email, this time to Morgan Stanley. He placed a second bet, now wagering against the exact same stocks in the exact same amounts he’d just ordered from Credit Suisse.

The payoff from such a trade might seem to be nothing at all. But there was a winner and a loser. The winner was Susquehanna. The loser was the U.S. government: Susquehanna had managed to slash its tax bill through the trade. The emails come from an ongoing U.S. Tax Court case filed in 2020. There are rules designed to block clever traders from using offsetting bets to conjure tax savings, and the IRS argues Susquehanna broke them. (More on that case later.)

The firm’s willingness to push the boundaries of tax law is not surprising to people who know Yass and his partners. One former Susquehanna executive recalled Yass acknowledging using a trading strategy in which a main goal was not to make profitable trades, but to avoid taxes. Taxes, according to Yass’ former colleagues, are an obsession for the billionaire. As one former employee put it, “They hate fucking taxes.”

It doesn’t matter how seemingly trivial it is. Susquehanna once petitioned the state of Pennsylvania to demand “a refund of taxes paid on repairs to ice machines.” The petition was denied.

Indeed, the firm has a habit of shaping deals that slash its tax bill and then daring the IRS to intercede. Sometimes, the agency successfully challenges them, as when Yass and his two main partners were hit with a total of $121 million in back taxes in 2019. That was the single biggest such payout in ProPublica’s database of IRS records, which includes thousands of audits of the wealthiest people in the country. Susquehanna paid only after losing a long-running battle with the agency, one the firm appealed all the way to the Supreme Court.

Despite periodically tripping IRS wires, the firm’s aggressiveness seems to have paid off. Susquehanna’s tax avoidance has gone on for years, resulting in a strikingly low tax rate for Yass and his partners, according to ProPublica’s analysis.

The strategy behind that trade back in 2010 is key to understanding how they’ve done it. Similarly to how Susquehanna has taken advantage of small differences in prices of options or stocks, it has found ways to exploit a gap in tax rates to save hundreds of millions of dollars in taxes every year.

For someone like Yass, the U.S. system offers an almost irresistible proposition. If you earn the wrong sort of income — the kind that comes from a short-term trade — you’ll pay a relatively high tax rate. But if you earn the right kind — gains on long-held investments — you’ll pay half as much in taxes.

But what is considered “long-term” involves a bright, arbitrary line. Hold a security for less than 366 days, and you are on the wrong side of that line.

The result is that by the arithmetic of the U.S. tax code, $100 made from a sale on the 365th day is worth around $60 after taxes. And $100 made on the 366th is worth around $80.

Short-term, high-frequency traders like Susquehanna often hold securities for less than 365 seconds. As the company itself put it in one recent court filing, the firm “trades securities, commodities, and derivatives, seeking to earn returns from short-term appreciation and arbitrage profits.” This has been the firm’s consistent self-description. Back in 2004, a staffer was more frank in testimony: “We are not, by our nature, into holding stocks.”

With such an approach, long-term gains should be forever out of reach.

And yet, Yass and his partners have managed, year after year, to report that the vast majority of their net income came in the form of long-term capital gains. In several recent years, 100% of their income was taxed at the lower rate.

How do they do it?

One strategy, in simplified form, works like this: Make two bets that should move in opposite directions. Think of, say, both betting on and against Coca-Cola’s stock. Towards the end of the year, one bet will be up, and one will be down. At 365 days, the last day a trade is considered short-term, sell the one that’s down. A day later, sell the one that’s up.

Of course, if you consider the trade as a whole, it makes no money. But that isn’t the point. You’ve found a risk-free way to generate two valuable commodities: short-term losses and long-term gains.

On their own, these losses and gains aren’t of much use. But to someone like Yass, who separately generates an enormous pile of short-term gains each year, they work a kind of magic.

That’s because of how taxes are calculated. Short-term and long-term results are accounted for in separate buckets: Short-term losses are applied first to short-term gains. So the losses from the Coke trade reduce the existing pile of short-term gains. The money made from the Coke trade, meanwhile, goes in the long-term bucket.

In the end, the trader has essentially transformed short-term gains into long-term gains, the type taxed at the special lower rate. From 2003 through 2018, the difference between the two rates ranged from 17 to 20 percentage points. So, for every $100 run through this process, the trader would net from $17 to $20 in tax savings.

So why isn’t everyone using this strategy?

Because as laid out here, it would be illegal.

For decades, traders have devised strategies that looked something like the Coke trade, known as a “straddle” because the trader is taking both sides. Over the years, Congress passed laws and the IRS imposed intricate rules to stop them, taking away the tax benefit of simultaneously betting for and against the same stock.

And yet, Yass and his partners built a machine that produced much the same result.

Since 2011, IRS records show, a partnership called Susquehanna Fundamental Investments has been the source of the majority of long-term gains for Yass and his partners. Every year, it channeled hundreds of millions in long-term gains to them, while also providing hundreds of millions in short-term losses.

Year after year, the gains and losses rose and fell roughly in tandem, as if one were a near reflection of the other. In 2015, for example, Susquehanna Fundamental produced $774 million in long-term gains and $787 million in short-term losses for Yass. In 2017 it was $940 million in long-term gains and $902 million in short-term losses.

Regulatory filings give a glimpse of the fund’s trading.

Susquehanna Fundamental has to disclose a snapshot of certain holdings with the Securities and Exchange Commission a few times each year, though many types of trades are exempt from disclosure.

Over several years, the fund’s disclosed positions resembled a complex version of the Coke trade. Instead of betting for and against a single stock, the firm bet for and against the entire market.

Susquehanna Fundamental held billions of dollars of individual stocks such as Google, Wells Fargo and, as it happens, Coca-Cola. These stocks were among the largest companies in the S&P 500 index.

Meanwhile, the fund also held a large bet against the S&P 500. In essence, it held a bet against many of those exact same stocks.

On its face, the fund actually lost money for Yass: Over eight years, it registered $5.4 billion in losses against $5 billion in gains — a net loss before taxes. But by transforming the tax rate on so much income, it delivered $1.1 billion in tax savings, and Yass came out way ahead.

It’s not clear whether the IRS has ever challenged the firm’s trading inside Susquehanna Fundamental Investments.

But the trading pattern has similarities to the 2010 Swiss stock trades, which involved betting for and against the exact same stocks. The IRS deems those to have been illegal under tax law.

Those trades were part of a larger deal worked out by Susquehanna and Morgan Stanley that called for the Philadelphia firm to buy $1.4 billion of the stocks and simultaneously bet against them, court records show. (Morgan Stanley declined to comment.) Over the next three years, the deal kicked out at least $365 million in low-rate income to the firm, while generating massive losses that could be used to wipe out other high-rate income, according to the IRS.

When IRS auditors scrutinized the deal, they found that Susquehanna had violated rules against betting for and against the exact same stocks. The agency demanded the firm pay tens of millions of dollars in back taxes.

Yass and his partners refused, arguing that the firm had broken no rules, and sued the IRS in U.S. Tax Court in 2020. They asserted that the deal was supposed to be profitable and wasn’t primarily intended to avoid taxes. But the firm also acknowledged the deal was tailored with an eye to “tax efficiency.” The case is still pending, with Susquehanna currently resisting requests to turn over more documents.

Susquehanna’s ability to manufacture the right kind of income has helped Yass and his partners minimize their taxes for decades. Since 2001, Yass hasn’t paid over 20% in a single year. In 2005, a year when he made what was for him the modest sum of $66 million, he paid $0 in federal income tax.

For Yass’ primary competitors, the story is far different. Citadel and Two Sigma are both huge firms that, like Susquehanna, do a mix of lightning-fast trading and market making. The heads of these firms, like Yass, reported incomes larger than almost anyone else in the country from 2013 to 2018.

But the tax returns of these Wall Street titans — Ken Griffin from Citadel, and John Overdeck and David Siegel from Two Sigma — have no mystifying source of low-rate income.

They also differ from Susquehanna in another telling respect. These firms voluntarily classify their trading activity as ordinary income, according to ProPublica’s analysis of tax records. Doing this makes sense for a firm that specializes in short-term trading and doesn’t expect to generate many long-term gains. That’s why many high-frequency firms make this “Section 475 election,” as it’s called in the tax jargon. If Susquehanna elected to treat its trading this way, its ability to generate long-term gains would be constrained.

Susquehanna also stands apart in how its taxes are prepared, ProPublica’s records show. Unlike his billionaire peers, Yass does not have his tax returns prepared by outside accountants. Instead, they’re prepared in-house at Susquehanna. Avoiding an outside accountant can offer more leeway in filing returns that test the boundaries of the law and might be challenged by the IRS later on, experts say. Several former employees told ProPublica that details of the firm’s tax strategy are closely guarded, even inside the company.

From 2013 to 2018, Griffin, Overdeck and Siegel paid average income tax rates ranging from 29% to 34%. (Representatives for the three men declined to comment.) Yass averaged 19%. ProPublica estimates that if Yass’ tax returns had resembled those of his competitors, he would have paid $1 billion more in federal income taxes during this period alone.

Yass does have one peer who achieved even lower tax rates and did so for years. Billionaire Jim Simons is one of the founders of Renaissance Technologies, one of the premier hedge funds known for high-frequency trading. His rates were often in the single digits between 2009 and 2018, never exceeding 14%. One reason Simons paid so little are deductions from charitable donations, averaging hundreds of millions of dollars each year; Yass doesn’t give nearly as much to charity. But another reason was Renaissance’s ability to create long-term gains over a decade.

That, however, didn’t last. A 2014 congressional investigation and IRS audit concluded the Renaissance scheme to generate such gains was illegal. Simons himself ultimately paid the IRS at least $670 million to resolve the case. Collectively, fund executives and investors paid an undisclosed amount, reportedly in the billions, in back taxes and penalties. A spokesperson for Simons declined to comment.

Having slashed his income tax bills, Yass has already taken steps to protect his fortune from the government for years to come.

He created special trusts designed to sidestep the estate tax when passing money to heirs at death, court records show. In using these grantor retained annuity trusts, or GRATs, Yass joins dozens of other billionaires, as ProPublica has reported.

That suggests that Yass’ adult children, two of whom work at Susquehanna, stand to someday inherit multibillion-dollar fortunes — tax-free.

Over decades of TV appearances and speeches promoting his libertarian gospel, Milton Friedman often liked to say he was “in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” Friedman died in 2006. Today, Yass, who reveres the economist, is trying to bring Friedman’s ideas to fruition.

Yass has not only worked assiduously to lower his own taxes but has poured millions into political efforts to eliminate them for his class. In recent years he has given $32 million to the anti-tax stalwart Club for Growth. This money paid for TV ads attacking candidates who were seen as wobbly on Friedman’s tax-cuts-anytime-anywhere philosophy.

In Pennsylvania, where Yass is the richest person in the state and a kingmaker in local politics, his favored candidates have shaped tax policy. He is a longtime financial patron of a Democratic state senator, Anthony Williams, one of the creators of a pair of tax credits that allow companies to slash their state tax bills if they give money to private and charter schools. Susquehanna is, in turn, a major user of the tax credits. (Williams did not respond to requests for comment.)

The programs limited the state tax credits a single company could receive, but Yass and the others found a way to sidestep the limits. Yass, Dantchik and Greenberg simply applied for the tax credits through individual companies each had formed, the Philadelphia Inquirer reported in 2015. In all, the credits have saved Yass and the others at least $53 million in state taxes, records show.

Yass’ views on taxes, along with another stance inspired by Friedman, school privatization, seem to have informed his shifting opinion of Donald Trump.

Yass had opposed Trump during the 2016 Republican presidential primary, instead donating large sums to Rand Paul of Kentucky, the de facto leader of the party’s libertarian wing, and to Libertarian Party nominee Gary Johnson.

A week after Trump won the presidency that November, Yass took the stage at a theater in Philadelphia. Even though Trump had not been his candidate, Yass seemed to relish the long-odds election win, joking that those who “didn’t like Tuesday’s results” could move to Canada.

He used the rest of his remarks at the event, part of a local TED Talk-style series, to promote his passion for charter and private schools and attack Philadelphia teachers. “All we ever hear about is how underpaid they are and how abused they are,” Yass said. “Well, the shocking fact is that the average school teacher in Philadelphia with benefits makes $117,000 a year.” Yass acknowledged that a large chunk of that figure was from pension and health care costs. (That year, Yass made $1.26 billion, before benefits.)

Over the next four years, Trump delivered both a historic tax cut for the rich and an education secretary who was a champion of charter schools.

Yass has since backed a range of pro-Trump candidates. In Pennsylvania, he has poured money into this year’s Republican effort to take the open gubernatorial seat, which many expect, if successful, will lead to an abortion ban in the state. The Club for Growth also backed a losing candidate for the state’s open U.S. Senate seat, Kathy Barnette, whose campaign centered on her hard-line opposition to abortion, even in cases of rape. Yass is the second biggest donor to the Club (which did not return ProPublica’s requests for comment).

He is also the largest donor to the Rand Paul-affiliated Protect Freedom PAC, giving $2.5 million of his more than $12 million in recent donations just days after the 2020 election. The group’s website says of Democrats: “Of course, they stole the election.”

Yass is looking to harness discontent with public schools during the pandemic to push privatization of the system. He has given $15 million as the sole funder of a political action committee, the School Freedom Fund, that says “school closures, mask mandates, critical race theory, and more” have created “a unique opportunity to promote School Choice as the structural solution to dramatically improve education in America.”

If Yass came to politics motivated by his libertarian ideology, he now has an acute material reason — beyond taxes — to have a voice in Washington.

Late in the Trump administration, Susquehanna’s prize investment came under threat. President Trump announced on July 31, 2020, that he was considering banning TikTok in the United States. (Backers of the ban cited national security concerns over Americans’ private data being controlled by the Chinese firm behind the app, ByteDance.) Susquehanna's multibillion-dollar stake in ByteDance accounts for a major part of Yass’ fortune.

There’s no record of Yass having given to Trump before. But on Aug. 4, 2020, just a few days after the president’s TikTok announcement, Yass gave $5 million to the Club for Growth. Two days later, the group deviated from its normal practice of funding congressional races and announced an ad campaign in the presidential race: $5 million against Joe Biden. The group didn’t mention Yass, but the ads attacked Biden on Yass’ pet issue, charter schools. Later that month, Yass gave the group another $5 million, and more ads ran against Biden.

At the same time, Trump and other administration officials were personally involved in trying to broker a deal to avoid finalizing the TikTok ban. At one point in September, Trump publicly announced his support for a deal in which U.S. companies would buy stakes in ByteDance and a new board would be formed. Among the proposed members of the board: Dantchik, Yass’ partner at Susquehanna.

It’s not clear if Yass or Dantchik talked to the White House about the deal, which ultimately fell through. Courts later blocked the proposal to ban the app.

Yass hasn’t spoken much publicly about how he thinks about his engagement in politics. A rare glimpse came after the Jan. 6 riot, when a Philadelphia political activist named Laura Goldman emailed Yass to question his donations to the Club for Growth. One of the candidates the group backed, Sen. Josh Hawley, R-Mo., had objected to certifying the presidential election results just days earlier.

“To be clear — I don’t think the election was stolen,” Yass responded in a Jan. 15, 2021, email, first reported by the Guardian. “I gave the club money a year ago. Do you think anyone knew Hawley was going to do that? Sometimes politicians deceive their donors.”

Yass appears to have overcome any doubts about the Club for Growth, which has continued to back candidates who say the election was stolen.

Since he sent that email, he has given the group another $5.5 million.

After the Deepwater Horizon offshore drilling rig exploded in 2010, environmentalists surveying the damage in the Gulf of Mexico came upon a mystery. The water had oil slicks that, because of the currents, couldn’t have originated from the site of the notorious accident.

With the help of satellite imagery, they figured out that oil was leaking from a different spill, a six-year-old disaster the public knew almost nothing about. In September 2004, Hurricane Ivan had swept the legs out from under a 40-story oil-drilling platform operated by a company called Taylor Energy, causing a leak that continues to this day. It is the longest-running — and by one estimate, the largest — U.S. oil spill ever recorded, a contentious saga that prompted a recent “60 Minutes” segment.

It’s been an environmental nightmare for the region — but a massive tax bonanza for Phyllis Taylor, the owner of Taylor Energy and the fallen rig.

According to ProPublica’s analysis of a secret trove of tax data, from 2005 to 2018, Taylor took in some $444 million in income, most of it from wages, interest, dividends and capital gains, and didn’t pay a cent in federal income tax.

That’s in significant measure because she was able to transform money her company was compelled to spend cleaning up the oil spill into a perfectly legal nine-figure tax write-off for herself.

Representatives for Taylor, now 80, did not respond to repeated requests for comment.

Taylor is part of a set of ultrawealthy Americans who manage to avoid federal income taxes for years on end by using their businesses or leisure interests to throw off enough deductions to offset the millions or even billions of dollars they make. We’ve nicknamed the group the biggest losers. Taylor’s story shows just how lucrative it can be to be a member of that particular club.

Patrick Taylor, Phyllis Taylor’s husband, founded Taylor Energy in 1979. He would eventually become the richest man in Louisiana and enjoyed the sort of lifestyle that went with the title. He raced speedboats on the Mississippi, rode bulls in rodeos and skydived more than 500 times. But he often said he preferred to be known for his role in advocating for the creation of a beloved state program that provided scholarships to Louisiana colleges and universities.

Taylor Energy operated out of an ornate four-story mansion in New Orleans, off Lee Circle, where a statue of Robert E. Lee stood until 2017. Female employees were not allowed to wear pants, and employees addressed their superiors as “sir” or “ma’am.” Patrick’s office had hand-painted blue-and-white silk wallpaper from a Russian palace, while a nearby dining room featured marble fountains from an 18th-century French chateau. Rooms were named after Ronald Reagan and the British naval hero Admiral Horatio Nelson.

Phyllis cut an unusual figure in the world of brash wildcatters. She started out in the business working for another Louisiana oilman, sometimes being mistaken for his coffee-bearing assistant before he surprised the men in the room by announcing she was his attorney. She married Patrick Taylor in 1964 and served on the board of directors of Taylor Energy while he ran the company.

Deemed the “gentle dove” of Louisiana for her philanthropy, Phyllis Taylor supported local education and art institutions, as well as housing for the homeless. She loved to travel, and in an interview with Condé Nast Traveler, extolled the joys of circumnavigating the world: “The difference between a short cruise and a world cruise is night and day, storm and calm, fleeting thought and thoughtfulness. With an extended cruise you absorb the lifestyle of life at sea; with the great advantage of having a crew and staff that treats you like royalty.” A frequent hunter, Taylor proudly displayed the skin and head of a leopard she shot in Zambia.

The year Ivan hit changed Phyllis Taylor’s life. A couple of months after the hurricane, her husband died at age 67. At 63, she took over the company.

Deaths create a spectacular tax boon for the wealthy, what some experts consider one of the largest loopholes in the code.

Taylor Energy had ballooned in value in the 25 years since its founding. If Patrick Taylor, who controlled the vast majority of the company, had sold it while he was alive, the Taylors would have owed a huge sum in capital gains tax. But all of that value disappeared at death for the purposes of taxes thanks to a widely decried provision of the code that will cost the U.S. Treasury more than $500 billion in lost taxes over the next decade. Phyllis inherited the company and became the wealthiest woman in Louisiana, worth an estimated $1.6 billion. There’s no estate tax for property transferred to a spouse.

In 2008, four years after Taylor Energy became aware of the spill, the company had yet to clean it up. Taylor decided she wanted out of the business. She sold all of the company’s oil rigs and other assets, except for the damaged rig, to two South Korean entities. Taylor, who owned about 95% of the company, according to her former CEO, received close to $1.2 billion of the roughly $1.25 billion price tag.

Yet Taylor was legally allowed to portray the sale to the IRS in a very different light — and that in turn depended on the fact that the law allows owners of private companies a lot of leeway in determining the value of their assets. Since Taylor was inheriting the company tax-free, she and her advisors had every reason to assign it a high initial value, because that would mean that when she later sold the assets, the high value would minimize or eliminate the gain on paper. “When property is transferred between spouses at death, there’s a tax incentive to aggressively value it on the high end,” said Gregg Polsky, a tax law professor at the University of Georgia School of Law, who has been retained as a consultant to ProPublica.

Taylor’s tax records suggest that’s what happened. Taylor did not record a gain on the sale of her company. In fact, she was able to report a loss of $211 million.

It’s difficult for outsiders to value a private company. But a former company insider said Taylor Energy was sold at a premium. “I did the valuation. I know what the assets were worth and know what we sold them for. We did not take a loss. Period,” John Pope, Taylor Energy’s former CEO, told ProPublica.

The upshot of the claimed loss was that Taylor paid no federal income tax in a year when she realized an enormous gain from the sale. She even got a remarkable extra goodie: refunds on $30 million in taxes she’d paid in previous years.

After the 2008 sale, what was left of Taylor Energy was devoted to one thing only, cleaning up the spill. The company had professed to be trying to plug the leaking oil well but seemed to make no progress.

A few months after the sale, the federal agency that oversees drilling in the Gulf negotiated an agreement that required the company to create a $666 million trust to cover the cost of the cleanup.

That was a lot of money — more than half of the proceeds from the company’s sale — but it came with a silver lining. Because Taylor Energy was set up as a sole proprietorship, its income and losses flowed through to Phyllis’ personal taxes. She could write off the costs of the cleanup against her own income.

It may be surprising that the costs of cleaning up an environmental disaster are tax-deductible. But such write-offs are legal, qualifying as “ordinary and necessary” business expenses. By contrast, fines and penalties are not deductible. Oil giant BP was able to deduct most of the settlement it reached with the government over the Deepwater Horizon spill because much of it went to address the environmental calamity, rather than to penalties for wrongdoing.

Such deductions are unobtainable for executives or shareholders at publicly traded corporations, where only the company gets to deduct the expenses.

It took years for the extent of the spill to become known. Taylor disclosed almost nothing about the accident and fought public records requests. The reality unspooled thanks to the persistence of environmental groups, investigativereporting, and revelations from a dizzying array of suits and countersuits.

In the years after it established the cleanup trust, Taylor Energy claimed that it could not have foreseen such an accident and that stopping the leak was technologically impossible. In 2012, the Coast Guard finally ordered Taylor to install a dome to contain the leak, but three years later, when Taylor Energy settled a lawsuit that forced it to start publicly disclosing more about its efforts, the company had not even finished the design.

According to a later review by the Coast Guard, Taylor Energy was “obstinate, difficult to deal with and verbally combative,” and preferred “to employ stall tactics over cooperation with an intention to confuse, delay or misdirect” the government.

In 2015, The Associated Press revealed that both Taylor and the government had dramatically underestimated the volume of the leak. The Coast Guard released a new estimate, much higher than its previous ones and 20 times the roughly 4 gallons a day Taylor was claiming. In a lawsuit, a federal expert put it higher still, estimating the spill to be up to 29,400 gallons a day. That would mean that starting in 2004, more oil spilled into the Gulf from Taylor Energy’s rig than the estimated 130 million gallons that gushed into it as a result of BP’s Deepwater Horizon catastrophe.

For more than a decade, Taylor Energy has launched a series of legal actions against the government to try to recoup at least a portion of the money in the trust or to end its cleanup obligations, saying it has done all that it could. The company has come up empty every time. Rather than put resources into fixing the problem, Taylor has been “putting all of its money and efforts into fighting the cleanup,” said Brettny Hardy, a senior attorney for Earthjustice, an environmental group.

Today the oil is still flowing at a rate of about 1,000 gallons a day. A protective dome, finally installed by a contractor the Coast Guard hired after losing faith in Taylor, contains the leak.

Taylor has weathered all of this remarkably well. She remains known as a great benefactor to her city and state. Praising her philanthropy, the U.S. Marine Corps gave her honorary marine status in 2013, and The Times-Picayune granted her its “Loving Cup” award in 2016.

The combination of the loss on the sale of the company and the expenses from the cleanup meant Taylor did not pay any income taxes from 2005 through 2018. At the end of 2018, her reserve pool of losses exceeded $330 million, making it a distinct possibility that she would never have to pay income taxes again.

Here’s a tale of two Stephen Rosses.

Real life Stephen Ross, who founded Related Companies, a global firm best known for developing the Time Warner Center and Hudson Yards in Manhattan, was a massive winner between 2008 and 2017. He became the second-wealthiest real estate titan in America, almost doubling his net worth over those years, according to Forbes Magazine’s annual list, by adding $3 billion to his fortune. His assets included a penthouse apartment overlooking Central Park and the Miami Dolphins football team.

Then there’s the other Stephen Ross, the big loser. That’s the one depicted on his tax returns. Though the developer brought in some $1.5 billion in income from 2008 to 2017, he reported even more — nearly $2 billion — in losses. And because he reported negative income, he didn’t pay a nickel in federal income taxes over those 10 years.

What enables this dual identity? The upside-down tax world of the ultrawealthy.

ProPublica’s analysis of more than 15 years of secret tax data for thousands of the wealthiest Americans shows that Ross is one of a special breed.

He is among a subset of the ultrarich who take advantage of owning businesses that generate enormous tax deductions that then flow through to their personal tax returns. Many of them are in commercial real estate or oil and gas, industries that have been granted unusual advantages in the American tax code, which allow the ultrawealthy to take tax losses even on profitable enterprises. Manhattan apartment towers that are soaring in value can be turned into sinkholes for tax purposes. A massively profitable natural gas pipeline company can churn out Texas-sized write-offs for its billionaire owner.

By being able to generate losses — effectively, by being the biggest losers — these Americans are the most effective income-tax avoiders among the ultrawealthy, ProPublica’s analysis of tax data found. While ProPublica has shown that some of the country’s absolute wealthiest people, including Jeff Bezos, Elon Musk and Michael Bloomberg, occasionally sidestep federal income tax entirely, this group does it year in and year out.

Take Silicon Valley real estate mogul Jay Paul, who hauled in $354 million between 2007 and 2018. According to Forbes, he vaulted into the ranks of the multibillionaires in those years. Yet Paul paid taxes in only one of those years, thanks to losses of over $700 million.

Then there’s Texas wildcatter Trevor Rees-Jones, who built Chief Oil & Gas into a major natural gas producer over the past two decades. The multibillionaire reported a total of $1.4 billion in income from 2013 to 2018, but offset that with even greater losses. He paid no federal income taxes in four of those six years.

None of the people mentioned in this article would discuss their taxes or tax-avoidance techniques with ProPublica.

A spokesperson for Ross declined to accept questions. In a statement, he said, “Stephen Ross has always followed the tax law. His returns — which were illegally obtained and descriptions of which were released by ProPublica — are reflective of and in accordance with federal tax policy. It should terrify every American that their information is not safe with the government and that media will act illegally in disseminating it. We will have no further correspondence with you as we believe this is an illegal act.” (As ProPublica has explained, the organization believes its actions are legal and protected by the Constitution.)

A spokesman for Rees-Jones declined to comment. Paul did not respond to repeated requests for comment.

The techniques used by these billionaires to generate losses are generally legal. Loopholes for fossil-fuel businesses date back practically to the income tax’s birth in the early 20th century. Carve-outs for real estate and oil and gas have withstood sporadic efforts at reform by Congress in part because there has been widespread support for investment in housing and energy.

The commercial real estate and fossil fuel breaks have enabled some of the wealthiest Americans to escape federal income taxes for long stretches of time. Sometimes they amass such large losses that they cannot use all of them in a given year. When that happens, they fill up reservoirs of deductions that they then draw down bit by bit to wipe away taxes in future years. Before ProPublica’s analysis of its trove of tax data, the extent of this type of avoidance among the nation’s wealthiest was not known.

Typical working Americans do not generate these kinds of business losses and thus can’t use them to offset income or reduce income tax.

As long as there have been income taxes, there have been schemes to manufacture illusory losses that reduce taxes, and there have likewise been counterefforts by Congress and the IRS to rein them in. But ProPublica’s findings show these measures to prevent deduction abuses “aren’t doing what they are supposed to do,” said Daniel Shaviro, the Wayne Perry Professor of Taxation at New York University Law School. “The system isn’t working right.”

For decades, One Columbus Place, a 51-story apartment complex in midtown Manhattan, has looked like an excellent investment. Located a block off the southwest corner of Central Park, it’s adjacent to the Columbus Circle mall for shopping at Coach or Swarovski or for dining at the Michelin three-star restaurant Per Se.

Its 729 rental units have churned out millions of dollars in rental income every year for its owners, among them Stephen Ross. Mortgage records show its value has skyrocketed, jumping from $250 million in the early 2000s to almost $550 million in 2016.

Yet, for more than a decade, this prime piece of New York real estate was a surefire money-loser for tax purposes. Since Ross acquired a share in the property in 2007, he has recorded $32 million in tax losses from his stake in a partnership that owns it, his tax records show.

Tax losses from properties owned through a host of such partnerships are central to Ross’ ability, and that of other real estate moguls, to continue to grow their wealth while reporting negative income year after year to the IRS.

Their down-is-up, up-is-down tax life comes in large part from provisions in the code that amplify developers’ ability to exploit write-offs from what’s known as depreciation, or the presumed decline in the value of assets over time. Some of these rules apply only to the real estate business, letting developers take outsize deductions today to reduce their taxable income while delaying their tax bill for decades — and potentially forever.

Depreciation itself is a widely accepted concept. In most businesses, the depreciation write-offs come from assets, like machinery, that reliably lose their value over time; eventually, a machine becomes outmoded or breaks down.

When it comes to real estate, a common justification for depreciation relies on the idea that space in older buildings will tend to command lower rents than space in newer ones, eventually making it worthwhile for an owner to knock down a building and construct a new one. So, if a building initially cost investors $100 million, the tax code allows them, over a period of years, to deduct that $100 million.

But rather than losing value, real estate properties often rise in value over time, much like One Columbus Place has done for Ross and his business partners. (That value includes the cost of the land, which doesn’t generate depreciation write-offs.)

These depreciation write-offs, along with deductions for interest and other expenses, have helped many of the nation’s wealthiest real estate developers largely avoid income taxes in recent years, even as their empires have grown more valuable.

Former President Donald Trump, for whom Ross hosted a $100,000-a-plate fundraiser in 2019, is perhaps the best-known example of commercial real estate’s tax beneficiaries. As The New York Times reported last year, Trump paid $750 in federal income taxes in 2016 and 2017, and nothing at all in 10 of the years between 2001 and 2015. According to ProPublica’s data, Trump took in $2.3 billion from 2008 to 2017, but his massive losses were more than enough to wipe that out and keep his overall income below zero every year. In 2008, Trump reported a negative income of over $650 million, one of the largest single-year losses in the tax trove obtained by ProPublica.

New York-area real estate developer Charles Kushner, the father of Trump’s son-in-law, Jared Kushner, also avoided federal income taxes for long stretches of time. Though he reported making some $330 million between 2008 and 2018, Charles Kushner paid income taxes only twice in that decade ($1.8 million in total) thanks to deductions. (Kushner went to prison in 2005 after being convicted of tax fraud and other charges. Trump pardoned him last year.)

A spokesperson for Trump did not respond to questions about his taxes. (The Trump Organization’s chief legal officer told The New York Times last year that Trump “has paid tens of millions of dollars in personal taxes to the federal government” over the past decade, an apparent reference to taxes other than income tax.) Representatives for Kushner did not respond to repeated requests for comment.

Even relative to fellow real estate developers, though, Stephen Ross is exceptional. He didn’t start out in commercial real estate. He began his career as a tax attorney.

Ross, 81, grew up on the outskirts of Detroit, the son of an inventor with little business savvy. After getting a business degree from the University of Michigan, Ross decided to go to law school to avoid the Vietnam war draft. He then extended his education, earning a master’s degree in tax law at New York University.

He saw the tax code as a puzzle to solve. “Most people, when you say you’re a tax lawyer, they think you’re filling out forms for the IRS,” Ross once told a group of NYU students. “But I look at it as probably the most creative aspect of law because you’re given a set of facts and you’re saying, ‘How do you really reduce or eliminate the tax consequences from those facts?’”

After graduating, Ross went to work, first at the accounting firm Coopers & Lybrand, and later at a Wall Street investment bank, which fired him. Then, with a $10,000 loan from his mother, Ross went into business for himself, selling tax shelters.

In its early years, Ross’ Related Companies solicited investments in affordable-housing projects from affluent professionals like doctors and dentists with the promise that the deals would generate deductions they could use on their taxes to offset the income from their day jobs.

By the mid-1970s, such shelters had become big business on Wall Street. The losses frequently subsidized economically dubious investments in a range of industries. It wasn’t uncommon for firms to offer investors the chance to get $2 or $3 worth of tax savings for every $1 they put in.

As the decade wore on, regulators increasingly took notice. The IRS started programs to scrutinize loss-making businesses. Ross and some of his real estate partnerships were audited, according to a company prospectus, and in some cases, the IRS determined that the firm had been too aggressive in taking write-offs from the projects.

Lawmakers began to crack down, too. In 1976, Congress limited the tax losses investors could take if they borrowed money to invest in industries like oil and gas or motion pictures. But the change didn’t apply to the real estate industry, which successfully argued that without such tax shelters, investors wouldn’t back new low-income housing.

In 1986, Congress sought to rein in tax shelters once more as part of a major tax overhaul. This time the changes included rules to prevent affluent people from using the kind of investments Ross had been offering. The rules shrank who could offset their other income using business losses to only those who had important roles in the business, such as those who spent a certain number of hours on it; so-called passive investors were out of luck.

Several tough years followed for Ross and others in the industry, but the real estate lobby mounted a pressure campaign that yielded results in 1993, when Congress allowed real estate professionals once again to use losses generated from their rental properties to wipe out taxable income from things like wages.

After being pounded by the real estate crash of the early 1990s, the Related Companies reorganized itself with an infusion of cash from new investors. Related made use of new federal housing tax credits, as well as local tax breaks and tax-exempt public financing offered by New York City to propel development of affordable housing units. The firm also continued to branch out into more traditional office and luxury apartment deals.

In 2003, the $1.7 billion development of Time Warner Center catapulted Ross indisputably into the upper echelon of New York developers. Then the most expensive real estate project in the history of the city, the two shining glass towers beside Columbus Circle also helped elevate Ross into the the Forbes 400 for the first time in 2006.

Despite his growing fortune, Ross often owed no federal income tax. In the 22 years from 1996 to 2017, he paid no federal income taxes 12 times. His largest tax bill came in 2006, when he owed $12.6 million after reporting just over $100 million in income.

In the years since, Ross has used a combination of business losses, tax credits and other deductions to sidestep such bills. In 2016, for example, Ross reported $306 million in income, including $219 million in capital gains, $51 million in interest income and $5 million in wages from his role at Related Companies. But he was able to offset that income entirely with losses, including by claiming $271 million in losses through his business activities that year and by tapping his reserve of losses from prior years.

ProPublica’s records don’t offer a complete picture of the sources of each taxpayer’s losses, but they do provide some insight. That year, for example, in addition to losses from One Columbus Place, Ross recorded a loss of $31 million from a partnership associated with the Miami Dolphins. As ProPublica previously reported, professional sports teams provide a stream of tax losses for their wealthy owners. Ross also had a loss of $16.9 million from RSE Ventures, his investment company, which has owned stakes in restaurants, a chickpea pasta maker and a drone racing league.

After taking all of his losses, his records show that he would have owed a small amount of alternative minimum tax, which is designed to ensure that taxpayers with high income and huge deductions pay at least some taxes. But Ross was able to eliminate that bill, too, by using tax credits, which he’d also built up a store of over the years. That left him with a federal income tax bill of zero dollars for the year.

Since the early 2000s, when he had significant taxable income, Ross has turned to a conventional technique for creating tax deductions: charitable donations. He has made a series of multimillion-dollar contributions to his alma mater, the University of Michigan, which have earned him naming rights to its business school and some of its sports facilities. In 2003, a partnership owned by Ross and his business partners donated part of a stake in a southern California property to the school, taking a $33 million tax deduction in exchange. But when the university sold the stake two years later, it got only $1.9 million for it.

In 2008, the IRS rejected the claimed tax deduction. In court, the agency argued that the transaction was “a sham for tax purposes” and that Ross and his partners had grossly overvalued the gift. After almost a decade of legal wrangling, a federal judge sided with the IRS, disallowing the deduction, including Ross’ personal share of $5.4 million. The judge also upheld millions of dollars in penalties that the IRS imposed on the partnership for engaging in the maneuver. Both the tax attorney and the accountant who advised Ross on the deal pleaded guilty to tax evasion in an unrelated case. (In a 2017 article on the case, a spokesperson said Ross “was surprised and extremely disappointed by the actions of the two individuals, who have pled guilty, and has severed all dealings with them.”)

Ross’ core business, real estate, remains almost unmatched as a way to avoid taxes.

For most investors, losses are limited by how much money they stand to lose if the enterprise goes belly up, or how much money they have “at risk.” But not real estate investors. They can deduct the depreciation of a property from their taxable income even if the money they used to buy the place was borrowed from a bank and the property is the only asset on the line for the loan. If they buy a building worth $50 million, putting $10 million down and borrowing the rest, they can still deduct $50 million from their personal taxes over time, even though they’ve put much less of their own money into the project.

Savings related to depreciation and similar write-offs are supposed to be temporary; when you sell the assets, you owe taxes not only on your profits from the sale, but on whatever depreciation you’ve taken on the property as well. In tax lingo, this is known as “depreciation recapture.”

But two big gifts in the tax code, working together, can allow real estate moguls to push off those taxes forever.

First, commercial real estate investors can avoid paying taxes on their gains by rolling sale proceeds into similar investments within six months. This provision of the tax code, called the “like-kind exchange,” goes back to the years following the end of World War I and used to apply to other kinds of property owners. Now it’s available only to real estate investors, a provision that’s expected to cost the U.S. Treasury $40 billion in revenue over the next 10 years. Real estate moguls can “swap till they drop,” as the industry saying has it.

Then, there are even more tax benefits that can be used when they do meet their demise — at least to benefit their heirs. For starters, all the gains in the value of the moguls’ properties are wiped out for tax purposes (a process known by the wonky phrase “step-up in basis”). The tax slate is similarly wiped clean when it comes to the depreciation write-offs that were taken on the properties. The heirs don’t have to pay depreciation recapture taxes.

Real estate heirs then get another quirky benefit: They can depreciate the same buildings all over again as if they’d just bought them, using the piggy bank of write-offs to shield their own income from taxes.

As for Ross, after filing his taxes for 2017, he still had a storehouse of tax losses that ProPublica estimates exceeded $440 million. It was entirely possible that he’d never pay federal income taxes again.

If you’re looking to get richer while telling the tax man you’re getting poorer, it’s hard to beat real estate development. But the oil and gas industry provides stiff competition.

Privileged as the lifeblood of the economy, the energy sector has long been lavished with tax breaks. Provisions dating to the 1910s allow drillers to immediately write off a large portion of their investments, essentially subsidizing oil and gas exploration.

One special gift from U.S. taxpayers to oil drillers is called depletion. The idea is grounded in common sense: As oil (or gas or coal) is taken out of the ground, there’s less left to collect later. That bit-by-bit depletion — analogous to depreciation — becomes a tax write-off. Each year, oil investors get to deduct a set percentage of the revenue from the property.

But investors can keep on deducting that set amount indefinitely, even after they’ve recouped their investment, a benefit that had its critics almost from the beginning. The idea was “based on no sound economic principle,” groused the Joint Committee on Taxation in 1926. Yet only in the 1970s was the depletion provision meaningfully curtailed, and then mainly for the largest oil producers. Congress left it in place for independent operators like wildcatters, long venerated as a cross between plucky entrepreneurs and cowboys.

Today the ranks of billionaires are filled with these independent operators. They get the best of both worlds: legacy tax breaks from the days when oil exploration was a crapshoot and current technology that makes the business much less speculative.

These tax breaks have long outlived their initial purpose of encouraging drilling, said Joseph Aldy, a professor of the practice of public policy at the John F. Kennedy School of Government at Harvard University. Now “we’re just giving money to rich people.”

Billionaires in the industry collect enough deductions to dwarf even vast incomes. Of the 18 billionaires ProPublica previously identified as having received COVID-19 stimulus checks last year — they were eligible because their huge tax write-offs resulted in reported incomes that fell below the middle-class cutoffs for receiving payments — six made their fortunes in the oil and gas industry.

One was Trevor Rees-Jones, who rode the shale fracking boom to build a fortune of over $4 billion while shrinking his federal income taxes to nothing.

His tax returns show huge income, over a billion dollars in total from 2013 to 2018, but even more enormous deductions. In 2013, for instance, Rees-Jones’ company, Chief Oil & Gas, made a major move, acquiring 40 natural gas wells in Pennsylvania’s Marcellus Shale for $500 million. Hundreds of millions in write-offs for that acquisition flowed to Rees-Jones’ taxes.

A spokesman for Rees-Jones declined to comment.

Another Texan, Kelcy Warren of the pipeline giant Energy Transfer, shows how the industry’s tax breaks, when blended with others that are more broadly available, can turn a wildly profitable company into a tax write-off for its owner, even as he reaps billions of dollars in income.

Warren, who co-founded Energy Transfer in the 1990s, is worth about $3.5 billion, according to Forbes. He built the company on a plan of aggressive expansion, through both acquisitions and building pipelines. “You must grow until you die,” he has said.

Warren’s aggressive strategy has allowed him to amass billions of dollars in income, only a small portion of which is taxed. (Representatives for Warren did not respond to requests for comment.)

Energy Transfer is publicly traded, but it’s structured as a special kind of partnership, called a master limited partnership. Only public companies in oil and gas, as well as a few other industries, can take this form.

Partnerships work differently than corporations. A corporation is a separate entity from its investors: The corporation pays taxes on its profits, and the investors pay taxes on the dividends they receive. By contrast, partnerships, including master limited partnerships, don’t generally pay taxes. Only the investors (the partners) pay taxes on their share of the partnership’s profits.

But when Energy Transfer sends regular cash distributions to its partners, these payments are, in most cases, considered a “return of capital” rather than a profit. They come tax free.

Warren’s stake in Energy Transfer — he is the primary general partner and holds hundreds of millions of units of the publicly traded limited partnership — has long entitled him to receive hundreds of millions of dollars in distributions every year, which have helped fund an outsize lifestyle. In addition to a 23,000-square-foot home in Dallas, which boasts a 200-seat theater, a bowling alley and a baseball field, he also has a fleet of private planes, an entire Honduran island, and an 11,000-acre ranch near Austin that has giraffes, javelinas and Asian oxen.

From 2010 to 2018, Warren was entitled to receive more than $1.5 billion in cash distributions, according to ProPublica’s analysis of company filings. During that time, Warren also disclosed an additional $500 million in income from other sources on his tax returns.

But in six of the nine years, he told the IRS he’d lost more money than he’d made. In four of them, he paid nothing.

Warren was able to wipe out his income tax liabilities because Energy Transfer provided him with huge deductions, not only from depletion and other tax breaks specific to oil and gas, but also from the way his company is allowed to account for depreciation.

After Energy Transfer builds a new pipeline, its value becomes an asset, one that will degrade over time, and thus produces depreciation deductions. All of that is standard. What’s unusual is that the tax code has long allowed Energy Transfer and its peers to treat the pipeline as if it lost more than half its value immediately. This “bonus depreciation” can wipe out billions in profits; indeed, in 2018, Energy Transfer reported $3.4 billion in profits in its annual public filing while simultaneously delivering big tax losses to its partners.

Lawmakers from both parties have supported bonus depreciation on the theory that the tax break, which is available across many industries, boosts spending on new equipment and juices the economy. But Trump and Republicans took the idea to its extreme in 2017 with two key changes that benefited aggressive companies like Energy Transfer in particular.

Under the new tax law, the “bonus” rose from 50% to 100%. In other words, for tax purposes, a shiny new pipeline becomes worthless upon completion. Second, the new law contained an even greater perk: It extended to the purchase of used equipment. This means that when a big company like Energy Transfer buys the assets of a smaller one, the value of all the smaller company’s equipment can be written off immediately.

Warren’s tax data reflects the benefits of this to individual owners. He entered 2018 already having built up an $82 million store of losses, and by the end of the year, he had increased it to over $130 million, ProPublica estimates.

Warren is a major Republican donor, having given $18 million to federal and state Republicans since 2015. Most of that went to supporting Trump, who was once an Energy Transfer investor.

Warren’s closeness to the Trump administration seemed to pay off. Days after taking office in 2017, Trump ordered the Army to reconsider a decision to block Energy Transfer’s Dakota Access Pipeline, whose planned path under a reservoir and near the Standing Rock Sioux Reservation had sparked strong opposition. Two weeks later, the pipeline was approved. Energy Transfer boasted record profits in the years that followed.

The company’s biggest quarter ever came last year. The reason? A $2.4 billion windfall from the worst winter storm to hit Texas in decades. Hundreds of Texans died. Utilities scrambled and prices for natural gas soared. San Antonio’s largest utility later accused Energy Transfer of “egregious” price gouging and sued to recoup some payments. The city’s mayor called Energy Transfer’s actions “the most massive wealth transfer in Texas history.” No company profited more, reported Bloomberg. (A spokesperson for Energy Transfer responded that the company had merely sold gas “at prevailing market prices.”)

It was a characteristic victory for Warren, who once said, “The most wealth I’ve ever made is during the dark times.”

Nobody knows just how many of the ultrawealthy are able to completely wipe out their income tax bills using business losses. The IRS publishes all sorts of reports analyzing the traits of taxpayers at different income levels, but its analysis typically starts with people who report $0 or more in income, thus excluding anyone who reported negative income.

But while the scope of the problem isn’t known, policymakers are well aware of techniques taxpayers use to game the system. Congress periodically seeks to tighten tax loopholes (often when it has ambitious spending initiatives it needs to pay for). For his part, President Joe Biden put forward plans this spring that would have axed a variety of oil and gas tax breaks, including percentage depletion. Master limited partnerships, the corporate form that Energy Transfer uses, were on the chopping block. In real estate, the special like-kind exchange carve-out was slated for elimination. The plans would have killed even the step-up in basis, the crucial provision that enables titans in both industries to reap huge deductions without worrying about a future income tax bill.

But as in the past, lobbyists for these industries rallied to preserve their privileged status, and these proposals were dropped.

A novel reform proposal still survives. Recent versions of Biden’s Build Back Better plan have contained a provision that would prevent wealthy taxpayers from using outsize losses from their businesses to wipe out other income in the future.

However, even if this proposal makes it into law, older losses that predate the legislation would still have a privileged status, immune to the new limitations. The biggest losers, it appears, will once again emerge unscathed.

It's well known, at least among tax lawyers and accountants for the ultrawealthy: The estate tax can be easily avoided by exploiting a loophole unwittingly created by Congress three decades ago. By using special trusts, a rarefied group of Americans has taken advantage of this loophole, reducing government revenues and fueling inequality.

There is no way for the public to know who uses these special trusts aside from when they've been disclosed in lawsuits or securities filings. There's also been no way to quantify just how much in estate tax has been lost to them, though, in 2013, the lawyer who pioneered the use of the most common one — known as the grantor retained annuity trust, or GRAT — estimated they may have cost the U.S. Treasury about $100 billion over the prior 13 years.

As Congress considers cracking down on GRATs and other trusts to help fund President Joe Biden's domestic agenda, a new analysis by ProPublica based on a trove of tax information about thousands of the wealthiest Americans sheds light on just how widespread the use of special trusts to dodge the estate tax has become.

More than half of the nation's 100 richest individuals have used GRATs and other trusts to avoid estate tax, the analysis shows. Among them: former Democratic presidential candidate Michael Bloomberg; Leonard Lauder, the son of cosmetics magnate Estée Lauder; Stephen Schwarzman, a founder of the private equity firm Blackstone; Charles Koch and his late brother, David, the industrialists who have underwritten libertarian causes and funded lobbying efforts to roll back the estate tax; and Laurene Powell Jobs, the widow of Apple founder Steve Jobs. (Powell Jobs' Emerson Collective is among ProPublica's largest donors.)

More than a century ago amid soaring inequality and the rise of stratospherically wealthy families such as the Mellons and Rockefellers, Congress created the estate tax as a way to raise money and clip the fortunes of the rich at death. Lawmakers later added a gift tax as a means of stopping wealthy people from passing their fortunes on to their children and grandchildren before death. Nowadays, 99.9% of Americans never have to worry about these taxes. They only hit individuals passing more than $11.7 million, or couples giving more than $23.4 million, to their heirs. The federal government imposes a roughly 40% levy on amounts above those figures before that wealth is passed on to heirs.

For her part, Powell Jobs has decried as “dangerous for a society" the early 20th century fortunes of the Mellons, Rockefellers and others. “I'm not interested in legacy wealth buildings, and my children know that," she told The New York Times last year. “Steve wasn't interested in that. If I live long enough, it ends with me."

Nonetheless, after the death of her husband in 2011, Powell Jobs used a series of GRATs to pass on around a half a billion dollars, estate-tax-free, to her children, friends and other family, according to the tax records and interviews with her longtime attorney. By using the GRATs, she avoided at least $200 million in estate and gift taxes.

Her attorney, Larry Sonsini, said Powell Jobs did this so that her children would have cash to pay estate taxes when she dies and they inherit “nostalgic and hard assets," such as real estate, art and a yacht. (At 260 feet, Venus is among the larger pleasure ships in the world.) Without the $500 million or so passed through the trusts, he said, Powell Jobs' heirs would have to sell stock that she intends to give to charity to pay her estate tax bill.

Sonsini said Powell Jobs, whose fortune is pegged at $21 billion by Forbes, has already given billions away to charity and paid $2.5 billion in state and federal taxes between 2012 and 2020. “When you look at an estate that may be worth multiple billions, and all the rest is going to charity, and you put it in perspective, what is the problem we're worried about here?" Sonsini asked. “This is not about creating dynasty wealth for these kids."

In a written statement, Powell Jobs said she supports “reforms that make the tax code more fair. Through my work at Emerson Collective and philanthropic commitments, I have dedicated my life and assets to the pursuit of a more just and equitable society."

Others whose special trusts ProPublica identified, including Bloomberg and the Kochs, declined to comment on why they'd set up the trusts or their estate-tax implications. Representatives for Lauder didn't respond to requests to accept questions on his behalf. Schwarzman's spokesperson wrote that he is “one of the largest individual taxpayers in the country and fully complies with all tax rules."

A typical GRAT entails putting assets, like stocks, in a trust that ultimately benefits a person's heirs. The trust pays back an amount equal to what the trust's creator put in plus a modest amount of interest. But any gains on the investments above that amount flow to the heirs free of gift or estate taxes. So if a person puts $100 million worth of stock in a GRAT and the stock rises in value to $130 million, their heirs would receive about $30 million tax-free.

In 1990, Congress accidentally created GRATs when it closed another estate tax loophole that was popular at the time. The IRS challenged the maneuver but lost in court.

“I don't blame the taxpayers who are doing it," said Daniel Hemel, a professor at the University of Chicago Law School. “Congress has virtually invited them to do it. I blame Congress for creating the monster and then failing to stop the monster once it became clear how much of the tax base the GRAT monster would eat up."

Users of the trusts extend well beyond the top of the Forbes rankings, ProPublica's analysis of the confidential IRS files show. Erik Prince, founder of the military contractor Blackwater and himself heir to an auto parts fortune, used the shelter. Fashion designer Calvin Klein has used them, as have “Saturday Night Live" creator Lorne Michaels and media mogul Oprah Winfrey.

“We have paid all taxes due," a spokesperson for Winfrey said. A representative of Klein did not accept questions from ProPublica or respond to messages. A spokesman for Michaels declined to comment.

Prince also did not answer questions. “Hey if you publish private information about me I'll be sure to return the favor," he wrote. “Go ahead and fuck off."

The GRAT has become so ubiquitous in recent decades that high-end tax lawyers consider it a plain vanilla strategy. “This is an off-the-shelf solution," said Michael Kosnitzky, co-leader of the private wealth practice at law firm Pillsbury Winthrop Shaw Pittman. “Almost every wealthy person should have one."

ProPublica's tally almost certainly undercounts the number of Forbes 100 members who use shelters to avoid estate taxes. ProPublica counted only those people whose tax records or public filings explicitly mention GRATs or other trusts commonly used to dodge gift and estate taxes. But a wealthy person can call their trusts whatever they want, leaving plenty of trusts outside of ProPublica's count.

This month, the House and Senate are hammering out proposals to raise revenue to help pay for the Biden administration's plans to expand the social safety net. The legislative blueprint released by House Ways and Means Committee Chairman Richard Neal, D-Mass., would defang GRATs and other trusts, which would still be legal but no longer be as useful for estate tax avoidance. If the provision makes it into law, “it would put a major dent in GRATs," said Bob Lord, an Arizona attorney who specializes in trusts and estates.

Senate Budget Committee Chairman Bernie Sanders, I-Vt., has proposed going further in undercutting estate tax avoidance tools. But the prospect of any reform is uncertain, as Democrats on Capitol Hill struggle to find the votes to pass the package of spending and tax changes.

GRATs are commonly described by tax lawyers as a “heads I win, tails we tie" proposition. If the investment placed in the GRAT soars in value, that increase passes to an heir without being subject to future estate tax. If the investment doesn't go up, the wealthy person can simply try again and again until they succeed, leading many users to have multiple GRATs going at a time.

For example, Herb Simon, founder of the country's biggest shopping mall empire and owner of the Indiana Pacers, was one of the most prolific GRAT creators in records reviewed by ProPublica. Since 2000, he has hatched dozens of the trusts, often more than one a year. In an interview with The Indianapolis Star in 2017, the octogenarian Simon said, “It's always a big tax problem" for the next generation when someone dies, “but we've worked that tax problem. We won't have a problem with that."

A spokesperson for Simon didn't respond to questions for this article.

Mentions of these trusts have periodically surfaced in the press after being disclosed in securities filings, as was the case with trusts held by Facebook co-founders Mark Zuckerberg and Dustin Moskovitz and Chief Operating Officer Sheryl Sandberg. In 2013, Bloomberg News published a groundbreaking series on GRATs, mining securities filings and other records to reveal how the mega-rich, including casino magnate Sheldon Adelson and such families as Walmart's Waltons, had perfected the use of the device.

ProPublica's data shows that Michael Bloomberg, the majority owner of the company that bears his name and No. 13 on Forbes' list of the wealthiest Americans, is himself a heavy user of GRATs. Over the course of a dozen years, he repeatedly cycled pieces of his private company in and out of the trusts — often opening multiple GRATs in one year. During that time, hundreds of millions of dollars in income flowed through Bloomberg's GRATs, giving him opportunities to shield parts of his fortune for his heirs.

ProPublica described the transactions (but not the name of the person engaging in them) to Lord, the trusts and estates attorney. The GRAT is “the perfect loophole to avoid estate and gift tax in this situation," said Lord, who is also tax counsel for Americans for Tax Fairness and an advocate for estate tax reform.

When Bloomberg ran for president in 2020, he vowed to shore up the estate tax. “Owners of the biggest estates are expert at gaming the system to reduce what they owe," a campaign fact sheet for his tax plan said. Bloomberg vowed to “lower the estate-tax threshold, so that more estates are taxed," and to “shut down multiple estate-tax avoidance schemes." His fact sheet offered few details as to how he would do that, and it didn't mention GRATs.

The legislation Congress is now considering to curtail GRATs would leave open other options for estate tax avoidance, including a cousin to the GRAT known as a charitable lead annuity trust, or CLAT, which contributes to charity while passing gains from stocks and other assets on to heirs. And the legislation would grandfather in existing trusts, meaning that those who have already established trusts would be able to continue to use them to avoid paying estate taxes.

That has set off a predictable push by tax lawyers to get their clients to create tax-sheltering trusts before any new legislation takes effect.

Porter Wright, a law firm that offers estate planning services, told existing and potential clients it was “critical" to evaluate opportunities because “the window may close very soon. There are important and time sensitive issues which could substantially impact the amount of wealth you are able to transfer free of estate and gift tax to future generations."

In 2007, Jeff Bezos, then a multibillionaire and now the world's richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes.

Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row.

ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation's wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America's titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.

Taken together, it demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most. The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.

Many Americans live paycheck to paycheck, amassing little wealth and paying the federal government a percentage of their income that rises if they earn more. In recent years, the median American household earned about $70,000 annually and paid 14% in federal taxes. The highest income tax rate, 37%, kicked in this year, for couples, on earnings above $628,300.

The confidential tax records obtained by ProPublica show that the ultrarich effectively sidestep this system.

America's billionaires avail themselves of tax-avoidance strategies beyond the reach of ordinary people. Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell.

To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period.

We're going to call this their true tax rate.

The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That's a staggering sum, but it amounts to a true tax rate of only 3.4%.

It's a completely different picture for middle-class Americans, for example, wage earners in their early 40s who have amassed a typical amount of wealth for people their age. From 2014 to 2018, such households saw their net worth expand by about $65,000 after taxes on average, mostly due to the rise in value of their homes. But because the vast bulk of their earnings were salaries, their tax bills were almost as much, nearly $62,000, over that five-year period.

No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That's perhaps surprising, given his public stance as an advocate of higher taxes for the rich. According to Forbes, his riches rose $24.3 billion between 2014 and 2018. Over those years, the data shows, Buffett reported paying $23.7 million in taxes.

That works out to a true tax rate of 0.1%, or less than 10 cents for every $100 he added to his wealth.

In the coming months, ProPublica will use the IRS data we have obtained to explore in detail how the ultrawealthy avoid taxes, exploit loopholes and escape scrutiny from federal auditors.

Experts have long understood the broad outlines of how little the wealthy are taxed in the United States, and many lay people have long suspected the same thing.

But few specifics about individuals ever emerge in public. Tax information is among the most zealously guarded secrets in the federal government. ProPublica has decided to reveal individual tax information of some of the wealthiest Americans because it is only by seeing specifics that the public can understand the realities of the country's tax system.

Consider Bezos' 2007, one of the years he paid zero in federal income taxes. Amazon's stock more than doubled. Bezos' fortune leapt $3.8 billion, according to Forbes, whose wealth estimates are widely cited. How did a person enjoying that sort of wealth explosion end up paying no income tax?

In that year, Bezos, who filed his taxes jointly with his then-wife, MacKenzie Scott, reported a paltry (for him) $46 million in income, largely from interest and dividend payments on outside investments. He was able to offset every penny he earned with losses from side investments and various deductions, like interest expenses on debts and the vague catchall category of “other expenses."

In 2011, a year in which his wealth held roughly steady at $18 billion, Bezos filed a tax return reporting he lost money — his income that year was more than offset by investment losses. What's more, because, according to the tax law, he made so little, he even claimed and received a $4,000 tax credit for his children.

His tax avoidance is even more striking if you examine 2006 to 2018, a period for which ProPublica has complete data. Bezos' wealth increased by $127 billion, according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in personal federal taxes is a massive number — yet it amounts to a 1.1% true tax rate on the rise in his fortune.

The revelations provided by the IRS data come at a crucial moment. Wealth inequality has become one of the defining issues of our age. The president and Congress are considering the most ambitious tax increases in decades on those with high incomes. But the American tax conversation has been dominated by debate over incremental changes, such as whether the top tax rate should be 39.6% rather than 37%.

ProPublica's data shows that while some wealthy Americans, such as hedge fund managers, would pay more taxes under the current Biden administration proposals, the vast majority of the top 25 would see little change.

The tax data was provided to ProPublica after we published a series of articles scrutinizing the IRS. The articles exposed how years of budget cuts have hobbled the agency's ability to enforce the law and how the largest corporations and the rich have benefited from the IRS' weakness. They also showed how people in poor regions are now more likely to be audited than those in affluent areas.

ProPublica is not disclosing how it obtained the data, which was given to us in raw form, with no conditions or conclusions. ProPublica reporters spent months processing and analyzing the material to transform it into a usable database.

We then verified the information by comparing elements of it with dozens of already public tax details (in court documents, politicians' financial disclosures and news stories) as well as by vetting it with individuals whose tax information is contained in the trove. Every person whose tax information is described in this story was asked to comment. Those who responded, including Buffett, Bloomberg and Icahn, all said they had paid the taxes they owed.

A spokesman for Soros said in a statement: “Between 2016 and 2018 George Soros lost money on his investments, therefore he did not owe federal income taxes in those years. Mr. Soros has long supported higher taxes for wealthy Americans." Personal and corporate representatives of Bezos declined to receive detailed questions about the matter. ProPublica attempted to reach Scott through her divorce attorney, a personal representative and family members; she did not respond. Musk responded to an initial query with a lone punctuation mark: “?" After we sent detailed questions to him, he did not reply.

One of the billionaires mentioned in this article objected, arguing that publishing personal tax information is a violation of privacy. We have concluded that the public interest in knowing this information at this pivotal moment outweighs that legitimate concern.

The consequences of allowing the most prosperous to game the tax system have been profound. Federal budgets, apart from military spending, have been constrained for decades. Roads and bridges have crumbled, social services have withered and the solvency of Social Security and Medicare is perpetually in question.

There is an even more fundamental issue than which programs get funded or not: Taxes are a kind of collective sacrifice. No one loves giving their hard-earned money to the government. But the system works only as long as it's perceived to be fair.

Our analysis of tax data for the 25 richest Americans quantifies just how unfair the system has become.

By the end of 2018, the 25 were worth $1.1 trillion.

For comparison, it would take 14.3 million ordinary American wage earners put together to equal that same amount of wealth.

The personal federal tax bill for the top 25 in 2018: $1.9 billion.

The bill for the wage earners: $143 billion.

The idea of a regular tax on income, much less on wealth, does not appear in the country's founding documents. In fact, Article 1 of the U.S. Constitution explicitly prohibits “direct" taxes on citizens under most circumstances. This meant that for decades, the U.S. government mainly funded itself through “indirect" taxes: tariffs and levies on consumer goods like tobacco and alcohol.

With the costs of the Civil War looming, Congress imposed a national income tax in 1861. The wealthy helped force its repeal soon after the war ended. (Their pique could only have been exacerbated by the fact that the law required public disclosure. The annual income of the moguls of the day — $1.3 million for William Astor; $576,000 for Cornelius Vanderbilt — was listed in the pages of The New York Times in 1865.)

By the late 19th and early 20th century, wealth inequality was acute and the political climate was changing. The federal government began expanding, creating agencies to protect food, workers and more. It needed funding, but tariffs were pinching regular Americans more than the rich. The Supreme Court had rejected an 1894 law that would have created an income tax. So Congress moved to amend the Constitution. The 16th Amendment was ratified in 1913 and gave the government power “to lay and collect taxes on incomes, from whatever source derived."

In the early years, the personal income tax worked as Congress intended, falling squarely on the richest. In 1918, only 15% of American families owed any tax. The top 1% paid 80% of the revenue raised, according to historian W. Elliot Brownlee.

But a question remained: What would count as income and what wouldn't? In 1916, a woman named Myrtle Macomber received a dividend for her Standard Oil of California shares. She owed taxes, thanks to the new law. The dividend had not come in cash, however. It came in the form of an additional share for every two shares she already held. She paid the taxes and then brought a court challenge: Yes, she'd gotten a bit richer, but she hadn't received any money. Therefore, she argued, she'd received no “income."

Four years later, the Supreme Court agreed. In Eisner v. Macomber, the high court ruled that income derived only from proceeds. A person needed to sell an asset — stock, bond or building — and reap some money before it could be taxed.

Since then, the concept that income comes only from proceeds — when gains are “realized" — has been the bedrock of the U.S. tax system. Wages are taxed. Cash dividends are taxed. Gains from selling assets are taxed. But if a taxpayer hasn't sold anything, there is no income and therefore no tax.

Contemporary critics of Macomber were plentiful and prescient. Cordell Hull, the congressman known as the “father" of the income tax, assailed the decision, according to scholar Marjorie Kornhauser. Hull predicted that tax avoidance would become common. The ruling opened a gaping loophole, Hull warned, allowing industrialists to build a company and borrow against the stock to pay living expenses. Anyone could “live upon the value" of their company stock “without selling it, and of course, without ever paying" tax, he said.

Hull's prediction would reach full flower only decades later, spurred by a series of epochal economic, legal and cultural changes that began to gather momentum in the 1970s. Antitrust enforcers increasingly accepted mergers and stopped trying to break up huge corporations. For their part, companies came to obsess over the value of their stock to the exclusion of nearly everything else. That helped give rise in the last 40 years to a series of corporate monoliths — beginning with Microsoft and Oracle in the 1980s and 1990s and continuing to Amazon, Google, Facebook and Apple today — that often have concentrated ownership, high profit margins and rich share prices. The winner-take-all economy has created modern fortunes that by some measures eclipse those of John D. Rockefeller, J.P. Morgan and Andrew Carnegie.

In the here and now, the ultrawealthy use an array of techniques that aren't available to those of lesser means to get around the tax system.

Certainly, there are illegal tax evaders among them, but it turns out billionaires don't have to evade taxes exotically and illicitly — they can avoid them routinely and legally.

Most Americans have to work to live. When they do, they get paid — and they get taxed. The federal government considers almost every dollar workers earn to be “income," and employers take taxes directly out of their paychecks.

The Bezoses of the world have no need to be paid a salary. Bezos' Amazon wages have long been set at the middle-class level of around $80,000 a year.

For years, there's been something of a competition among elite founder-CEOs to go even lower. Steve Jobs took $1 in salary when he returned to Apple in the 1990s. Facebook's Zuckerberg, Oracle's Larry Ellison and Google's Larry Page have all done the same.

Yet this is not the self-effacing gesture it appears to be: Wages are taxed at a high rate. The top 25 wealthiest Americans reported $158 million in wages in 2018, according to the IRS data. That's a mere 1.1% of what they listed on their tax forms as their total reported income. The rest mostly came from dividends and the sale of stock, bonds or other investments, which are taxed at lower rates than wages.

As Congressman Hull envisioned long ago, the ultrawealthy typically hold fast to shares in the companies they've founded. Many titans of the 21st century sit on mountains of what are known as unrealized gains, the total size of which fluctuates each day as stock prices rise and fall. Of the $4.25 trillion in wealth held by U.S. billionaires, some $2.7 trillion is unrealized, according to Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley.

Buffett has famously held onto his stock in the company he founded, Berkshire Hathaway, the conglomerate that owns Geico, Duracell and significant stakes in American Express and Coca-Cola. That has allowed Buffett to largely avoid transforming his wealth into income. From 2015 through 2018, he reported annual income ranging from $11.6 million to $25 million. That may seem like a lot, but Buffett ranks as roughly the world's sixth-richest person — he's worth $110 billion as of Forbes' estimate in May 2021. At least 14,000 U.S. taxpayers in 2015 reported higher income than him, according to IRS data.

There's also a second strategy Buffett relies on that minimizes income, and therefore, taxes. Berkshire does not pay a dividend, the sum (a piece of the profits, in theory) that many companies pay each quarter to those who own their stock. Buffett has always argued that it is better to use that money to find investments for Berkshire that will further boost the value of shares held by him and other investors. If Berkshire had offered anywhere close to the average dividend in recent years, Buffett would have received over $1 billion in dividend income and owed hundreds of millions in taxes each year.

Many Silicon Valley and infotech companies have emulated Buffett's model, eschewing stock dividends, at least for a time. In the 1980s and 1990s, companies like Microsoft and Oracle offered shareholders rocketing growth and profits but did not pay dividends. Google, Facebook, Amazon and Tesla do not pay dividends.

In a detailed written response, Buffett defended his practices but did not directly address ProPublica's true tax rate calculation. “I continue to believe that the tax code should be changed substantially," he wrote, adding that he thought “huge dynastic wealth is not desirable for our society."

The decision not to have Berkshire pay dividends has been supported by the vast majority of his shareholders. “I can't think of any large public company with shareholders so united in their reinvestment beliefs," he wrote. And he pointed out that Berkshire Hathaway pays significant corporate taxes, accounting for 1.5% of total U.S. corporate taxes in 2019 and 2020.

Buffett reiterated that he has begun giving his enormous fortune away and ultimately plans to donate 99.5% of it to charity. “I believe the money will be of more use to society if disbursed philanthropically than if it is used to slightly reduce an ever-increasing U.S. debt," he wrote.

So how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money — lots of it.

For regular people, borrowing money is often something done out of necessity, say for a car or a home. But for the ultrawealthy, it can be a way to access billions without producing income, and thus, income tax.

The tax math provides a clear incentive for this. If you own a company and take a huge salary, you'll pay 37% in income tax on the bulk of it. Sell stock and you'll pay 20% in capital gains tax — and lose some control over your company. But take out a loan, and these days you'll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn't consider them income. Banks typically require collateral, but the wealthy have plenty of that.

The vast majority of the ultrawealthy's loans do not appear in the tax records obtained by ProPublica since they are generally not disclosed to the IRS. But occasionally, the loans are disclosed in securities filings. In 2014, for example, Oracle revealed that its CEO, Ellison, had a credit line secured by about $10 billion of his shares.

Last year Tesla reported that Musk had pledged some 92 million shares, which were worth about $57.7 billion as of May 29, 2021, as collateral for personal loans.

With the exception of one year when he exercised more than a billion dollars in stock options, Musk's tax bills in no way reflect the fortune he has at his disposal. In 2015, he paid $68,000 in federal income tax. In 2017, it was $65,000, and in 2018 he paid no federal income tax. Between 2014 and 2018, he had a true tax rate of 3.27%.

The IRS records provide glimpses of other massive loans. In both 2016 and 2017, investor Carl Icahn, who ranks as the 40th-wealthiest American on the Forbes list, paid no federal income taxes despite reporting a total of $544 million in adjusted gross income (which the IRS defines as earnings minus items like student loan interest payments or alimony). Icahn had an outstanding loan of $1.2 billion with Bank of America among other loans, according to the IRS data. It was technically a mortgage because it was secured, at least in part, by Manhattan penthouse apartments and other properties.

Borrowing offers multiple benefits to Icahn: He gets huge tranches of cash to turbocharge his investment returns. Then he gets to deduct the interest from his taxes. In an interview, Icahn explained that he reports the profits and losses of his business empire on his personal taxes.

Icahn acknowledged that he is a “big borrower. I do borrow a lot of money." Asked if he takes out loans also to lower his tax bill, Icahn said: “No, not at all. My borrowing is to win. I enjoy the competition. I enjoy winning."

He said adjusted gross income was a misleading figure for him. After taking hundreds of millions in deductions for the interest on his loans, he registered tax losses for both years, he said. “I didn't make money because, unfortunately for me, my interest was higher than my whole adjusted income."

Asked whether it was appropriate that he had paid no income tax in certain years, Icahn said he was perplexed by the question. “There's a reason it's called income tax," he said. “The reason is if, if you're a poor person, a rich person, if you are Apple — if you have no income, you don't pay taxes." He added: “Do you think a rich person should pay taxes no matter what? I don't think it's germane. How can you ask me that question?"

Skeptics might question our analysis of how little the superrich pay in taxes. For one, they might argue that owners of companies get hit by corporate taxes. They also might counter that some billionaires cannot avoid income — and therefore taxes. And after death, the common understanding goes, there's a final no-escape clause: the estate tax, which imposes a steep tax rate on sums over $11.7 million.

ProPublica found that none of these factors alter the fundamental picture.

Take corporate taxes. When companies pay them, economists say, these costs are passed on to the companies' owners, workers or even consumers. Models differ, but they generally assume big stockholders shoulder the lion's share.

Corporate taxes, however, have plummeted in recent decades in what has become a golden age of corporate tax avoidance. By sending profits abroad, companies like Google, Facebook, Microsoft and Apple have often paid little or no U.S. corporate tax.

For some of the nation's wealthiest people, particularly Bezos and Musk, adding corporate taxes to the equation would hardly change anything at all. Other companies like Berkshire Hathaway and Walmart do pay more, which means that for people like Buffett and the Waltons, corporate tax could add significantly to their burden.

It is also true that some billionaires don't avoid taxes by avoiding incomes. In 2018, nine of the 25 wealthiest Americans reported more than $500 million in income and three more than $1 billion.

In such cases, though, the data obtained by ProPublica shows billionaires have a palette of tax-avoidance options to offset their gains using credits, deductions (which can include charitable donations) or losses to lower or even zero out their tax bills. Some own sports teams that offer such lucrative write-offs that owners often end up paying far lower tax rates than their millionaire players. Others own commercial buildings that steadily rise in value but nevertheless can be used to throw off paper losses that offset income.

Michael Bloomberg, the 13th-richest American on the Forbes list, often reports high income because the profits of the private company he controls flow mainly to him.

In 2018, he reported income of $1.9 billion. When it came to his taxes, Bloomberg managed to slash his bill by using deductions made possible by tax cuts passed during the Trump administration, charitable donations of $968.3 million and credits for having paid foreign taxes. The end result was that he paid $70.7 million in income tax on that almost $2 billion in income. That amounts to just a 3.7% conventional income tax rate. Between 2014 and 2018, Bloomberg had a true tax rate of 1.30%.

In a statement, a spokesman for Bloomberg noted that as a candidate, Bloomberg had advocated for a variety of tax hikes on the wealthy. “Mike Bloomberg pays the maximum tax rate on all federal, state, local and international taxable income as prescribed by law," the spokesman wrote. And he cited Bloomberg's philanthropic giving, offering the calculation that “taken together, what Mike gives to charity and pays in taxes amounts to approximately 75% of his annual income."

The statement also noted: “The release of a private citizen's tax returns should raise real privacy concerns regardless of political affiliation or views on tax policy. In the United States no private citizen should fear the illegal release of their taxes. We intend to use all legal means at our disposal to determine which individual or government entity leaked these and ensure that they are held responsible."

Ultimately, after decades of wealth accumulation, the estate tax is supposed to serve as a backstop, allowing authorities an opportunity to finally take a piece of giant fortunes before they pass to a new generation. But in reality, preparing for death is more like the last stage of tax avoidance for the ultrawealthy.

University of Southern California tax law professor Edward McCaffery has summarized the entire arc with the catchphrase “buy, borrow, die."

The notion of dying as a tax benefit seems paradoxical. Normally when someone sells an asset, even a minute before they die, they owe 20% capital gains tax. But at death, that changes. Any capital gains till that moment are not taxed. This allows the ultrarich and their heirs to avoid paying billions in taxes. The “step-up in basis" is widely recognized by experts across the political spectrum as a flaw in the code.

Then comes the estate tax, which, at 40%, is among the highest in the federal code. This tax is supposed to give the government one last chance to get a piece of all those unrealized gains and other assets the wealthiest Americans accumulate over their lifetimes.

It's clear, though, from aggregate IRS data, tax research and what little trickles into the public arena about estate planning of the wealthy that they can readily escape turning over almost half of the value of their estates. Many of the richest create foundations for philanthropic giving, which provide large charitable tax deductions during their lifetimes and bypass the estate tax when they die.

Wealth managers offer clients a range of opaque and complicated trusts that allow the wealthiest Americans to give large sums to their heirs without paying estate taxes. The IRS data obtained by ProPublica gives some insight into the ultrawealthy's estate planning, showing hundreds of these trusts.

The result is that large fortunes can pass largely intact from one generation to the next. Of the 25 richest people in America today, about a quarter are heirs: three are Waltons, two are scions of the Mars candy fortune and one is the son of Estée Lauder.

In the past year and a half, hundreds of thousands of Americans have died from COVID-19, while millions were thrown out of work. But one of the bleakest periods in American history turned out to be one of the most lucrative for billionaires. They added $1.2 trillion to their fortunes from January 2020 to the end of April of this year, according to Forbes.

That windfall is among the many factors that have led the country to an inflection point, one that traces back to a half-century of growing wealth inequality and the financial crisis of 2008, which left many with lasting economic damage. American history is rich with such turns. There have been famous acts of tax resistance, like the Boston Tea Party, countered by less well-known efforts to have the rich pay more.

One such incident, over half a century ago, appeared as if it might spark great change. President Lyndon Johnson's outgoing treasury secretary, Joseph Barr, shocked the nation when he revealed that 155 Americans making over $200,000 (about $1.6 million today) had paid no taxes. That group, he told the Senate, included 21 millionaires.

“We face now the possibility of a taxpayer revolt if we do not soon make major reforms in our income taxes," Barr said. Members of Congress received more furious letters about the tax scofflaws that year than they did about the Vietnam War.

Congress did pass some reforms, but the long-term trend was a revolt in the opposite direction, which then accelerated with the election of Ronald Reagan in 1980. Since then, through a combination of political donations, lobbying, charitable giving and even direct bids for political office, the ultrawealthy have helped shape the debate about taxation in their favor.

One apparent exception: Buffett, who broke ranks with his billionaire cohort to call for higher taxes on the rich. In a famous New York Times op-ed in 2011, Buffett wrote, “My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice."

Buffett did something in that article that few Americans do: He publicly revealed how much he had paid in personal federal taxes the previous year ($6.9 million). Separately, Forbes estimated his fortune had risen $3 billion that year. Using that information, an observer could have calculated his true tax rate; it was 0.2%. But then, as now, the discussion that ensued on taxes was centered on the traditional income tax rate.

In 2011, President Barack Obama proposed legislation, known as the Buffett Rule. It would have raised income tax rates on people reporting over a million dollars a year. It didn't pass. Even if it had, however, the Buffett Rule wouldn't have raised Buffett's taxes significantly. If you can avoid income, you can avoid taxes.

Today, just a few years after Republicans passed a massive tax cut that disproportionately benefited the wealthy, the country may be facing another swing of the pendulum, back toward a popular demand to raise taxes on the wealthy. In the face of growing inequality and with spending ambitions that rival those of Franklin D. Roosevelt or Johnson, the Biden administration has proposed a slate of changes. These include raising the tax rates on people making over $400,000 and bumping the top income tax rate from 37% to 39.6%, with a top rate for long-term capital gains to match that. The administration also wants to up the corporate tax rate and to increase the IRS' budget.

Some Democrats have gone further, floating ideas that challenge the tax structure as it's existed for the last century. Oregon Sen. Ron Wyden, the chairman of the Senate Finance Committee, has proposed taxing unrealized capital gains, a shot through the heart of Macomber. Sens. Elizabeth Warren and Bernie Sanders have proposed wealth taxes.

Aggressive new laws would likely inspire new, sophisticated avoidance techniques. A few countries, including Switzerland and Spain, have wealth taxes on a small scale. Several, most recently France, have abandoned them as unworkable. Opponents contend that they are complicated to administer, as it is hard to value assets, particularly of private companies and property.

What it would take for a fundamental overhaul of the U.S. tax system is not clear. But the IRS data obtained by ProPublica illuminates that all of these conversations have been taking place in a vacuum. Neither political leaders nor the public have ever had an accurate picture of how comprehensively the wealthiest Americans avoid paying taxes.

Buffett and his fellow billionaires have known this secret for a long time. As Buffett put it in 2011: “There's been class warfare going on for the last 20 years, and my class has won."

Earlier this year, the pandemic swept across the country, killing 100,000 Americans by the spring, shuttering businesses and schools, and forcing people into their homes. It was a great time to be a debt collector.

In August, Encore Capital, the largest debt buyer in the country, announced that it had doubled its previous record for earnings in a quarter. It primarily had the CARES Act to thank: The bill delivered hundreds of billions of dollars worth of stimulus checks and bulked-up unemployment benefits to Americans, while easing pressures on them by halting foreclosures, evictions and student loan payments. There was no ban on collections of old credit card bills, Encore's specialty.

At the same time, the pandemic compelled households to cut spending. Finding themselves with enough money to settle old debts, people responded to collectors' calls and letters. Debt-buying executives couldn't help marveling at their good fortune. All this created “a perfect storm from a cash perspective," the CEO of Portfolio Recovery Associates, Encore's main competitor, told Wall Street analysts.

After its record second quarter, analysts expect Encore to blow past $200 million in profit this year and reward stockholders with 40% earnings growth compared with last year. Portfolio Recovery is set for similar growth. The share prices of both have soared off their early April lows.

Investors didn't even show much concern when, in early September, the Consumer Financial Protection Bureau sued Encore, saying that it had broken the terms of a consent agreement struck in 2015. The agency had previously charged the company with “pressuring consumers with false statements and churning out lawsuits using robo-signed court documents," as it said at the time. (In a statement, Encore said the CFPB's recent suit was unnecessary because it had fixed the alleged problems “years ago.")

In recent months, the only real bad news for debt buyers was that local courts across the country temporarily shut down. Debt collection lawsuits provide a key source of revenue for the companies, a way to extract payment from consumers, typically low-income, who don't offer it up.

But now even that hiccup is over. After a bit of a lull in the spring, Encore and other debt buyers are back at it, filing suits by the thousands every week, according to ProPublica's analysis of state court filings.

In August alone, Encore filed about 1,000 suits in Indiana and over 2,000 suits in the metro Atlanta area. Other debt buyers jumped back in as well. In Chicago, Portfolio Recovery filed over 3,000 suits in July, while LVNV, a major debt buyer privately owned by Sherman Financial Group, filed over 2,700 suits in Maryland in August. For all these companies, ProPublica found, the volume was well above the number they'd filed before the coronavirus arrived, in January or February of this year. No national numbers on suits exist.

In statements, the companies said they have been actively working with consumers during the COVID-19 pandemic and only sue as a last resort on a small portion of accounts.

Elizabeth A. Kersey, a spokesperson for Portfolio Recovery, said the company's hardship program “allows for the suspension of collection efforts for ninety (90) days upon notification of a hardship event." The company is currently not seeking new orders to seize debtors' wages or bank account funds, she said.

Ryan Bell, an Encore executive, said, “We have consistently and proactively communicated to consumers the various relief options we've put in place in response to COVID-19, including temporarily stopping collections." The company said it had stopped seeking orders to garnish bank accounts. It is, however, seizing wages.

Sherman Financial did not respond to requests for comment.

If Congress is unable to pass any further stimulus , unemployment is likely to remain high. In that scenario, debt buying companies and the banks that sell defaulted accounts to them expect more Americans to fall behind on their credit card bills over the coming months.

Even that scenario turns out to be rosy for the debt buyers. While good times can mean that Encore collects on more debt than it expected, bad times typically bring a glut of people suffering under loans they cannot repay. The result is that Encore can scoop up the raw materials for its profit machine — defaulted accounts — more cheaply. Or as Encore CEO Ashish Masih put it to Wall Street: The company is “particularly excited about the prospects for increased supply in the future."

“The same giant debt buyers known for fighting consumer protection laws at every turn have been raking in cash during this pandemic," Sen. Elizabeth Warren, D-Mass, told ProPublica. “They are now licking their chops in anticipation of profiting even more off families who have their hours further cut or can't find a job, and can't keep up with their bills or their mortgage. This is disgraceful and reinforces the need for Congress to protect consumers and small businesses from this predatory behavior."

In recent years, Encore has bought around 2 million to 3 million U.S. accounts per year, according to public filings. Last year, on average, the company paid 8.6 cents on the dollar for each account. For a typical debt of $3,142, Encore paid $271.

To earn a profit on that investment, Encore and other debt buyers pursue debtors in near perpetuity. Encore is still collecting tens of millions of dollars each year from debts it bought in 2009 or earlier. The key to that persistence is the courts.

Since the early 2000s, debt buyers have flooded local courts nationwide with suits. The companies regularly account for more than a quarter of all debt collection cases in a given jurisdiction, according to ProPublica's review of collection filings over several states.

That disproportionate presence has been particularly apparent in recent months, as the banks themselves have mostly opted to suspend filing new suits. In normal times, Capital One files far more lawsuits than other banks, in numbers similar to those filed by Encore and Portfolio Recovery. But since March, although Capital One continued to seize pay via garnishments secured before COVID-19 struck, it has largely stopped filing new suits.

ProPublica did find one exception among the major banks that commonly file a significant number of suits: Citigroup, which resumed filing suits at its normal levels in July. The bank, for instance, filed over 200 suits in Oklahoma in August, more than it had filed there in January and February combined.

In a statement, Citi spokesperson Jennifer Bombardier said the bank has a special assistance program for customers impacted by COVID-19 and that it is not seeking to garnish the bank accounts of customers it has sued. The bank also did not sell charged-off accounts to debt buyers “for up to 120 days" in the states “most impacted by COVID-19," she said.

Encore sued Nicole Campbell of Brooklyn, New York, in July. Her first task was to figure out what to do. The suit was over $3,023.76 in debt she incurred years ago with CareCredit, a card offered by Synchrony Bank to people who need to cover medical costs, such as dentistry and eyecare. She knew she should answer the complaint by going to the courthouse, but she was wary of going there during the pandemic and wasn't even sure whether it was open.

Even attorneys have difficulty finding their way. “Courts have been returning to full operation, but there's so much confusion as to what's happening," said Susan Shin, legal director of the New Economy Project in New York City. “It's hard to know what to advise people on what to do with their case."

With help from an attorney with the New Economy Project, Campbell responded to the suit by mail. She's not sure what to expect next but said she doesn't have much time to worry about it. She cares for three boys, 5, 11 and 14, on her own and has to figure out how to get them to school on the city's part-time schedule while helping them with online lessons when they're home. She juggles this with her own job as a customer service rep: That also has a rotating, part-time schedule in order to minimize the number of people in the office.

“It's crazy to me they're filing all this during this time when there's so much going on," she said.

Such collection suits are most common among workers with income under $40,000 per year and particularly common in mostly Black neighborhoods. The suits routinely result in judgments, which in turn usually result in attempts at garnishment, according to a ProPublica analysis of Missouri court filings. Past studies have put the number of workers who have their wages garnished each year at around 4 million. In most states, plaintiffs can seize up to a quarter of a worker's take-home pay or clean out their bank account.

In recent years, when state legislatures have moved to protect more funds from garnishment, Encore has been there to oppose the measures. In 2018, a Connecticut bill proposed to automatically protect up to $1,000 in a bank account. An Encore executive, Sonia Gibson, argued against it, writing in a letter, “Since the average amount we collect through bank garnishments is typically around $700, an automatic exemption of $1,000 would leave us unable to use bank garnishments." The bill died.

Last year in California, Encore joined with other debt buyers to combat a similar bill that aimed to protect around $1,700.

“It was a really huge fight," said Ted Mermin, head of the California Low-Income Consumer Coalition and a professor at the University of California, Berkeley, School of Law. “And you've got to think, 'Why?' Who on earth thinks it's a good idea to take someone's last dollar? The only people who would do this are debt collectors who have no ongoing relationship with someone." The bill narrowly passed and became law.

In Washington state, lawmakers last year sought to protect more workers from wage garnishment. Under federal law, earnings above $217.50 in a week are eligible to be seized, a level that has remained the same since 2009 because it's tied to the $7.25 federal minimum wage. The Washington bill, which ultimately passed, aimed to tie the exemption to the state's much higher minimum wage, which this year is $13.50 an hour. In 2020, about $472.50 in weekly take-home pay would be protected. That was much too high for Encore. Gibson argued in a letter that people earning that much shouldn't be “completely exempt from garnishment."

As an alternative to automatic protections, Encore generally argues that consumers should have to file exemptions in court to demonstrate they really can't afford to have their money taken. Consumer advocates say that such exemptions, which often exist in state laws, are rarely invoked by debtors because they either don't know about them or don't understand the process.

On paper, Randall Ward would seem to be well-insulated from garnishment. He lives in the small town of Marianna, Florida, and state law protects the wages of anyone deemed the “head of household," which is defined as someone who earns more than half the household's income and has dependents. Since Ward helps care for his 20-year-old son with Down syndrome and a granddaughter, his pay from his job as a manager at a Waffle House is eligible for protection.

But when Encore, after having won a judgment against Ward the previous year, sought to garnish his wages this past February, Ward didn't understand that he qualified for the “head of household" exemption. So, starting in March, Encore began taking a quarter of Ward's take-home pay. The size of the debt, a Citibank card that had ballooned to $5,220 with interest and court costs, meant that Ward, even with what he's proud to call a “good job," was in for many lean months.

The only way to make ends meet, he said, was to cancel health insurance for himself, his son and his wife, “because I could not pay the bills if I didn't do it."

Then the virus forced his restaurant to close for several weeks and his pay stopped altogether. The family was without income as he waited for his unemployment claim to go through. When, finally, he could go back to work, the garnishments returned. Encore has said in public statements that it looks to work with consumers, especially those who've been impacted by COVID-19. Ward said that was not his experience.

“They're just ruthless about it," he said. “I would hate to see that happen to anybody."

Encore declined to comment on individual accounts.

Collection suits can have a lasting negative effect on consumers. A recent study by economists from Dartmouth's Tuck School of Business and the University of California, San Diego, focused on debtors who, after being sued, agreed to pay in order to avoid garnishment. The settlements left consumers worse off: They were more likely to fall behind on other debts or end up in foreclosure or bankruptcy, the study found. The main reason was that paying up on one debt had drained those consumers' cash buffer and that left them vulnerable to falling behind on others.

Even in good economic times, low-income consumers live on the edge, so the CARES Act aid was particularly helpful to them. According to a Federal Reserve survey, the temporary $600 boost to weekly unemployment insurance benefits actually resulted in higher pay for about 40% of those who received them. On top of that came the $1,200 stimulus checks ($2,400 for married couples) with an additional $500 for each child.

In July, the Fed found households with income under $40,000 a year had significantly more savings than normal: Whereas last year just 39% said they would have covered an unexpected $400 expense with cash, this summer, 48% said they would.

Debt collectors were a clear beneficiary of those extra funds. According to a survey by the Bureau of Labor Statistics, while most people used the stimulus payments to buy food and other essentials, about 25% used at least some of the money to pay down debts.

But Felipe Severino, a Tuck School of Business professor and one of the authors of the paper on debt collection settlements, said there may be negative long-term consequences for households who used the extra money to settle older debts. The companies say they do not charge interest on the old, charged-off debts they collect so the debts are not growing.

“I would argue it's not a very good use of their money," he said. With less of a safety net, those households are more likely to find themselves behind on their bills again.

Furthermore, he said, stimulative government aid like the CARES Act is meant to be “spent and magnify across the economy" in the near term by, for instance, leading to increased purchases at local businesses. That doesn't happen when the money goes to debt collectors.

The flood of government aid, along with the sudden contraction in spending due to COVID-19, has led to an unpredictable economy, one where unemployment has shot up without the usual tide of delinquencies, bankruptcies and foreclosures. But now, banks are predicting that tide to finally arrive in the coming months.

In July, Capital One reported a loss for the quarter despite delinquencies actually going down. The reason was the bank set aside $2.9 billion as a provision for future credit losses, a kind of safety net for the future.

Encore did not appear to need such precautions. “Our liquidity puts us in a strong position to capture the substantial purchasing opportunity, which we believe is sure to follow," Masih, the CEO, told analysts.