**Tax Break for Wealthy Trump Administration Appointees Sparks Scrutiny**

The ambition of Democrats to levy higher taxes on the affluent has dissipated, but an obscure tax provision may provide a significant advantage to some super-wealthy individuals joining Donald Trump's administration. This perk allows new federal appointees to defer capital gains taxes by selling their assets and reinvesting the proceeds into approved investment vehicles like index funds.

Potential beneficiaries include Scott Bessent, a hedge fund manager who could become Treasury Secretary. This tax deferral aims to ease the financial burden of adhering to federal ethics laws that often require appointees to divest assets that pose conflicts of interest. However, not everyone is eager to take this route; last week, billionaire John Paulson declined the Treasury role, citing his financial portfolio as a key reason.

This tax provision could become a significant benefit for those already considering diversification, especially in a booming market. "It is especially useful for individuals heavily invested in a single company," said Robert Rizzi, a tax lawyer with Holland & Knight who advises executive branch nominees. Rizzi points out that the provision has previously been utilized by members of the Biden administration, including Treasury Secretary Janet Yellen and Energy Secretary Jennifer Granholm.

The impending Senate confirmations for Trump's wealthy appointees are likely to bring this provision under increased scrutiny. Individuals in the spotlight include Howard Lutnick of Cantor Fitzgerald, Linda McMahon, and Jay Clayton. Whether Trump or Vice President-elect JD Vance could benefit from this tax advantage remains uncertain due to their complex holdings.

Section 1043 of the tax code, added by Congress in 1989, was designed to address potential conflicts of interest while mitigating hefty tax bills that might discourage government service. Essentially, it allows someone to sell high-value stocks without immediately incurring capital gains taxes, provided they reinvest in qualified funds.

However, there are limitations, notably that nominees can't take advantage of this deferral until they are officially in government, and they must receive approval. Assets that pose a conflict of interest must be determined by the agency they will work for, and the final eligibility decision rests with the Office of Government Ethics.

This provision doesn't cover all forms of compensation, such as stock options, which could compel individuals to relinquish these lucrative benefits without receiving a tax break. This is particularly relevant for figures like Elon Musk, who might be required to sell stakes in companies like Tesla or SpaceX if he joined the administration formally. Although Trump has appointed Musk to a commission advising on federal cutbacks, this role does not entail the same financial scrutiny as an official position.

John Paulson, explaining his withdrawal from consideration for Treasury Secretary, highlighted the complexity of his financial obligations as the key barrier. As Robert Rizzi notes, while deferring capital gains taxes is an attractive financial incentive, it shouldn't be the primary reason for joining the government.