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Sunday, June 7, 2015

NY Times: The Tax Consequences Of Dennis Hastert's Payments To Alleged Child Abuse Victim

HastertNew York Times:  When It’s a Crime to Withdraw Money From Your Bank, by Josh Barro:

Dennis Hastert has not been indicted on a charge of sexual abuse, nor has he been indicted on a charge of paying money he was not legally allowed to pay. The indictment of Mr. Hastert, a former House speaker, released last week, lays out two counts: taking money out of the bank the wrong way, and then lying to the F.B.I. about what he did with the money. ...

Paul Caron, a tax law professor at Pepperdine University, noted that the person who was paid money by Mr. Hastert may have owed income tax on the payments, whether they constituted a settlement, extortion or something else. Yes, even proceeds from extortion are taxable income; there was a Supreme Court case about the matter in 1952.

New York Times:  If Hastert Was Extorted, He Could Deduct Some Losses From His Taxes, by Josh Barro:

When I was researching my article about Dennis Hastert’s indictment on charges that he improperly withdrew large sums of money from a bank, one question I had was whether any tax was owed on the payments Mr. Hastert was said to have made.

For tax purposes, were the payments gifts? Fees? A settlement? Hush money? Any of these options would have tax implications — implications that could provide additional justification for the prosecution, since one of the key motivations of anti-money laundering laws is to prevent people from evading taxation by making large payments in cash.

Tax experts I spoke with agreed that the payments would constitute a settlement or extortion. In either case, the responsibility for reporting the payments would lie not with Mr. Hastert but with the payments’ recipient, identified in the indictment as “Individual A.”

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June 7, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Thursday, May 21, 2015

Brunson & Herzig: The NFL Should Not Be Able To Give Up Its Tax-Exempt Status Without Paying An Exit Tax

NFLForbes:  Penalty For Holding: Why The NFL Should Be Forced To Keep Its Tax Exemption, by Samuel Brunson (Loyola-Chicago) & David Herzig (Valparaiso):

Many people think there are too many tax-exempt entities.  Every time news breaks that there are tax-exemptions for fraternities, golf clubs, and social clubs there seems to be general outrage. So most people welcomed the National Football League’s announcement that it was giving up its tax-exempt status, seeing the announcement as the end of an unnecessary taxpayer subsidy. It turns out, though, that it is not that simple. Either the NFL was not providing a public good and should not have been granted the status in the first place, or if the NFL wants to be for profit, then the benefits of the tax exemption should be recaptured, e.g., with an exit tax.

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May 21, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Monday, May 18, 2015

U2 Hits Back At Criticism Over Tax Havens

Bono 2Sky News, U2 Hit Back At Criticism Over Tax Havens:

In an interview with Sky News, lead singer Bono insisted the band pays a fortune in tax and it was "sensible" to move some of their business to the Netherlands.

"It is just some smart people we have working for us trying to be sensible about the way we are taxed," he said.

"We pay a fortune in tax, a fortune, just so people know, and we're happy to pay a fortune in tax.

"Because you're good at philanthropy and because I am an activist people think you should be stupid in business and I don't run with that."

(Hat Tip: Mike Talbert.) Prior TaxProf Blog coverage:

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May 18, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (3)

Friday, May 1, 2015

Ohio Supreme Court Strikes Down Cleveland’s ‘Jock Tax’

Jock TaxWall Street Journal, Ohio High Court Strikes Down Cleveland’s ‘Jock Tax’:

Ohio’s highest court on Thursday struck down Cleveland’s so-called “jock tax,” ruling that the city was excessively taxing visiting professional athletes using an illegal method to calculate their bills. ...

Mr. Hillenmeyer, a former Chicago Bears linebacker who retired in 2010, played one game a year in Cleveland — over a 20-game season — between 2004 and 2006. Cleveland applied its income tax to 5% (1/20) of his earnings.

The city taxed Mr. Saturday, a former center for the Indianapolis Colts, for a single game in Cleveland in 2008. In his case, he never stepped foot in the city but missed that game due to an injury. He owed money anyway because the city’s regulation applied the tax to any game in Cleveland “in which the athlete was excused from playing because of injury or illness.”

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May 1, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (4)

Former NFL Star Plaxico Burress Shoots Himself In Foot, Drops Tax Payment Ball

BurressFormer NFL star receiver, Plaxico Burress, who famously served time in prison after accidentally shooting himself in the leg in a nightclub in 2008, has been indicted in New Jersey on one count of issuing a bad check or electronic funds transfer and one count of willful failure to pay state tax in the amount of $47,903. The charges carry maximum sentences of five years in prison and a $15,000 fine. 

May 1, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Wednesday, April 29, 2015

Why the NFL Gave Up Its Nonprofit Status: To Escape Scrutiny

NFLVox, Why the NFL Just Gave Up Its Nonprofit Status: To Escape Scrutiny:

For years, the NFL's tax-exempt status has been the subject of scrutiny and ridicule. To many people, the fact that a league headed by a commissioner making $44 million a year was categorized as a nonprofit was absurd.

On Tuesday, Richard Rubin at Bloomberg reports, the NFL has finally decided to shed its tax-exempt status. As a result, it will pay an estimated $10 million or so per year in taxes.

But it's important to put this number in the proper context: the league's teams pull in about $9.5 billion per year, nearly a thousand times as much. And since 2000, US taxpayers have spent an estimated $3.9 billion on stadiums for these teams.

The NFL's decision to give up its tax-exempt status isn't some noble recognition of the tax burden it's unfairly been shirking. It's a calculated move to pay a relatively small fee to avoid scrutiny and preempt possible Congressional action.

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April 29, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (3)

Wednesday, April 22, 2015

Warren Buffett’s Nifty Tax Loophole

BuffettBarron's, Warren Buffett’s Nifty Tax Loophole:

Warren Buffett has backed higher individual tax rates–while ensuring that his vast wealth in Berkshire Hathaway is almost immune.

Warren Buffett is fond of saying his tax rate is lower than his secretary’s. He does not publicize his tax returns, but for the tax year 2010, he paid $6.9 million on taxable income of $39.8 million, according to partial disclosures he made in 2011.

What is astounding about those numbers is not the 17.3% tax rate, but that Buffett’s $39.8 million of taxable income is only about 0.05% of his reported net worth ($71 billion according to Forbes, which put him third on its list of the 400 wealthiest people in the world for 2015).

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April 22, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (4)

Wednesday, April 15, 2015

World Premiere of Loopholes, A Pain In The I.R.S.

Tonight is the world premiere of Loopholes, A Pain In The I.R.S. at the Hudson Mainstage Theatre in Hollywood, Calijfornia

Loopholes

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April 15, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Saturday, April 11, 2015

Obama and Biden Release Their 2014 Tax Returns

2014 Obama Tax Return

President Obama and Vice-President Biden yesterday released their 2014 tax returns. Here are charts putting the 2014 returns in context with their earlier returns:

Obama:

Year

AGI

Tax

Charitable Gifts

Gifts/AGI

2014

$477,383

$93,362

$70,712

14.8%

2013

$481,098

$98,169

$59,251

12.3%

2012

$608,611

$112,214

$150,034

24.7%

2011

$789,674

$162,074

$172,130

21.8%

2010

$1,728,096

$453,770

$245,075

14.2%

2009

$5,505,409

$1,792,414

$329,100

6.0%

2008

$2,656,902

$855,323

$172,050

6.5%

2007

$4,139,965

$1,396,772

$240,370

5.8%

2006

$983,826

$277,481

$60,307

6.1%

2005

$1,655,106

$545,614

$77,315

4.7%

2004

$207,647

$40,426

$2,500

1.2%

2003

$238,327

$51,856

$3,400

1.4%

2002

$259,394

$68,958

$1,050

0.4%

2001

$272,759

$86,072

$1,470

0.5%

2000

$240,505

$63,732

$2,350

1.0%

Biden:

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April 11, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (1)

Tuesday, March 31, 2015

Robin Williams Left Publicity Rights (Restricted For 25 Years) to Charity, Avoiding IRS Dispute Embroiling Michael Jackson's Estate

WilliamsHollywood Reporter, Robin Williams Restricted Exploitation of His Image for 25 Years After Death:

[O]ne of the more innovative aspects of Robin Williams' estate planning ... might just might become a model for other celebrities preparing for their demise. ... According to a review of the Robin Williams Trust — filed as an exhibit last Wednesday — Williams bequeathed rights to his name, signature, photograph and likeness to the Windfall Foundation, a charitable organization set up by Williams' legal reps at the law firm of Manatt, Phelps.

There are two important facets of this provision.

First, the Trust restricts exploitation of Robin Williams' right of publicity for 25 years after his death. ...

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March 31, 2015 in Celebrity Tax Lore, IRS News, Tax | Permalink | Comments (0)

Sunday, February 22, 2015

A Taxing Oscars: $160,000 Swag Bags and Tax Incentives for Best Picture Nominees

IRS, Gift Bag Questions and Answers:

Q: What are the federal income tax consequences to a person who accepts a gift bag in recognition of involvement in an awards show?
A: In general, the person has received taxable income equal to the fair market value of the bag and its contents and must report that amount on his or her federal income tax return. ...

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February 22, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Saturday, February 7, 2015

Malcolm Butler, Not Tom Brady, to Pay Income Tax on Super Bowl MVP Truck

BradyFollowing up on Thursday's post, The Tax Consequences of Tom Brady's Gift of His Super Bowl MVP Truck to Malcolm Butler:  ESPN, Malcolm Butler to Pay Taxes on Prize:

The truck that Chevrolet presented to New England Patriots quarterback Tom Brady as Super Bowl MVP will be given directly by the company to teammate Malcolm Butler instead.

Chevy spokesman Michael Albano said the truck, a loaded Colorado, will be given to the cornerback, who intercepted Russell Wilson's pass on the goal line to seal the Patriots' win in Super Bowl XLIX last Sunday. The event will take place in the Boston area Tuesday, Albano said.

If Brady received the truck himself and gave it to Butler, he would have to count its value -- which Albano said was worth roughly $35,000 -- as income and he would be taxed on it, said Robert Raiola, a CPA who specializes in sports tax management with O'Connor Davies in New Jersey. Brady also might have had to pay a gift tax. U.S. residents can give $5,430,000 worth of gifts in their lifetime before having to pay tax on what they give. It is not known how close Brady might be to that limit.

Now instead of Brady paying income taxes, Butler will have to, according to Raiola. The approximately $35,000 value will now count as income to Butler, and he will pay taxes on that.

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February 7, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Friday, February 6, 2015

Brian Williams, Helicopters, and Tax

Brian WIlliamsFor those following the revelation that NBC News anchor Brian Williams has been wrongly claiming for over a decade that a helicopter he was riding in was struck by enemy fire in Iraq:  The New Yorker, The Fact-Checked Adventures of Brian Williams, by Andy Borowitz:

The fact-checking department at NBC News has verified that the following anecdotes told by Brian Williams actually happened. ...

4. In May of 2011, the elevator in my building suffered an equipment malfunction en route to my penthouse. I was stuck talking to a tax attorney for seven minutes before I was rescued.

(Hat Tip: Erik Jensen.)

February 6, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Thursday, February 5, 2015

The Tax Consequences of Tom Brady's Gift of His Super Bowl MVP Truck to Malcolm Butler

BradyForbes, IRS Is Coming After Tom Brady's Super Bowl MVP Truck, by Ryan Ellis:

The world champion New England Patriots will celebrate with the city of Boston today in the now customary duck boat parade downtown.  It would be fitting if an IRS agent was waiting for quarterback Tom Brady at the end of the route.

Specifically, he might want to talk about Brady’s new truck.  You know, the 2015 Chevy Colorado he won as Super Bowl MVP. The same truck Brady wants to hand over to Patriots rookie cornerback Malcolm Butler, who won the Super Bowl on a last second interception.

The truck is considered a taxable prize under the Internal Revenue Code, section 74.  It’s taxed at Tom Brady’s marginal income tax rate of 39.6 percent. ... Tom Brady will pay ($34,000 x 39.6 percent) in taxes, or $13,500 in income tax on this prize. ...

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February 5, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (6)

Sunday, February 1, 2015

The Super Bowl and Tax

Super BowlForbes, Super Bowl XLIX Tax Tale Of The Tape: Who Ya' Got?, by Tony Nitti:

Do me a favor. Put down the Form 1040 you’re working on, take a good look in the mirror, and be brutally honest with yourself: are you a typical tax accountant?

Do you find yourself noticing the time of day, or the exit number on the highway, and thinking, “that’s a great Code section!”

Is your sense of humor limited to giggling uncontrollably at tax-themed double entendres like “hot assets” and “dynamic scoring?”

Did you name your sibling labradors Bitker and Eustice?

If so, that’s OK. You are what you are. ... [F]or 4-6 hours this weekend, you’re going to have to pretend that you’re not the introverted, odd person you clearly are. And that isn’t going to be easy.

But I can help.

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February 1, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Thursday, January 22, 2015

D.C. Tax Law Gave Washington Nationals Unique Advantage in Inking Max Scherzer to $210 Million Deal

MaxWashington Post, Can Max Scherzer’s Contract be a Model for Other Superstars Thinking of Washington?:

Washington may have at least one advantage over other pro sports cities when it comes to wooing high-priced free agent talent: the District’s tax laws.

Scott Boras, the agent for pitcher Max Scherzer and several other Nationals stars who has negotiated some of the biggest contracts in sports, said local tax laws allowed Scherzer and the Nationals to hammer out a creative contract that could provide a blueprint of sorts for other area teams courting big-name talent. That includes the kind of deals that likely would be required for the Wizards to lure, say, Kevin Durant back to his home town or for the Nationals to keep slugger Bryce Harper. ...

Boras said Scherzer’s $210 million contract is not only historic in terms of its size but noteworthy in structure. The deal takes advantage of District tax laws to save Scherzer money — possibly in the seven or eight figures — and keeps the team’s annual salary payments down. It would not have worked in New York, Los Angeles or most other baseball cities, he said. ...

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January 22, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (1)

Monday, January 19, 2015

Martin Luther King, Jr. and the IRS

In honor of Martin Luther King, Jr. Day:  Tallahassee Democrat, Dr. Martin Luther King Jr. and the IRS:

This past year, much ado was made about the so-called “IRS-Gate” and concerns that the Obama administration may have used the agency to target Tea Party and other right wing groups. ... [W]hat often is not stated during the Martin Luther King Holiday weekend is that King, early in his leadership of the Southern Christian Leadership Conference (SCLC), was routinely subjected to IRS audits of his individual accounts, SCLC accounts as well as accounts of his lawyers, first starting during the administration of President Dwight Eisenhower and continuing through the Kennedy administration. ...

[B]y 1962, King had settled with the IRS for a mere $500 dollars for a deduction that he could not explain to auditors. Two years earlier, in February of 1960, a Montgomery, Alabama Grand Jury made King the first person ever charged in that state with criminal tax fraud charges, alleging that in 1956 and 1958, that King through the Montgomery Improvement Association, the organization that had led the successful bus boycotts in that city and was the precursor to the SCLC, had failed to pay the state approximately $45,000 that it was owed in taxes. ...

Looking back, that King was even indicted proved and proves that when necessary, there were and remain many other Americans who were and are more than willing to use the IRS and other tax authorities to harrass individuals and organizations with which they disagree.

(Click on YouTube button on bottom right to view video directly on YouTube to avoid interruption caused by blog's refresh rate.)

January 19, 2015 in Celebrity Tax Lore, IRS News, Tax | Permalink | Comments (0)

Monday, January 12, 2015

More Proof That Tax Lawyers Are Cooler Than Rock Stars

(Hat Tip: Ahmed Taha.)

January 12, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (3)

Friday, November 28, 2014

Lewis Black Hammers Black Friday 'Tax' as 'Most Anti-American Thing I've Ever Heard'

News Busters, Lewis Black Hammers Black Friday 'Tax' as 'Most Anti-American Thing I've Ever Heard':

Black FridayDuring Wednesday evening's edition of The Daily Show on the Comedy Central cable network, comedian Lewis Black devoted his “Back in Black” segment to slamming the tradition of Black Friday, the day after Thanksgiving and a time when stores open early and shoppers arrive before the sun comes up to buy items at huge discounts.

Black claimed that even worse than the rush to get tremendous bargains is the practice of “taxing” stores in malls that stay closed so their employees can spend the time with their families. “That’s the most anti-American thing I’ve ever heard!” Black exclaimed. “It’s like Sharia law for capitalism!”

“Next week is my favorite day of the year,” Black stated, but he wasn't talking about Thanksgiving. Instead, it's Black Friday because if you “trample a guy on a Tuesday afternoon, you get charged with assault. But do it in a Walmart on Black Friday, you get a PS4. But this year,” he noted, “something about Black Friday is twisting everyone's panties.” ...

The most disturbing clip came from Steve Doocy on the Fox & Friends morning program, who quoted an email from a viewer as stating: “You have got to be kidding me. … Just go to work. You can celebrate by eating a turkey sandwich while on break. [I] did it for years and was well compensated.”

“Sure, Thanksgiving is just as good eating a cold sandwich alone in the back of a Kmart,” Black snarled. “You don't even need cranberry sauce. You can season it with your tears.”

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November 28, 2014 in Books, Celebrity Tax Lore, Tax | Permalink | Comments (1)

Thursday, November 27, 2014

Taxing Two Thanksgiving Day Gentlemen

TwoForbes:  Taxing Two Thanksgiving Day Gentlemen, by Robert W. Wood:

A central theme of the Bible is that it is better to give than to receive, even when you give up a great deal. Two Thanksgiving Day Gentlemen, a short story masterpiece by O. Henry, gives this theme a twist. A vagabond—today we would call him homeless—is feted each Thanksgiving Day to a grand dinner in a posh New York eatery by a successful businessman. But on this Thanksgiving Day, each man hides his true circumstances.

The businessman is down on his luck so starves for two days in order not to disappoint the vagabond. Ironically, the vagabond is flush, his stomach bursting from two other holiday meals from other well-wishers. Forcing down each bite, he plays along knowing how important this ritual is to his kindly rich benefactor. Only O. Henry could make us feel what each feels as we smile ruefully at the comedy playing out.

In this crowdfunding era, individual acts of kindness still count, even if they don’t produce a tax break. That’s right, the charity the two Thanksgiving gentlemen exchange isn’t tax deductible, since you can’t give directly and get a deduction.

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November 27, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Sunday, November 23, 2014

Tax-Free Buyouts of Coaches' Contracts

Following up on my previous post, The Tax Treatment of Buyouts of Coaches' Contracts:  USA Today, Schools Buying Coaches' Contracts Instead of Buying Out:

StrongIt long has been a practice for universities that want to hire a new coach to pay the "buyout" to get him out of his contract at his old school.

The question has been, who pays the taxes?

To at least a few schools, the answer is nobody. The universities of Texas, Louisville and Alabama at Birmingham have found a way to structure deals to avoid tax implications – simply pay the coach's current school for the rights to his contract, and renegotiate it.

Using that approach, the schools say, the coach does not owe a buyout for terminating his contract because he technically doesn't terminate the contract. It transfers to his new school, which reaches a new deal with the coach, just as schools routinely renegotiate such contracts.

Thus, while Louisville received $4.375 million when coach Charlie Strong left for Texas, the money did not come from Strong. Instead, with Strong's blessing, Louisville sold his contract to Texas. Texas assumed all of that deal's rights and obligations, and agreed to pay Louisville $4.375 million, the same amount as Strong's buyout. ...

It's an approach intended to avoid taxes for coaches and the schools. Under federal tax law, it is undisputed that a payment made by an employer to meet an employee's personal obligation must be treated as taxable income to the employee. But to the schools, a buyout payment is viewed as a business expense. ...

How the IRS or a tax court would view these deals is is an open question, said Jeffrey H. Kahn, a professor at Florida State's law school. Kahn and his father, Douglas A. Kahn, a professor at the University of Michigan law school, wrote a 2007 law review article about buyouts [Tax Consequences When a New Employer Bears the Cost of the Employee's Terminating a Prior Employment Relationship, 8 Fla. Tax Rev. 539 (2007)].

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November 23, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Wednesday, November 19, 2014

NY Times: Al Sharpton's Influence Grows, As Do His Unpaid Taxes

SharptonNew York Times, Questions About Sharpton’s Finances Accompany His Rise in Influence:

Mr. Sharpton’s influence and visibility have reached new heights this year, fueled by his close relationships with the mayor and the president. Obscured in his ascent, however, has been his troubling financial past, which continues to shadow his present. 

Mr. Sharpton has regularly sidestepped the sorts of obligations most people see as inevitable, like taxes, rent and other bills. Records reviewed by The New York Times show more than $4.5 million in current state and federal tax liens against him and his for-profit businesses. And though he said in recent interviews that he was paying both down, his balance with the state, at least, has actually grown in recent years. His National Action Network appears to have been sustained for years by not paying federal payroll taxes on its employees.

With the tax liability outstanding, Mr. Sharpton traveled first class and collected a sizable salary, the kind of practice by nonprofit groups that the United States Treasury’s inspector general for tax administration recently characterized as “abusive,” or “potentially criminal” if the failure to turn over or collect taxes is willful.

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November 19, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (3)

The Tax Consequences of the Lincoln Center's Naming Rights

NYCForbes:  What's In A Name? Should Naming Rights Reduce Charitable Deductions?, by Peter J. Reilly:

When Avery Fisher gave Lincoln Center $10.5 million in 1973 to renovate Philharmonic Hall it was agreed that the hall be called Fisher Hall in perpetuity. Perpetuity turns out to be measured in decades rather than centuries or millennia. Lincoln Center wants to renovate or raze and rebuild now and is hoping to auction off naming rights. According to this story in the New York Times, objections by the Fisher family have been assuaged by “essentially paying ” them $15 million. I’d really like to dig into what is meant by “ essentially paying”, but dammit Jim, I’m just a tax blogger, not an investigative reporter. I’m going to take “essentially paying” to mean paying and what was paid for was some amorphous right that the Fisher family had to keep its name plastered on a building.

The story raises the question of whether you should be able to take a full charitable deduction for a donation if, as a legally binding condition of the donation, you get to have a landmark building named after you. It is worth noting that the Fisher family actually ended up making a profit, although rather a modest one on the whole deal. I computed the pre-tax return to the family as being roughly 0.85%, which is really anemic, unless you compare it to what is being paid on contemporary deposit balances. If you assume that Mr. Fisher took a charitable deduction with a 70% benefit in 1973 and the family paid capital gain tax on the Lincoln Center payoff, the after tax return comes to 3.88%, which is not great, but still better than getting poked in the eye with a sharp stick.

I’m not sure where I might have went with this, so I have to say – Thank God for law professors – and not just because the Tax Prof gives me plug now and again. Professor William Drennan of Southern Illinois University has written an article titled Where Generosity And Pride Abide: Charitable Naming Rights [80 U. Cin. L. Rev. 45 (2011)].

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November 19, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Friday, November 14, 2014

Buffett to Buy Duracell from P&G in Cash-Rich Split-Off, Save $1 Billion in Taxes

Bloomberg, Buffett Set to Save More Than $1 Billion on Taxes in Swap:

DuracellWarren Buffett is again showing how to use the U.S. tax code to his advantage. For the third time in a year, the billionaire chairman of Berkshire Hathaway has structured a deal in which he buys businesses in exchange for stock that has appreciated. The transactions, called cash-rich split-offs, allow him to avoid capital gains taxes that would be incurred if he sold the shares in the open market.

Berkshire announced today that it would turn over about $4.7 billion in Procter & Gamble stock in exchange for P&G’s Duracell battery business, which will be infused with about $1.7 billion in cash. Since Buffett’s cost basis on the shares was about $336 million, and corporate capital gains are typically taxed at 35 percent, structuring the deal in this way could save Berkshire more than $1 billion. P&G also stands to reduce its tax liability on the sale. ...

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November 14, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Tuesday, November 4, 2014

Aggressive Planning Saves John Malone Billions in Taxes

Bloomberg:  Malone Gained Double Tax Break in Liberty Address Shift,  by Jesse Drucker:

MaloneShifting the address of his Liberty Global Inc. from Colorado to London last year didn’t just put billionaire John C. Malone in a position to reduce his company’s tax bill.

He also took precautions to avoid the capital-gains hit that the so-called inversion would trigger for him and other investors. The day before the deal was announced, Malone -- the company’s chairman and controlling shareholder -- transferred $600 million of his shares into a tax-exempt charitable trust. He avoided paying taxes on his remaining stake, worth about $260 million, by exploiting IRS regulations meant to block a different loophole.

All told, Malone escaped about $200 million in personal taxes, and Liberty Global’s U.S. shareholders together likely saved more than a billion dollars, according to data compiled by Bloomberg.

“He’s congenitally averse to paying taxes,” said Robert Willens, an independent tax accounting analyst in New York City.  

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November 4, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Saturday, October 18, 2014

How to Audit the President

Bloomberg, How to Audit the President, by Richard Rubin:

Obama 2013

The presidency is laden with perks: the jet, the mansion, the personal chef. 

But there's some nastiness, too, awaiting the winner of the 2016 election, namely: mandatory audits from the Internal Revenue Service. The tax returns of the commander-in-chief and the vice president get automatic annual scrutiny from the IRS. Compare that to the 1 in 49 audit rate for everyone else in the $200,000 to $500,000 income bracket. 

What got us poking around on this question was a set of documents released from Bill Clinton's presidential library last week, showing White House lawyers preparing for his second consecutive audit amid questions about the Whitewater real estate deal in Arkansas. The audit requirement is so obscure that one former, very senior IRS official didn't even recall it when we started asking questions.

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October 18, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (1)

Monday, October 6, 2014

Tax Court: Tenured Art Professor Has Separate Trade or Business as Artist

Crile v. Commissioner, T.C. Memo. 2014-202 (Oct. 2, 2014):

CrilePetitioner is an artist and a tenured professor of studio art. ... This opinion addresses the first of respondent’s theories and concludes that petitioner during the years in issue was engaged in a “trade or business” with the objective of making a profit from her activity as an artist. Respondent’s contentions concerning the substantiation of her expenses, the character of those expenses as “ordinary and necessary,” and her liability for penalties and additions to tax will be resolved in due course.

Petitioner has had a long, varied, and distinguished career as an artist. She has worked for more than 40 years in media that include oil, acrylic, charcoal, pastels, printmaking, lithograph, woodcut, and silkscreen. She has exhibited and sold her art through leading galleries; she has received numerous professional accolades, residencies, and fellowships; and she is a full-time tenured professor of studio art at Hunter College in New York City. Respondent agrees that petitioner has been a successful, though rarely a profitable, artist.

During the academic year petitioner devotes roughly 30 hours per week to her art, working mainly at a small studio in her Manhattan apartment. During the summer, she works full time on her art business at a larger studio in upstate New York. The amount of time it takes petitioner to create a finished work of art varies greatly--from one week to two years--depending on its size and complexity. During her career petitioner has created more than 2,000 pieces of art.

Petitioner’s artwork hangs in the permanent collections of at least 25 museums. These include the Metropolitan Museum of Art, the Guggenheim Museum, the Brooklyn Museum of Art, the Phillips Collection, the Hirshhorn Museum, and art museums at eight colleges and universities. Museums have a rigorous vetting process for acquiring art. Museum acquisitions boost an artist’s reputation in the eyes of collectors and may contribute to price increases for the artist’s other works.

Petitioner’s artwork has been acquired by for-profit as well as nonprofit entities. Corporations that have purchased petitioner’s art (several of which have since merged) include AT&T, Exxon, Texaco, Standard Oil of Ohio, Bank of America, Chase Manhattan Bank, Chemical Bank, Charles Schwab, General Mills, Westinghouse, General Telephone & Electronics, Frito-Lay, Cigna, and Prudential. Her works hang in the collections of six major New York law firms. Governmental entities that have acquired her art include the Federal Reserve Board, the Library of Congress, and the State Department (for display in U.S. embassies abroad). Such acquisitions, like museum acquisitions, place a “seal of approval” on an artist’s works and have the potential to make them more attractive to private collectors. ...

Petitioner has generated substantial income from sales of her artwork. Respondent stipulated that the total value of works sold during her career is at least $937,150. Galleries usually took a 50% commission. ...

All in all, the Court finds that petitioner sold, directly or through galleries, a total of 356 works of art during 1971-2013. These sales generated gross proceeds of approximately $1,197,150. After subtracting gallery commissions and other reductions, petitioner earned income of approximately $667,902 from sales of her art during these years. ...

To be promoted and gain tenure, a studio artist must exhibit art; the sale of art is not required. There is an expectation that a professor, once tenured, will continue to make and exhibit art. However, a tenured professor is no longer subject to annual performance evaluations, and the expectation to exhibit art is not rigorously enforced. Petitioner plans to continue her art business following her retirement from Hunter College. ...

Petitioner filed Federal income tax returns for all years in issue. On those returns she reported wage income between $85,999 and $106,058, and she reported other taxable income (interest, dividends, capital gains, pensions, and Social Security payments) between $17,658 and $67,046. On her Schedules C, she reported income and claimed the following expenses as deductions in connection with her activity as an artist during the years at issue:

Chart

Petitioner's theory for claiming deductions seems to have been that most experiences an artist has may contribute to her art and that most people with whom an artist socializes may become customers or otherwise advance her career. The trial established that a significant number of the deductions she claimed were not, within the meaning of section 162(a), "ordinary and necessary expenses" of conducting her art business but were "personal, living, or family expenses" non-deductible under section 262(a). The latter expenses appear to have included telephone and cable television bills, newspaper and magazine subscriptions, gratuities to doormen in her apartment building, taxicabs to the opera, museums, and social events, restaurant meals with friends and acquaintances, and international travel to gain inspiration from paintings in European museums. We have deferred to another day the calibration of petitioner's deductible business expenses. But it was clear to the Court that the economic losses she actually sustained in her art business were substantially smaller than the tax losses reported on her Schedules C, owing to the inclusion of many personal expenses when calculating her business income. ...

For any practitioner who teaches--whether a lawyer, an accountant, an economist, or an artist--there is an obvious intersection between the individual’s profession and his or her teaching. But the two activities have different job requirements and entail different skills.

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October 6, 2014 in Celebrity Tax Lore, New Cases, Tax | Permalink | Comments (5)

Wednesday, September 24, 2014

Michael 'The Situation' Sorrentino Has a Tax Situation

U.S. Department of Justice Press Release, Michael "The Situation" and Marc Sorrentino indicted for Tax Crimes Involving $8.9 Million Income:

The SituationTelevision personality Michael “The Situation” Sorrentino and his brother Marc Sorrentino are expected to appear in federal court this afternoon to face an indictment alleging they did not properly pay taxes on $8.9 million in income Michael Sorrentino received from promotional activities, U.S. Attorney Paul J. Fishman announced.

Michael Sorrentino and his brother Marc Sorrentino are charged with one count of conspiracy to defraud the United States. Marc and Michael Sorrentino also are charged with three and two counts, respectively, of filing false tax returns for 2010 through 2012. Michael Sorrentino faces an additional count for allegedly failing to file a tax return for 2011.

According to the indictment returned today:

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September 24, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (1)

Friday, September 19, 2014

Tax-Free $10-$20 Million Disability Policy May Keep Anthony Kim Off PGA Tour

Sports Illustrated, Anthony Kim, MIA Since 2012, Wrestles With Whether To Tee It Up Again or Reap an Eight-Figure Disability Settlement:

KimAnthony Kim has become golf's yeti, an elusive figure who is the source of endless conjecture. What we know for sure is that Kim, 29, has not teed it up at a PGA Tour event in more than 28 months. Once considered the future of U.S. golf, he is now estranged from the game that brought him fame and fortune. ... In some circles, Kim has become golf's Voldemort -- a name that dare not be spoken. ...

Kim's mysterious disappearance has left a void on Tour, to which he brought a much-needed swagger. His first year in the big leagues was 2007, and as a 23-year-old Ryder Cup rookie at Valhalla in '08 he was given the freighted task of leading off in the Sunday singles. "I felt like he was our team leader," says U.S. captain Paul Azinger. "He was an emotional juggernaut. His enthusiasm was infectious. He wanted to go out there and take somebody down. And he did." Kim's 5-and-4 thrashing of Sergio García remains the signature moment of his career, and it helped propel the U.S. to its only Ryder Cup victory since 1999. ...

Kim's hyperaggressive play carried him to two big-time victories on Tour in 2008 -- at Congressional and Quail Hollow -- as he finished sixth on the money list with $4.7 million. At the '09 Masters he made a record 11 birdies during a second-round 65, and the next year he nearly stole the green jacket, going birdie, birdie, birdie, eagle, birdie on the back nine on Sunday before he ran out of holes and settled for third place, four shots behind Mickelson. But even then Kim was battling an injury to his left thumb, which was operated on a month after Augusta. He struggled to regain his form in '11, cracking only two top 10s while struggling with tendinitis in his left wrist, which he said was the result of compensating to protect his thumb. The injuries kept coming. In May 2012 he ruptured his left Achilles tendon while running on a beach in San Diego. Kim had surgery the following month, and his self-imposed exile began.

No IMG staffer would comment for this story, but the party line is that Kim is still injured and expected to return to the Tour someday. ...

So what is? The answer very well may lie in an insurance policy Kim has against a career-ending injury. An IMG source pegged its value at $10 million, tax-free. Kim's friend, who has had financial discussions with him, says, "It's significantly north of that. Not quite 20, but close. That is weighing on him, very much so. He's trying to weigh the risk of coming back. The way he's phrased it to me is, 'If I take one swing on Tour, the policy is voided.'"

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September 19, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Scott Brown and Debbie Wasserman Schultz: The Deductibility of Politicians' Grooming and Clothing Expenses

BrownThe American Democracy Legal Fund has sent this letter requesting the IRS to investigate certain deductions claimed by New Hampshire Republican Senatorial Candidate Scott on his 2010 and 2011 tax returns, including $3,550 for "TV makeup and grooming.

Forbes, When It Comes to Grooming, Scott Brown Is No Debbie Wasserman Schultz:

It’s true that purely personal expenses are never tax deductible (women’s makeup, men’s suits, etc.)  But that’s not what Brown was deducting. He deducted special television makeup products, the pancake powder they put on your face before you yell into a camera for five minutes. That has no non-television application outside in the real world, unlike the cosmetic products and clothes that Ms. Hamper unsuccessfully tried to claim. Brown’s expenses would very likely hold up under examination as an ordinary and necessary business expense related directly to the production of his income.

DebbieThis is a little embarrassing for Democrats timing-wise. On the same day they raised this calumny against Brown, Politico ran a long piece showing how Democrats, too, cringe every time they see or hear Democratic National Committee (DNC) Chairperson Debbie Wasserman-Schultz.  President Obama reportedly dislikes her intently, and if you’ve ever seen her nastiness on television it’s not hard to see why.

Apparently, Ms. Wasserman Schultz tried, and tried, and tried to get the DNC to pay for her clothing, tax-free.  She tried during the convention, she tried during the inaugural, and she tried every time she had the chance.  I have no doubt she has succeeded in getting the DNC to pay for other personal expenses if she was this aggressive with clothes–a clear violation of both election law and tax law.  Personal expenses paid by your employer are wages and should be added to your W-2.

Read the hilarity below:

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September 19, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Thursday, August 21, 2014

The Deductibility of $100 Charitable Contributions to ALS in the Ice Bucket Challenge

Forbes:  Could The IRS Disallow Ice Bucket Challenge Charitable Contributions?, by Tony Nitti:

IceSo let’s say you were challenged via social media to either take the Ice Bucket Challenge or contribute to ALS. Assume further that you are unable or unwilling to get cold and wet, and choose instead to donate to ALS. Do you possess the necessary donative intent if you otherwise wouldn’t have contributed to the cause, and are doing it merely to avoid being publicly chastised by your Facebook friends? Did you make the donation with the anticipation of receiving the benefit of, you know…not having to dump a freezing bucket of water on your head?

OK, rest easy; the IRS isn’t coming after your ALS donation. While the principle of donative intent is very real, in recent years, the courts have tied this principle to a “quid pro quo test,” which states that in order for a donation to lack donative intent, the donor must anticipate receiving a financial benefit from the contribution commensurate with the value the donor transferred to the charity. Because an ice bucket dodger has received no financial benefit, but rather merely a physical one, the contribution is (should be) immune to attack. Plus, I think I’ve read somewhere that the IRS is dealing with a bit of a public perception problem these days, so attacking contributions to a horrible disease is probably not in its best interest.

August 21, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Saturday, August 9, 2014

Robert Redford Sues New York Over $1.6 Million Tax Bill; Can State Tax Nonresident on Sale of Interest in Nonresident LLC?

Sunday, July 13, 2014

The Tax Consequences of the Potato Salad Guy's Kickstarter Campaign

Kickstarter LogoTax Foundation: $21,000 Tax Bill Just for Some Potato Salad:

As of 2:30pm on July 9, 2014, Zack Danger Brown has amassed over $70,000 in pledges from donors using Kickstarter—a website that matches donors to projects—to make potato salad.

KS

Nearly 5,000 backers from across the world have chosen Brown’s potato salad project, and tens of thousands of dollars will be dished to Brown on August 2. But once these funds are given to Brown, they will constitute income that might mean a sizeable tax bill for Brown. Kickstarter explains how pledges are taxed:

In the U.S., funds raised on Kickstarter are considered income… A creator can offset the income from their Kickstarter project with deductible expenses that are related to the project and accounted for in the same tax year. For example, if a creator receives $1,000 in funding and spends $1,000 on their project in the same tax year, then their expenses could fully offset their Kickstarter funding for federal income tax purposes.

Kickstarter also notes creators “may be able to classify certain funds” as nontaxable gifts instead of income, so long as the funds were pledged with “detached and disinterested generosity,” but one look at Brown’s Kickstarter page shows that these funds probably won’t qualify.

Brown offers donor specific handouts, such as a recipe book with potato salad recipes from every donor country for pledges of $50 (so far 83 backers), potato salad themed hats for pledges of $25 (234 backers), and even a potato salad themed haiku for pledges of $20 (4 backers).

So, given that Brown’s funds will likely be considered income instead of non-taxable gifts, how much will he have to pay in federal, state, and local income taxes? ... In total, Brown’s federal, state, and local tax burden on his income of $65,912 is $21,167.49 for an effective tax rate of 32.11 percent, leaving him with take home pay of $44,744.51 less taxes and expenses.

Update (7/11/2014): Kickstarter has updated the funding totals (currently around $48,000 at 2:25pm). According to The Business Journals, the boost in total funds resulted from some fake pledges which have now been removed. Stay tuned, and we will update the final numbers once the remaining 21 days have expired.

Other commentators have pushed back on the Tax Foundation's analysis, arguing that the payments would constitute non-traxable gifts.

(Hat Tip: Eli Bortman, Allison Christians, Leandra Lederman.)

July 13, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Thursday, July 10, 2014

How The $1 Billion Kennedy Family Fortune Defies Death And Taxes

Forbes:  How The $1 Billion Kennedy Family Fortune Defies Death And Taxes, by Carl O'Donnell:

KennedyIf America had an aristocracy, the most titled bloodline would certainly be the Kennedys. In the past half century, one Kennedy after another has occupied nearly every political position America has to offer, including the roles of congressman, senator, ambassador, mayor, SEC chairman, state representative, city councilman, and, of course, President.

The sustaining force behind the Kennedys reign is hardly a secret. Thanks to Joseph P. Kennedy, who made a fortune from insider trading only to later chair the SEC, the family is fabulously rich. But exactly how much is America’s first family worth? Forbes pegs the extended family’s fortune at $1 billion.

Protected by a labyrinth of trusts, as well as tax strategies that would make Joseph P. Kennedy proud, the Kennedy fortune now spans approximately 30 family members, and includes the surnames Shriver, Lawford and the Smith. At nearly $175 million as of 2013, Caroline Kennedy is the richest descendant by far, but more modestly endowed relatives, such as Robert Shriver, who is running for Los Angeles County Supervisor, still possess assets in the tens of millions, according to public financial disclosures required of government officials. ...

Like politics, tax savvy seems to run in the Kennedy family. The most recent example is the 1998 sale of the family’s most valuable asset: the iconic Merchandise Mart, a towering retail space on the Chicago River that was once thought to be the largest building in the world. Thanks to a carefully crafted deal with Vornado Realty, the Kennedy family deferred – or possibly avoided completely – capital gains tax on nearly half the value of the sale.

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July 10, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (3)

Wednesday, July 9, 2014

Seinfeld's 10 Enduring Tax Lessons

SeinfeldForbes:  Seinfeld's 10 Enduring Lessons---About The IRS, by Robert W. Wood:

On Seinfeld’s 25th anniversary–it debuted July 5th, 1989–it is being discussed again around today’s version of the water cooler. Yes, Seinfeld at 25: There’s Still Nothing Else Like It. Turns out even a show about nothing can teach us something, including tax lessons like these...

I realize that Seinfeld is not mostly about taxes. But actually, taxes come up a lot in daily life, and yada, yada, yada.

July 9, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Thursday, June 26, 2014

The Impact of Taxes on Carmelo Anthony's Free Agency Decision

Sports Illustrated:  How Much Carmelo Can Make as an NBA Free Agent, by Michael McCann (New Hampshire):

AnthonyAnthony's financial decision-making is also affected by income tax rates, which vary widely by state and, as New York City residents know, municipality. SI.com and tax expert Robert Raiola have crunched the numbers for Anthony (whose projected contract amounts are provided by Spotrac.com). We break down how much he would likely earn, after taxes and the standard 4 percent agent commission, if he signed max deals with the Knicks, Bulls, Heat and Rockets.

Carmelo

Forbes:   How State Taxes Could Play A Role In Carmelo Anthony's Landing Spot, by Tony Nitti

(Hat Tip:  Bill Turnier.)

June 26, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Tuesday, June 17, 2014

Wealthy Clintons Use Residence Trusts to Limit Estate Tax They Back

Bloomberg:  Wealthy Clintons Use Trusts to Limit Estate Tax They Back, by Richard Rubin:

TrustBill and Hillary Clinton have long supported an estate tax to prevent the U.S. from being dominated by inherited wealth. That doesn’t mean they want to pay it.

To reduce the tax pinch, the Clintons are using financial planning strategies befitting the top 1 percent of U.S. households in wealth. These moves, common among multimillionaires, will help shield some of their estate from the tax that now tops out at 40 percent of assets upon death.

The Clintons created residence trusts in 2010 and shifted ownership of their New York house into them in 2011, according to federal financial disclosures and local property records.

Among the tax advantages of such trusts is that any appreciation in the house’s value can happen outside their taxable estate. The move could save the Clintons hundreds of thousands of dollars in estate taxes, said David Scott Sloan, a partner at Holland & Knight LLP in Boston. “The goal is really be thoughtful and try to build up the nontaxable estate, and that’s really what this is,” Sloan said. “You’re creating things that are going to be on the nontaxable side of the balance sheet when they die.” ...

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June 17, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Thursday, June 12, 2014

Tax Implications of $1,500 Waffle House Tip

(Hat Tip: Darryll Jones, Leandra Lederman)

June 12, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Wednesday, June 11, 2014

Dave Chappelle Makes the Case for High Marginal Tax Rates

New York Times:  Dave Chappelle Makes the Case for High Marginal Tax Rates, by Neil Irwin:

Dave Chappelle, the comedian who walked away from a wildly successful TV show named for him a decade ago, made his first talk show appearance in ages Tuesday night. He probably wasn’t intending to make an argument about maximizing the efficiency of the tax system in his appearance on the “Late Show With David Letterman,” but that’s what he ended up doing.

Mr. Chappelle discussed the reported $50 million contract he walked away from when he abruptly ended “The Chappelle Show.” Does the loss of all that money haunt him?

“So I look at it like this,” Mr. Chappelle said. “I’m at a restaurant with my wife. It’s a nice restaurant. We’re eating dinner. I look across the room and I say: ‘You see this guy, over here across the room? He has $100 million. And we’re eating the same entree. So, O.K., fine, I don’t have the $50 million or whatever it was, but say I have $10 million in the bank.’ The difference in lifestyle is minuscule.”

His point is about the diminishing marginal utility of rising wealth. If you are flat broke and somebody gives you $1 million, that money significantly increases your quality of life. Going from $1 million to $10 million makes you better off, though probably not 10 times better off. And similarly, going from $10 million to $50 million in net worth creates far less improvement in your quality of life than those early steps of going from broke to $1 million or $1 million to $10 million. ...

That’s a reason advocates of higher marginal income tax rates on the highest earners would argue there is little loss of human welfare by enacting very high rates on the highest income brackets. The difference in quality of life between “very wealthy” and “extraordinary wealthy” is not that great, which should make it a relatively painless way to raise tax revenue.

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June 11, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Tuesday, June 3, 2014

Pete Rose: A Tax Dilemma

RoseKostya Kennedy, Pete Rose: An American Dilemma 123 n.5 (2014):

Rose liked giving things to coaches, including, in 1978, Jeeps to nine Reds coaches and trainers, a gift with a value of more than $50,000 that he wrote off on his tax return, saying they were for “services rendered.” When the deduction was denied, Rose sued the IRS, claiming that the coaches were necessary to his success. He testified in court that given his approach to the game, he in particular required coaches and trainers to work long and off hours (early morning treatments, off-day batting practice etc.) He won the case mainly because the jury, as Rose’s lawyer Robert Pitcairn put it, regarded Rose as a “unique athlete.” Rose was delighted that the deduction was restored and made a point of saying publicly that he felt coaches and trainers were too often undervalued and underpaid.

(Hat Tip: Erik Jensen.)

June 3, 2014 in Book Club, Celebrity Tax Lore, Tax | Permalink | Comments (1)

Thursday, May 15, 2014

What Is the Value of an NYU Tax LLM? $1 Billion?

Sports Illustrated, Best Sports Deal Ever? How the Silnas Outsmarted the NBA:

SpiritsThere was no official death notice. The documents are sealed, there will be no autopsy. This will have to pass as the obituary. But after lingering on its deathbed, the great golden goose of the sports world was finally killed off last month. The cause of death: a complex and confidential settlement agreement. The chief survivors, brothers Ozzie and Daniel Silna, surely mourn, but they must take solace knowing that their $1 million investment in a sports team that went out of business nearly 40 years ago turned into more than $1 billion.

In 1974 the Silnas, East Coast garment magnates, bought an ABA franchise and moved it to St. Louis. The Spirits were a lovably dysfunctional collective that lasted only two seasons. ...

At the end of the 1975-76 campaign, ... [t] here were only seven teams left, and in the off-season four joined the NBA -- the Denver Nuggets, Indiana Pacers, New York Nets and San Antonio Spurs. The Virginia Squires simply folded. The owner of the Kentucky Colonels, John Y. Brown, accepted a $3.3 million payout to close up shop. (By decade's end Brown had become the Bluegrass State's governor.)

That left the Spirits. The franchise was unwanted by the NBA, but the aggrieved Silnas were unwilling to take a lump-sum payment to go away. With the help of their lawyer, Donald Schupak [Tax LL.M. 1970, NYU], the brothers cut a deal: The four ABA teams decamping to the NBA would make a one-time payment to the Silnas of $2.23 million, and they would pay the brothers one-seventh of their national broadcast revenues in perpetuity.

All first-year law students worth their highlighters know the danger of contracts without termination periods. The NBA's outside counsel -- including a young lawyer, David Stern -- saw this and tried to indemnify the league from disputes that might arise from the contract.

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May 15, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Wednesday, May 14, 2014

State Taxes May Compel Johnny Manziel to Avoid Ohio Residency

Sports Illustrated, State Taxes May Compel Johnny Manziel to Avoid Ohio Residency:

ManzeilJohnny Manziel may be a Cleveland Brown, but don't expect him to become an Ohioan. Manziel, a Texas resident, was selected 22nd overall in the NFL draft. He is slotted to earn $4,738,000 this year. As a Brown, a portion of Manziel's NFL income will be subject to Ohio's 5.392 percent income tax plus local income taxes. Assuming he remains a Texas resident, Manziel will pay the Buckeye State and local authorities approximately $278,000 this year. Had he been drafted instead by the Texans, Cowboys, Jaguars, Dolphins, Buccaneers or Titans, Manziel would have mostly avoided state income taxes, as those teams play in states without income taxes. All NFL players pay federal income taxes and so-called "jock taxes," which are state and municipal taxes levied on athletes for playing games in different venues.

Manziel can still avoid Ohio's income tax on most of his endorsement earnings simply by making sure that he remains a Texas resident. He's thus likely to keep his Texas residency and not avail himself of Ohio tax law unless it's absolutely necessary. A local trading card show or endorsement for a Cleveland car dealer would trigger Ohio tax law, but national endorsement deals would not. Expect Manziel to avoid spending 182 days in Ohio, as doing so would risk him being classified as a "full-year nonresident" under Ohio law and having higher taxes. Although Manziel dropped in the draft, he remains one of its most marketable players. He recently signed a multi-year endorsement deal with Nike that will reportedly pay him at least $20 million.

(Hat Tip: Bill Turnier.)

May 14, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Monday, May 5, 2014

Could Forced Sale of the L.A. Clippers Save Donald Sterling $323 Million in Taxes as § 1033 Involuntary Conversion?

SterlingFollowing up on my previous post: The Daily Beast, Donald Sterling’s Last Laugh: Force Him to Sell the Clippers and He Could Pay No Taxes; Ironically, the NBA’s Ultimate Penalty Will Save the Owner as Much as $323 Million, by Nick Lum:

Donald Sterling’s reputation had a bad week, but his pocketbook has never looked better. The punishment meted out by NBA Commissioner Silver—the maximum league fine of $2.5 million—pales in comparison to the billion dollars Sterling stands to make from selling the Clippers. Ironically, the league’s nuclear option—a forced sale—could also end up lining Sterling’s pocketbook with millions in tax savings. Instead of his just deserts, will Sterling end up with a sweet tax treat?

If Sterling had voluntarily sold the team for $1 billion, he would have owed about $200 million in federal income tax and another $123 million in California state income tax. But thanks to a tax law that applies only to forced sales or other “involuntary conversions,” Sterling’s profits may all be tax-free.

Section 1033 of the tax code provides a special tax treatment for people whose property has been stolen, appropriated by the government (e.g. eminent domain), or otherwise “involuntarily converted.” The basic idea is that if you have received money because someone took your stuff away from you, you shouldn’t have to pay taxes since you didn’t enter into the transaction voluntarily. ...

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May 5, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (4)

Thursday, May 1, 2014

Forced Sale of the L.A. Clippers Could Cost Donald Sterling $100-$200 Million in Taxes

Forbes, How Clipper's Sterling Could (Maybe) Avoid a Tax Bill Today:

Could Sterling look to treating the sale as an involuntary conversion under Section 1033 of the tax code?  Basically the code section allows in cases where property is compulsorily or involuntarily converted  – the owner can have nonrecognition of gain if he/she purchases replacement property (assuming of equal value).  The owner has basically two years after the close of the tax year in which the gain was made to buy replacement property.

Translation – Sterling could seek to claim that his property (ownership of the Clippers) was compulsorily or involuntarily converted (being forced to sell it by the NBA) under Section 1033.  NOTE:  the argument that Sterling had to sell because of his own actions – not the NBA’s – is a fair one and could be a possible IRS line of attack.

Sterling could then seek over the next two years to purchase like property – another sports team(s) of equal value.  While Sterling is banned from the NBA there are many other sports teams out there (think European soccer teams) that he might look to purchase.   Sterling’s argument would be that the Clippers are a professional sports team and he has bought another sports team – that he is not limited to just purchasing an NBA team.

The tax benefit for Sterling – transferred basis to the new sports team and deferral of capital gains taxes (ie will have to pay tax when he sells the soccer team down the road (or at death) – assuming no sharp pencils on estate tax planning).  Bottom line – no tax bill today.

May 1, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (12)

Sunday, March 16, 2014

Church Marketing Campaigns for Their Pastor's Books and Private Inurement

Pajama Pages, On Driscoll, It’s Called Inurement, and It’s Probably Illegal:

Real MarriageMark Driscoll may have imperiled his church’s nonprofit status and, with it, cost his congregation millions of dollars in tax deductions. I am neither a lawyer nor an accountant, but I can read IRS publications that describe the kind of hot water that Mars Hill Church and other churches can get into when they use donated money to buy their pastors’ books.

You can read the 50-page IRS description of inurement here, but I’ll try and summarize it for you here and explain why this applies to Driscoll’s NYT campaign and perhaps many other churches that use church resources to benefit their pastors’ publishing careers.

Churches and other charities are granted non-profit status so long as they use the money they raise exclusively for religious, educational or charitable purposes. Although they can pay staff and officers for work they perform to advance their stated purposes for the public, they cannot take special measures to direct the resources of the organization to any private individual or corporate entity, especially an individual that is an insider of the charity. Such activity is considered inurement, but before considering it in more detail, it’s worth reviewing what we know of the Mars Hill/Driscoll arrangement.

Mars Hill spent approximately $220,000 that had been donated to it to purchase services and books to have Driscoll’s book [Real Marriage: The Truth About Sex, Friendship & Life Together] appear on the New York Times best seller list. ... Mars Hill reports that it received $25m in tithes and offerings last year. Assuming an average deduction value of a contribution to be 25 percent, as the Congressional Research Service does, Mars Hill members saved $6.25m in tax payments because of the church’s exempt status. So, a $220,000 investment has the potential to cost church members $6,250,000.

Patheos, Do We Need a Code of Ethics for Mega-Pastors Who Write?:

Recently World Magazine had a piece on Unreal Sales for Mark Driscoll’s Real Marriage to the effect that the Mars Hill Church bought Driscoll’s book a place on the NYT best seller list through a marketing company with a deliberate intent to by-pass the NYT’s own safe guards against authors or publishers artificially inflating the sales figures for their book. This might even violate IRS rules and regulations about non-for-profits committing inurement. CT also has a piece on this where they link to Mars Hill Church’s official response to the issue.

March 16, 2014 in Book Club, Celebrity Tax Lore, Tax | Permalink | Comments (2)

Sunday, March 2, 2014

A Taxing Oscars: $80,000 Swag Bags, Tax Policy, and Divorce in Blue Jasmine

1.  IRS, Gift Bag Questions and Answers:

OscarQ: What are the federal income tax consequences to a person who accepts a gift bag in recognition of involvement in an awards show?
A: In general, the person has received taxable income equal to the fair market value of the bag and its contents and must report that amount on his or her federal income tax return. ...

Q:  If these are gifts, why do they have to be treated as income?
A:  These gift bags are not gifts for federal income tax purposes because the organizations and merchants who participate in giving the gifts bags do not do so solely out of affection, respect, or similar impulses for the recipients of the gift bags.

Q: Can the recipient take a charitable contribution deduction if he or she contributes the gift bag to charity? 
A: If the gift bag is donated to a qualified charitable organization, the recipient may be able to take a tax deduction for his or her charitable contribution, subject to applicable limitations and requirements. But this does not change the taxability of the value of the items.  The fair market value must still be reported on the celebrity recipient’s federal income tax return.

2.  U.S. News & World Report, And the Winner of the 'Worst Tax Policy' Oscar Is ..., by Matthew Mitchell (George Mason University):

Film subsidies from the government are a waste of money.

TaxProf Blog, The Wolf of Wall Street Wins Oscar for Best Tax Break:

E21

3.  Forbes:  Tax Lessons From Woody Allen's 'Blue Jasmine', by Peter J. Reilly:

Blue JasmineI have just a couple of tips that can greatly reduce post marital stress. They fly in the face of conventional wisdom, but they are based on extensive reading of Tax Court decisions. The recommendations are that you not file a joint return for the final year of the marriage and that non-custodial parents not expect to be able to claim dependency deductions.

The recommendations fly in the face of conventional wisdom, because planners assume that people are rational and want to minimize their aggregate tax liability and will then equitably share the savings. Only in rare circumstances will separate filing produce a lower tax liability. The dependency deduction may be more valuable to a non-custodial parent. So if you are having one of those friendly divorces, my advice might not be applicable to you. Of course there is a term for a couple that can navigate all the complexities of a divorce without the least bit of anger and recrimination and irrationality. The term is “still married”. Since both my recommendations are unconventional, they both merit a bit of discussion. ...

The movie Blue Jasmine might be a better warning on the perils of filing jointly with a financially sketchy spouse. Of course Jasmine’s failure to follow her friend’s advice with regard to joint filing was not her only mistake. There is, however, a strong argument for the more financially sophisticated half of the couple to not ask for a joint return, even though it costs extra taxes.

March 2, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (1)

Friday, February 21, 2014

Kevin Durant Sues Accountant Over Tax Troubles

The Oklahoman:  Kevin Durant Sues Accountant Over Tax Troubles:

DurantOklahoma City Thunder star Kevin Durant is seeking monetary damages from a California accountant on counts of professional negligence, breach of fiduciary duty and breach of contract. He is asking for at least $200,000 on each count.

Oklahoma City Thunder star forward Kevin Durant is having tax troubles, and he blames his former accountant.

In a federal lawsuit, Durant complains the accountant made a number of mistakes on his company’s tax returns, such as deducting the cost of his personal chef as a business expense.

“Fees paid to a personal chef would not be regarded by a reasonably prudent accountant as qualifying for a business expense deduction,” Durant’s attorneys stated in the lawsuit.

Durant sued California accountant Joel Lynn Elliott in December on counts of professional negligence, breach of fiduciary duty and breach of contract. He is asking for at least $200,000 on each count.

(Hat Tip: Jon Forman.)

February 21, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (1)

Monday, February 17, 2014

Money, Money, Money: ABBA Wore Outrageous Outfits Onstage to Claim Tax Deduction

The Guardian:  Abba Admit Outrageous Outfits Were Worn to Avoid Tax:

AbbaThe glittering hotpants, sequined jumpsuits and platform heels that ABBA wore at the peak of their fame were designed not just for the four band members to stand out – but also for tax efficiency, according to claims over the weekend.

Reflecting on the group's sartorial record in a new book, Björn Ulvaeus said: "In my honest opinion we looked like nuts in those years. Nobody can have been as badly dressed on stage as we were."

And the reason for their bold fashion choices lay not just in the pop glamour of the late 70s and early 80s, but also in the Swedish tax code.

According to Abba: The Official Photo Book, published to mark 40 years since they won Eurovision with Waterloo, the band's style was influenced in part by laws that allowed the cost of outfits to be deducted against tax – so long as the costumes were so outrageous they could not possibly be worn on the street.

I guess that explains this:

Meat

Money, money, money
Must be funny
In the rich man's world
Money, money, money
Always sunny
In the rich man's world
Aha-ahaaa
All the things I could do
If I had a little money
It's a rich man's world

(Hat Tip: Pippa Browde, Sergio Pareja.)

February 17, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Tuesday, February 11, 2014

The Tax Treatment of American Olympic Medal Winners

Monday, February 10, 2014

What Is the Value of Michael Jackson's Estate? Executor Says $7.2 Million; IRS Says $1.25 Billion

JacksonStarcasm.net:  IRS Says Michael Jackson Estate Grossly Undervalued, Owes IRS $702 Million in Taxes:

If you recall, after pop singer Michael Jackson passed away in 2009 his estate executors placed the value of his estate at $7.2 million, including his likeness being valued at $2,105 and his sizable interest in the trust that owns his and The Beatles’ music catalog being worth zero. If those numbers seem a little low to you, you’re not alone. The Internal Revenue Service also believes the estimated valuations to be low — so low actually that they are not only going after hundreds of millions of dollars in back taxes, but they are doubling the additional penalties thanks to the rarely used “gross valuation misstatement penalty.”

According to documents filed with the U.S. Tax Court in Washington and obtained by the L.A. Times, the IRS estimates the value of Michael Jackson’s estate at the time of his death to be slightly more than $7.2 million — try $1.25 BILLION! (Yes, that is correct.)

The $1.178 billion difference equates to $505 million in taxes with an additional $197 million in penalties. (The IRS usually assesses a 20% penalty for underpayment, but as I mentioned above, they implemented the gross valuation misstatement penalty, which doubled the penalties to 40%.)

The IRS lists examples of some of what they have determined to be gross valuation misstatements, including Michael Jackson’s likeness — which they estimate to have been worth $434.264 million, obviously way more than the $2,105 claimed by Jackson’s executors

February 10, 2014 in Celebrity Tax Lore, IRS News, Tax | Permalink | Comments (0)