TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, April 27, 2016

The Hillary Speech Issue No One Is Talking About: Assignment Of Income

Hillary 2016Forbes:  The Hillary Speech Issue No One Is Talking About, by Robert W. Wood:

There are long lists of Hillary Clinton scandals, but the vortex of issues surrounding her speeches remains a major one. The speech issue is multi-faceted, raising questions about what she said to whom and at what price. In this sense, Hillary may be her own worst enemy. She has stalled endlessly, and has still failed to release the transcripts. That kind of stonewalling fuels more speculation, and it is hardly in her favor.

For example, you can read an amusing imagined text of Hillary’s speech to Goldman Sachs. We presumably will never see the real one, though it can hardly be worse than an imagined version. Arguably, though, just as major an issue is the money trail from Hillary’s speeches. The data has had to be teased out. However, the connections between a former President and Secretary of State hobnobbing with foreign government and corporate chieftains over U.S. policy issues remains of interest. The money was big for Bill and Hillary, with even some for Chelsea.

And just think of the tax treatment.

Some money was Hillary’s, and some was assigned to the Bill, Hillary, and Chelsea Clinton Foundation. Normally, you can’t assign income. Given the numbers, it is surprising that no one seems to care how the Clintons did this, or whether it was effective for tax purposes. Notably, the Clintons have not defined how they decide to designate their speaking fees as income versus charity work. When Hillary makes a speech, suppose that she tells the sponsor to send the cash to the Clinton Foundation. 

For tax purposes, who should be treated as the recipient? Bill and Hillary ‘assigned’ boatloads of speech fees to the Clinton Foundation. Mrs. Clinton’s financial disclosure forms show that she reported personal income of more than $11 million for 51 speeches in 13 months. The disclosure says Mr. and Mrs. Clinton earned large speech fees. The list shows Bill, Hillary and Chelsea Clinton turning over between $12 million and $26 million.

Anyone who has dealt with the IRS might ask how you can assign fees to the Foundation. Does that really work for tax purposes? Is there a contract that requires it? Do the Clintons choose which fees they hand over, which they keep? These are not silly questions. The assignment of income doctrine has long plagued taxpayers, in part because it is so tempting to try to send the tax problem to another person or entity. The earliest attempts by taxpayers to avoid income involved contracting away rights to receive income.

http://taxprof.typepad.com/taxprof_blog/2016/04/the-hillary-speech-issue-no-one-is-talking-about-assignment-of-income.html

Political News, Tax | Permalink

Comments

The hosts will be paying the speaker's agent, so they would get 1099'd by the hosts. The agent would then take their cut and pay expenses (if not already covered by the hosts as the result of a contract rider). The agent would then disburse the money to either the Clintons or the foundation, and issue a 1099 or take a deduction for the donation itself.

That's my best guess as to how the money would flow. Is this kosher with the IRS. I don't know.

Posted by: Doug Wenzel | Apr 27, 2016 6:09:08 AM

Just out of curiosity, who owns the rights to the Goldman Sachs speech? The entity that purchased the speech, or the person who delivered it?

Posted by: Publius Novus | Apr 27, 2016 6:51:34 AM

It's not merely an academic question. Treatment of an honorarium as a direct payment from payor to foundation functions as an *exclusion* from the speaker's income, which is better than a deduction as (1) it doesn't increase AGI, (2) isn't subject to percentage limitations on annual charitable contributions, and (3) isn't subject to other limitations that reduce itemized deductions. It also increases the share of the foundation's donations from sources other than insiders, which can help prevent keep the foundation a public charity and avoid restrictions that apply to private foundations.

I expect that an agreement from the outset of negotiations that the honorarium would be paid to the foundation will be respected, but that a subsequent amendment to change the payee to the foundation *after* an agreement was in place to pay the honorarium to the speaker personally would run afoul of the assignment of income doctrine. Interposition of an agent or speaker's bureau should not make a difference.

Posted by: Mike Whitty | Apr 27, 2016 7:55:28 AM

Did Clinton pay state taxes where these speeches were given outside her home state? Like an NBA or NFL player does when they play in another town?

Posted by: Ken Nelson | Apr 27, 2016 8:22:47 AM

The same thing occurs when celebrities host a paid event for their favorite political cause. That should be taxable income to the celebrity.

Posted by: AMTbuff | Apr 27, 2016 10:42:23 AM

@Publius, the author owns the copyright unless the contract specifically makes it "work made for hire" and assigns the right to the purchaser.

Posted by: Gimlet | Apr 27, 2016 2:07:16 PM

I do not see this as an issue. When Hillary is speaking as an officer of the Foundation, the money is due and payable to the foundation (Just like any service provided by an employee or officer of a corporation is payable to the corporation, not the employee.) The income is not UBTI to the tax-exempt corporation, so no income tax issues. The Foundation may, but does not have to, pay a 1099 or W-2 payment to the officer involved. (If and when Hillary is working independently, then Hillary is treated like any other 1099 contractor, or employee).

Posted by: Stuart Weichsel | Apr 28, 2016 12:21:56 PM