Monday, April 29, 2013
Oklahoma Sen. Tom Coburn (R) today introduced an amendment to the Marketplace Fairness Act that would end the practice of allowing professional sports leagues to qualify as tax-exempt organizations, a move that would hit leagues like the National Football League, the Professional Golfers Association (PGA) Tour, and the National Hockey League, among others.
Since 1966, the tax code has allowed leagues to classify as 501(c)(6) charitable organizations — a classification used by trade and industry organizations — under the assumption that the leagues were promoting the general value of their sports. But Coburn’s amendment asserts that the leagues are not non-profits engaged in the promotion of their sports but instead are businesses interested solely in the promotion of their business; that is, the NFL isn’t so much concerned about promoting the general sport of football as it is concerned with promoting NFL football, because it is the NFL brand and the NFL teams and logos and products that make it a profitable business. The NFL, for instance, didn’t seem interested in promoting the general spread of football when a competitor league, the United States Football League, was formed in 1983. Likewise, the PGA Tour, NHL, and other sports leagues serve to promote their brand of their sports, not the sport as a whole.
Further, the leagues hardly pay their executives as if they are non-profits. The NFL paid $51.5 million to just eight executives in 2010, according to Coburn, and other leagues are similar — PGA commissioner Tim Finchem made $5.2 million that year, while NHL commissioner Gary Bettman took home $4.3 million....
NFL teams pay membership dues totaling roughly $6 million per team, but they are allowed to write those off for tax purposes as donations to a charitable organization. As Andrew Delaney explained in the Vermont Law Review in 2010, the NFL, which collected $192 million in revenue largely through membership dues in 2009, then pours much of that money back into a stadium fund that allows owners to access interest-free loans as long as they secure taxpayer financing for either new stadiums or improvements to existing facilities. ...
Removing the tax-exempt status would force the leagues to acknowledge the reality that they are businesses, and they would be taxed as such. For the NFL, that would mean that membership dues and assessments would no longer be tax exempt, according to Delaney, and the profits run through the NFL’s or PGA’s tax-exempt organizations no longer would be either (the NFL runs multiple for-profit organizations, such as NFL Films.
(Hat Tip: Greg McNeal.
Wednesday, April 24, 2013
I taught my last classes of the academic year today -- thanks to my students in Federal Income Tax and Federal Estate & Gift Tax for a wonderful semester, and for coming to our home for dinner the past two nights!
Well we got no choice
All the girls and boys
Makin' all that noise
'Cause they found new toys
Well we can't salute ya
Can't find a flag
If that don't suit ya
That's a drag
School's out for summer
School's out forever
School's been blown to pieces
No more pencils
No more books
No more teacher's dirty looks
Well we got no class
And we got no principles (principals)
We ain't got no innocence
We can't even think of a word that rhymes
School's out for summer
School's out forever
My school's been blown to pieces
No more pencils
No more books
No more teacher's dirty looks
Out for summer
Out 'til fall
We might not come back at all
School's out forever
School's out for summer
School's out with fever
School's out completely
Thursday, April 18, 2013
Stanley Veliotis (Fordham University, School of Business), Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes, 27 J. Sport Mgmt. ___ (2013):
This paper derives equivalent gross salary for Major League Baseball free agents weighing offers from teams based in states with different income tax rates. After discussing tax law applicable to professional sports teams’ players, including “jock taxes” and the interrelationship of state and federal taxes, this paper builds several models to determine equivalent salary. A base-case derivation, oversimplified by ignoring non-salary income and Medicare tax, demonstrates that salary adjustment from a more tax expensive state’s team requires solely a state (but not federal) tax gross-up. Subsequent derivations, introducing non-salary income and Medicare tax, demonstrate full Medicare but small federal tax gross-ups are also required. This paper applies the model to equalize salary offers from two teams in different states in a highly stylized example approximating the 2010 free agency of pitcher Cliff Lee. Aspects of the models may also be used to inform other sports’ players of their after-tax income if salary caps limit the ability to receive adequately grossed-up salaries.
Wednesday, April 17, 2013
Forbes: It's Time We Learned What Members of Congress Pay in Taxes, by Dorothy A. Brown (Emory):
On Friday President and Mrs. Obama released their most recent tax return for the entire world to see. They continued a longstanding tradition of sitting presidents releasing their returns, even though no law requires that they do so. The tradition began under the late President Richard Nixon. ...
Itemized deductions often come with a hefty price tag. The Joint Committee on Taxation has estimated that for 2013 the amount of revenue lost because of the three deductions the Obamas took (which happen to be among the most popular deductions taken) will be: $90 billion for mortgage interest, $47 billion for charitable contributions, and $46 billion for state and local income taxes. ... One part of the minority that benefits from itemized deductions is members of Congress.
Although Presidents have voluntarily released their tax returns for the last several decades, nothing could be further from the truth when it comes to members of Congress. McClatchy newspapers reported last July that of the 535 members asked to release their most recent tax returns, just 17 did. ... I suspect that if we looked at the tax returns of eavery member of Congress we would see something close to a 100% itemization rate. Compare that to only a third of the American public, and the numbers would suggest that repeal is the best way forward.
Given that I do not expect members of Congress to change their ways, one way to move closer to reform would be for the IRS to issue a new kind of report, which I call the “535 Report.” It would provide in summary fashion the information from the tax returns of all members of Congress. The 535 Report would be similar in concept to what the IRS currently produces for the tax returns of the 400 highest-income individuals.
No law is needed, because no privacy rights would be violated. All the IRS would have to do would be to crunch the numbers. Then we would know what percent of Congress itemized deductions and what the most popular deductions were. We could then compare the information with what the IRS already produces about the American taxpaying public in general, and hopefully encourage voters to demand change.
David Cay Johnston reported in The New York Times in June 2003 that the 400 report was begun in response to a professor asking for it. Let’s see if lightening can strike twice.
For more, see Dorothy Brown, The 535 Report: A Pathway to Fundamental Tax Reform, 40 Pepp. L. Rev. ___ (2013). For the video of Dorothy's presentation of the paper at the January 18, 2013 Pepperdine/Tax Analysts Symposium on Tax Advice for the Second Obama Administration, see iTunes and YouTube.
Wednesday, April 10, 2013
So, you think you have it bad this tax season. Have you heard that Facebook founder Mark Zuckerberg will pay between $1 billion and $2 billion in taxes? That sounds like a tough pill for anyone to swallow.
But it is premature to start a pity party for Zuckerberg. The twenty-something billionaire reaped large financial gains from exercising the stock options that triggered his tax bill, and he has benefited from favorable tax rules along the way. Even better, Zuckerberg will survive his encounter with the tax man in a position to never have to pay taxes again for the rest of his life. ...
The truly rich do not have to pay any tax once they have their fortunes in hand. They can follow the simple tax planning advice to buy/borrow/die: Buy assets that appreciate in value without producing cash (like shares of Internet stocks), borrow to finance lifestyle, and die to pass on a "stepped up" basis to heirs wherein the tax gain miraculously disappears.
Zuckerberg now has $11 billion or more with which to play this game. He can live off money borrowed against that huge sum (rest assured, he can get good interest rates), never having to sell any asset at a gain, and never having to get an "ordinary" salary again.
(Hat Tip: Ann Murphy.) For more, see Edward J. McCaffery (USC), Distracted from Distraction by Distraction: Reimagining Estate Tax Reform, 40 Pepp. L. Rev. ___ (2013).
Friday, April 5, 2013
TMZ reports that Wesley Snipes was released from prison on Tuesday after serving two years and four months of his three-year sentence on three counts of willful failure to file tax returns under § 7203. He is is subject to home confinement until July 19.
Wednesday, April 3, 2013
ESPN Outside the Lines, Athlete Charities Often Lack Standards:
An "Outside the Lines" investigation of 115 charities founded by high-profile, top-earning male and female athletes has found that most of their charities don't measure up to what charity experts would say is an efficient, effective use of money.
Using guidelines set by nonprofit watchdogs Charity Navigator, the Better Business Bureau and the National Committee for Responsive Philanthropy, "Outside the Lines" found that 74% of the nonprofits fell short of one or more acceptable nonprofit operating standards. The standards cover all sorts of aspects, such as how much money a nonprofit actually spends on charitable work as opposed to administrative expenses and whether there are enough board members overseeing the organization.
Among the "Outside the Lines" findings:
• Many athlete charities fail the effectiveness test for a variety of reasons, ranging from the deceptive and unethical -- if not illegal -- to the simply neglectful and ignorant. Some athletes set up foundations as tax-planning vehicles. Others dispute the nonprofit standards overall, saying as long as they spend at least some money on actual charity they should not be criticized.
• In many cases, OTL had a hard time measuring a charity's actual effectiveness because it was behind on filing its IRS tax returns or the returns were filled with errors and omissions. Problems can go unnoticed for years as the main agencies that oversee charities -- the IRS and states' attorney general offices -- don't audit every return.
• Even though the athlete charities often are named in honor of wealthy sports icons, only about a third of them had total assets of $500,000 or more. Multimillion-dollar charities that actually run programs, such as those founded by Tiger Woods, Lance Armstrong, Andre Agassi and Richard and Kyle Petty, are rare.
(Hat Tip: Charles Perin.)
Tuesday, April 2, 2013
The Independent: Shakespeare the 'Hard-Headed Businessman' Uncovered:
Hoarder, moneylender, tax dodger — it's not how we usually think of William Shakespeare.
But we should, according to a group of academics who say the Bard was a ruthless businessman who grew wealthy dealing in grain during a time of famine.Researchers from Aberystwyth University in Wales argue that we can't fully understand Shakespeare unless we study his often-overlooked business savvy.
"Shakespeare the grain-hoarder has been redacted from history so that Shakespeare the creative genius could be born," the researchers say in a paper due to be delivered at the Hay literary festival in Wales in May....
He was pursued by the authorities for tax evasion, and in 1598 was prosecuted for hoarding grain during a time of shortage.
- Christian Science Monitor, William Shakespeare: Tax Dodger, Shady Businessman?
- Daily Mail, Was Shakespeare a Tax Dodger? Bard Was 'Ruthless Businessman Who Exploited Famine and Faced Jail for Cheating Revenue'
- Los Angeles Times, Shakespeare Was Ruthless Profiteer and Tax Dodger, Study Says
- New York Daily News, Shakespeare Called Grain Hoarder, Tax Dodger, Money Lender and Ruthless Businessman
- Sunday Times, Bad Bard: A Tax Dodger and Famine Profiteer
- Telegraph, Shakespeare Was a Tax-Evading Food hoarder, Study Claims
- Wonkette, Titus Andronicus Shrugged: Will Tax-Dodging Shakespeare Become the New Ayn Rand?
(Hat Tip: Jack Chin.)
Friday, March 29, 2013
The world lost Ed Koch on February 1st, 2013; however, Mr. Koch who left only a 2007 will* to direct the distribution of his estate ... has left much of his estate’s worth to the government in estate taxes and probate fees.
Mr. Koch desired in his will to bequeath his estimated estate of $10 to $11 million to his sister, Pat Thaler, her three sons whom he “adored,” his faithful serving secretary of almost 40 years, Mary Garrigan, and some to the LaGuardia and Wagner Educational Fund with the remainder to other family members.
Mr. Koch’s estate will have to pay a New York state tax of 16% on every dollar over $1 million and a 40% federal tax on every dollar over $5.25 million. If it is assumed that his estate is worth $10 million, this would equate to $1.44 million in NY state estate tax and $1.90 million in federal taxes....
“He was such an accomplished, well rounded bachelor and a man of great Jewish faith. But I find it so surprising, himself being an attorney, that Mr. Koch did not manage his estate plan with the same veracity. I believe he could have done a much better job of avoiding the massive amount of taxes his estate will eventually have to pay,” laments Rocco Beatrice, Managing Director of Estate Street Partners, LLC.
- Forbes, Ed Koch's Will: Taxes Take Big Bite Out Of Hizzoner's Nest Egg, by Deborah L. Jacobs
- Wall Street Journal, The Will Of Koch: Legacy, Family
- Wills, Trusts & Estates Prof Blog, Ed Koch's Will, by Gerry Beyer (Texas Tech)
- Wills, Trusts & Estates Prof Blog, Taxes Take a Large Portion of Koch's Estate, by Gerry Beyer (Texas Tech)
Thursday, March 28, 2013
We will screen four classic television episodes, spanning different decades, where major characters are faced with tax compliance choices. Some characters choose to report their tax liabilities honestly and others do not. The episodes featured are from The Honeymooners (1956), The Phil Silvers Show (1956), The Mary Tyler Moore Show (1975) and The Simpsons (1998). Professor Lawrence Zelenak from Duke Law School will join us as a special guest speaker and will lead a discussion on what popular culture can teach us about public attitudes toward tax compliance.
Monday, March 25, 2013
Forbes: How Much Tax Will You Owe on a [$338] Million Powerball Jackpot? A Lot More Than In 2012, by Janet Novack:
The good news: You are about to win a [$338] million Powerball Jackpot. The bad news: You’ll owe millions more in tax than you would have had you won the same pot in 2012. ... The top combined federal and state rate for a New Jersey resident on lottery winnings would be 46.2%, which translates into a tax bill topping $97 million–$11 million more than it would have been in 2012— if Saturday’s winner elects to take the $211 million lump [sum].
(Hat Tip: Greg McNeal.)
Saturday, March 23, 2013
Call it the Jimmy Fallon tax credit.
Quietly tucked into tentative state budget is a provision that would help NBC move “The Tonight Show” back to New York, the Daily News has learned.
The provision would make state tax credits available for the producers of “a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season in New York,” budget documents show.
In addition, the episodes “must be filmed before a studio audience” of at least 200 people. And the program must have an annual production budget of at least $30 million or incur at least $10 million a year in capital expenses.
In other words, a program exactly like “The Tonight Show.”
- The Hill, A 'Jimmy Fallon Tax Credit'?
- New York Magazine, Cuomo’s New Tax Break Just Happens to Cover The Tonight Show
- New York Times, In Budget, a Tax Break for ‘Tonight’ to Relocate
- Newsday, 'Tonight Show' Move to NYC Would Qualify for Tax Breaks
- Wall Street Journal, Official: NY Tax Breaks Would Apply to 'Tonight'
- The Week, Should New York Use Tax Credits to Woo Jimmy Fallon and The Tonight Show?
Thursday, March 21, 2013
[I]f Superman crushes carbon and makes diamonds, is that taxable income? ... There are two questions here. First, are the diamonds taxable income for Superman (or Clark Kent) and second, are they taxable income for a recipient such as Lois Lane?
The answer to the first question is “probably not.” A traditional, almost fundamental principle of income tax is that a gain in value must be realized before it can be taxed. ...It seems clear that improving the value of the carbon is not such a taxable event, since there is neither a sale nor disposition of the property of any kind. An analogy might be made to a painting that appreciates in value; the increase in value is not taxed until the painting is sold, given away, etc.
If the diamonds are given to Lois Lane, however, that is obviously a gift, which has its own set of special rules. In the US, gifts are generally not taxable income for the recipient. 26 USC 102(a). But there is a gift tax that is ordinarily paid by the giver. 26 USC 2501(a)(1) and 26 USC 2502(c). However, there is a significant exclusion for gifts that currently stands at $13,000 per-recipient per-year. Thus the question is, presuming the diamonds were given as a gift today, would they exceed the exclusion?
Obviously this depends on the size and quality of the diamond and the state of the diamond market, but for example the diamond given to Lana Lang in Superman III appears to be about 3.5 to 4 carats and of very good quality. Looking at stones for sale on Blue Nile, a similar diamond would cost somewhere between $150,000 and $400,000, depending on the particulars, which is far beyond the gift exclusion. So how much would Superman be on the hook for? The answer is “a lot.” ...
Superman could theoretically avoid gift tax liability by performing the gratuitous service of crushing coal into diamonds rather than giving a finished diamond. Although it is true that gratuitous services are not taxed, it is also true that the IRS and the courts frown on tax avoidance schemes that attempt to exalt form over substance. Gregory v. Helvering, 293 U.S. 465 (1935). So a scheme by which Superman handed someone a piece of coal, fully intending to turn it into a diamond, then did so, would be tantamount to simply giving them a diamond. The IRS would focus on the substance of the transaction, not the form, and consider it a taxable gift of property.
But if, for example, Superman were at someone’s house for a barbecue and decided to thank them for dinner by crushing a lump of their own charcoal into a diamond, that would be different. In that case Superman really would be performing a gratuitous service. ...
Superman has crushed coal into diamonds for various reasons, but one of the best known was his gift of a ring to Lana Lang in Superman III. This raises an interesting question: is an engagement ring subject to gift tax? There is, subject to certain qualifications, an unlimited marital deduction for gifts between spouses, but what about an engagement ring, which is given in anticipation of marriage?
The law surrounding engagement rings and other pre-nuptial gifts has a long and complex history, dating back to at least the Romans. Most of the law has to do with who owns such gifts, particularly if the marriage is called off. But it turns out that none of that matters for tax purposes. If the donor and donee aren’t married at the time of the gift, then the marital deduction doesn’t apply. 26 U.S.C. § 2523(a). So an engagement ring is subject to gift tax, even if the donor and donee get married later that same year. In practice I suspect that few people actually report such gifts, even in the rare case where it would make a difference in their ultimate tax liability, but maybe Superman would actually be moral enough to do so.
Crushing coal into diamonds still doesn’t create tax liability for Superman, and he still has some ways to avoid liability if he crushes coal into diamonds for other people, but he has to be careful about it. And strictly speaking he probably should have reported that ring he gave to Lana.
(Hat Tip: Above the Law.)
Tuesday, March 19, 2013
Following up on yesterday's post, After Losing Unanimous Decision Saturday, MMA Fighter Nick Diaz May Be KO'd by IRS: USA Today: Reps Downplay Nick Diaz's Post-UFC 158 Tax Comments:
Nick Diaz's next opponent is not the IRS, but he probably needs to get a certified public accountant in his corner.
The recent UFC welterweight title challenger, who lost to champion Georges St-Pierre on Saturday in UFC 158, might need to file past tax returns, said his longtime manager, Cesar Gracie.
Diaz, who initially shirked UFC 158's post-event news conference before showing up late, perked up ears when, in the midst of a rambling assessment of his performance, he said he had never paid U.S. income taxes.
Gracie, who also trains Diaz, said the fighter misspoke and that Diaz has paid more than $100,000 to the government in the last two years. "Nick is a little crazy, but he has paid taxes," Gracie told MMAjunkie.com on Monday.
Monday, March 18, 2013
These are strange days, when we are told both that tax incentives can transform technologies yet higher taxes will not drag down the economy. So which is it? Do taxes change behavior or not? Of course they do, but often in ways that policy hands never anticipate, let alone intend. Consider, for example, how federal taxes hobbled Swing music and gave birth to bebop.
With millions of young men coming home from World War II—eager to trade their combat boots for dancing shoes—the postwar years should have been a boom time for the big bands that had been so wildly popular since the 1930s. Yet by 1946 many of the top orchestras—including those of Benny Goodman, Harry James and Tommy Dorsey—had disbanded. Some big names found ways to get going again, but the journeyman bands weren't so lucky. By 1949, the hotel dine-and-dance-room trade was a third of what it had been three years earlier. The Swing Era was over.
Dramatic shifts in popular culture are usually assumed to result from naturally occurring forces such as changing tastes (did people get sick of hearing "In the Mood"?) or demographics (were all those new parents of the postwar baby boom at home with junior instead of out on a dance floor?). But the big bands didn't just stumble and fall behind the times. They were pushed.
In 1944, a new wartime cabaret tax went into effect, imposing a ruinous 30% (later merely a destructive 20%) excise on all receipts at any venue that served food or drink and allowed dancing. ... [I]n the next few years, struggling nightclub owners were trying every which way to avoid having to foist the tax on customers.
The tax-law regulation's ... exception had the biggest impact. Clubs that provided strictly instrumental music to which no one danced were exempt from the cabaret tax. It is no coincidence that in the back half of the 1940s a new and undanceable jazz performed primarily by small instrumental groups—bebop—emerged as the music of the moment.
"The spotlight was on instrumentalists because of the prohibitive entertainment taxes," the great bebop drummer Max Roach was quoted in jazz trumpeter Dizzy Gillespie's memoirs, "To Be or Not to Bop." "You couldn't have a big band because the big band played for dancing."
The federal excise tax inadvertently spurred the bebop revolution: "If somebody got up to dance, there would be 20% more tax on the dollar. If someone got up there and sang a song, it would be 20% more," Roach said. "It was a wonderful period for the development of the instrumentalist." ...
The cabaret tax dropped to 10% in 1960 and was finally eliminated in 1965. By then, the Swing Era ballrooms and other "terperies" were long gone, and public dancing was done in front of stages where young men wielded electric guitars.
Thanks to a 'cabaret tax,' millions of Americans said goodbye to Swing Music. A lot fewer said hello to bebop.
The Daily Mail: Lonely John Cleese flees Monaco:
It has 300 days of sunshine a year, drips with glamour and has been a tax-free haven for 130 years. Which is why comedy legend John Cleese must have celebrated when, last year, he won permission to become one of Monaco’s 32,000 pampered citizens. Faced with crippling alimony bills, the move looked like a financial blessing for Cleese, 73, and his fourth wife Jennifer Wade, 42.
But now the couple have surprised everyone by giving up their Monaco home and returning – at some speed – to London.
What’s more, the pair are conducting an online fire sale of the furniture and artworks left behind in the principality.
Cleese might be glad of the additional funds as, financially, the timing of his about-turn couldn’t be worse. By leaving Monaco before the start of the new tax year, he is liable to pay an entire year’s tax to the Inland Revenue, the very thing he was said to be keen to avoid.So why the sudden change of heart? One friend told The Mail on Sunday: ‘John went to Monaco for tax reasons but the truth is he was very lonely. In London, he has a tight network of friends who love and support him. His French isn’t very good and he found it hard to plug into the culture.’
(Hat Tip: Bruce Bartlett.)
In the press conference following his Saturday night loss by unanimous decision to UFC welterweight champion Georges St-Pierre in Montreal, Nick Diaz said "I've never paid taxes in my life and I'll probably go to jail."
- ESPN, Nick Diaz Says He Doesn't Pay Taxes
- Huffington Post, Nick Diaz Taxes: UFC Fighter Said He Doesn't Pay Taxes After Latest Loss
- New York Post, UFC's Diaz Says He's 'Probably' Going to Jail Because He's 'Never Paid Taxes'
- Sports Illustrated, UFC's Nick Diaz Admits He's Never Paid His Taxes
- Yahoo! Sports, Nick Diaz Reveals He's Never Paid Taxes
(Hat Tip: Eric Sachtjen.)
Saturday, March 16, 2013
In Garcia v. Commissioner, 140 T.C. No. 6 (Mar. 14, 2013), the Tax Court allocated 65% of golfer Sergio Garcia's compensation from his contract with golf club manufacturer TaylorMade to royalties (for use of his image rights) (and thus not subject to U.S. taxation) and 35% to personal services (and thus subject to U.S. taxation), rather than the 85%/15% split provided for in the contract.
- Bloomberg, Golfer Sergio Garcia Loses in U.S. Tax Court on Endorsements
- Forbes, Golfer Sergio Garcia Comes Up Short In Tax Court, But Is The Decision A Victory For Other Athletes?
- Reuters, Sergio Garcia Scores Birdie in U.S. Tax Court
- Sports Illustrated, Sergio Garcia Must Pay More U.S. Taxes on Endorsements
- TaxProf Blog, Retief Goosen Birdies at FedEx St. Jude Classic, Bogeys in Tax Court
Monday, March 11, 2013
John Paulson, a lifelong New Yorker, is exploring a move to Puerto Rico, where a new law would eliminate taxes on gains from the $9.5 billion he has invested in his own hedge funds, according to four people who have spoken to him about a possible relocation.
Ten wealthy Americans have already taken advantage of the year-old Puerto Rican law that lets new residents pay no local or U.S. federal taxes on capital gains, according to Alberto Baco Bague, Secretary of Economic Development and Commerce of Puerto Rico. The marginal tax rate for affluent New Yorkers can exceed 50% on ordinary income. ...
Paulson executives, too, have already taken steps that may allow them to pay lower taxes. Last year, they put about $450 million into a new Bermuda reinsurance company that in turn invested all of its assets in Paulson & Co. funds. The structure positions them to defer any taxes on investment income from the funds for years, and to pay only the lower capital gains rate when they do.
(Hat Tip: Bill Turnier.)
Update: Bloomberg, How Puerto Rico Beyond IRS Attracts Paulson-Sized Riches
Friday, March 8, 2013
Americans for Tax Reform: Tax Bite Leaves Flacco Second Best Paid in NFL:
As reported this week, Super Bowl MVP Joe Flacco and the Baltimore Ravens have agreed to a six-year, $120.6 million contract making the star quarterback the highest-paid player in NFL history, earning an estimated $20.1 million per year. But being the “highest paid player” and earning the most after tax pay are two very different things.
By choosing to remain a Raven, Flacco is now set to pay a combined marginal income tax rate of 51.98%. This overwhelming tax rate is composed of the federal, Maryland, and Baltimore County income tax rate, as well as the Medicare tax. And that’s excluding his “jock tax” liability for away games – play the Patriots at Gillette Stadium, pay Massachusetts income tax on earnings for that game - and other taxes levied against him such as Maryland’s property tax. ...
Flacco may have the distinction of being the highest paid player in NFL history, but New Orleans Saints’ QB Drew Brees still earns more after tax pay. Brees’s contract, which he signed before last season, is a 5-year, $100 million dollar contract that pays around $20 million per year. After applying the marginal combined tax rate of 49.4% to the Saints QB’s contract salary, he stands to make $470,000 more after tax pay than the newly crowned “highest paid player.” ...
Don’t be surprised if players begin to consider their tax liabilities even more now when making the decision of which team to ultimately sign with.
Sunday, March 3, 2013
Wall Street Journal: Money Lessons From 'Downton Abbey':
If you need your wife's dowry to prop up your sprawling manse and a small army of domestic staff, don't bet it all on a railroad thousands of miles away.
That is one of the lessons gleaned from the television show Downton Abbey, the British drama set in the early decades of the 20th century that just wrapped up its third season on PBS's Masterpiece....
In between all the plotting and back-stabbing, the characters blunder into a broad array of financial- and estate-planning disasters, from bad investments and messy trusts to poor business-succession plans and power struggles following health crises."It's like a law-school exam in what not to do," says Jonathan Forster, national wealth-management chairman at law firm Greenberg Traurig in McLean, Va.
The show has become something of a sensation among financial planners and lawyers, who see parallels in their clients' lives. ... The most obvious take-away from Downton Abbey is to diversify investments, a lesson the earl learns after squandering much of his American wife's fortune on an investment in a Canadian railway filing for bankruptcy. ...
Here are some of the biggest lessons.
- Sell the house
- Spell out control and ownership when passing the baton
- Use trusts to protect the family fortune
- Make a will before giving birth
- Set up a medical directive
Sunday, February 24, 2013
Wall Street Journal op-ed; The Hollywood Tax Story They Won't Tell at the Oscars, by Glenn Harlan Reynolds (Tennessee):
It's easy to demand higher levies on the 'rich' when your own industry gets $1.5 billion in government handouts.
At the Democratic National Convention last year, actress Eva Longoria called for higher taxes on America's rich. Her take: "The Eva Longoria who worked at Wendy's flipping burgers—she needed a tax break. But the Eva Longoria who works on movie sets does not."
Actually, nowadays an Eva Longoria who flipped burgers would probably qualify for the Earned Income Tax Credit and get a check from the government rather than pay taxes. It's the movie set where she works these days that may well be getting the tax break.
With campaign season over, you're not likely to hear stars bringing up taxes at this weekend's Academy Awards show. But the tax man ought to come out and take a bow anyway. Of the nine "Best Picture" nominees in 2012, for example, five were filmed on location in states where the production company received financial incentives. ...
Such state incentives are widespread, and often substantial, but they don't do much to attract jobs. About $1.5 billion in tax credits and exemptions, grants, waived fees and other financial inducements went to the film industry in 2010, according to data analyzed by the Center on Budget and Policy Priorities [State Film Subsidies: Not Much Bang For Too Many Bucks]. Politicians like to offer this largess because they get photo-ops with celebrities, but the economic payoff is minuscule. George Mason University's Adam Thierer has called this "a growing cronyism fiasco" and noted that the number of states involved skyrocketed to 45 in 2009 from five in 2002.
Sunday, February 17, 2013
Manny Pacquiao's chief adviser insisted Monday that the Filipino superstar's preference is for his next bout – a fifth fight against Juan Manuel Marquez – to take place away from Las Vegas, with the off-shore Chinese gambling resort of Macau emerging as the "favorite."
Michael Koncz told Yahoo! Sports that the 39.6 percent tax rate Pacquiao would face if he were to fight again in the U.S. makes a fall bout in Las Vegas "a no go."
Promoter Bob Arum is hopeful of arranging a fifth match between Pacquiao and Marquez in the fall, potentially on Sept. 14. Arum's preference is for the fight to be at the MGM Grand in Las Vegas, which is his company's home base.
But Arum and Koncz say Pacquiao is balking at the additional money he'd lose to the government if the fight were held in Las Vegas. Arum said Pacquiao would not have to pay taxes if the fight takes place in casinos in either Singapore or Macau.
"Manny can go back to Las Vegas and make $25 million, but how much of it will he end up with – $15 million?" Arum said. "If he goes to Macau, perhaps his purse will only be $20 million, but he will get to keep it all, so he will be better off."
Breitbart, Like a Good Neighbor, State Farm Flees Illinois:
Insurance chain State Farm is reportedly buying up substantial workspace in Texas, which may signal a coming exodus from the company's home state of Illinois. ...
At the end of 2010, in a special session, the Illinois Legislature passed a 67% hike in its corporate and personal income tax. The state is struggling with a structural deficit and its credit rating was recently lowered. The state now has the worst credit rating in the country. A number of businesses have floated the idea of leaving the state. A move by State Farm, however, would devastate the downstate economy.
Friday, February 8, 2013
Google, which is being probed by several tax agencies around the world, is planning litigation against the IRS over the company’s 2003 or 2004 tax bill, according to a company filing. The company disclosed the potential lawsuit in its annual 10-K report with the SEC filed Jan. 29. A search of federal court records didn’t show that any lawsuit has been filed. ...
The company has used a series of maneuvers to shift profits out of the U.S. and into low-tax countries. The company has used techniques such as the “Double Irish” and “Dutch Sandwich” that route profits through Ireland and the Netherlands into Bermuda. In its annual filing, the company reported its effective tax rate as 19.4% for 2012, down from 21.2% in 2010 and less than half of the combined U.S. federal and state statutory rate of 39.1%.
- Linda Beale (Wayne State), Soon-to-be Google Litigation with IRS Over 2003-04 Returns?
Monday, February 4, 2013
Dilbert Blog: You Be the Editor, by Scott Adams:
I'm working on some Dilbert strips that will be published in early April. The series will feature a new character that works for the government and looks like a monster. His job is to make the tax code more complicated for no reason, with Dogbert's help of course. My problem is the name I've given this character: Stanky Bathturd.
(Hat Tip: Eric A. Chiappinelli.)
Sunday, February 3, 2013
Is Lefty's stance on California's tax hikes a sign of things to come for millionaire athletes?
The Golden State's new 13.3% income tax on top earners prompted golfer Phil Mickelson to say earlier this month he was considering a move, and according to the accountants who advise millionaire athletes, he was just saying what a lot of jocks were already thinking. Federal taxes on the top income bracket just rose by roughly 5%, and, while there's nothing rich athletes can do about that, they are paying attention to which states dip into their game checks — and how much they take.
“They’re going to have an exodus of people,” said John Karaffa, president of ProSport CPA, a Virginia-based firm that represents nearly 300 professional athletes, primarily in basketball and football. “I think they’ll see some [leave California] for sure. They were already a very high tax state and it’s getting to a point where folks have to make a business decision as well as a lifestyle decision.”
The taxes of professional athletes became incredibly complicated in the early 1990s, when aggressive state and local tax collectors began targeting them to pay non-resident income taxes. Technically, all employees who earn money for work done outside their home states have to pay non-resident taxes, but enforcement has focused on millionaire athletes with publicized work schedules to the extent is is commonly called the "jock tax." Although ballplayers can't get out of the state and local taxes they pay while on the road, where they play their home games can make a huge difference. California takes 13.3% on income above $1 million, but states like Florida, Nevada and Texas are among seven that take nothing.
It adds up, says Karaffa. As tax season enters full bloom, he expects to see an uptick in the number of clients who will consider leaving California. Under a hypothetical calculation, the tax difference for a single professional athlete making roughly $10 million a year between being a resident of California versus Florida is around $800,000 annually. ...
For top golfers and tennis players, who make most of their money through endorsements not subject to the "jock tax," the choice of where to live has a huge impact. Mickelson, of Rancho Santa Fe, Calif., quickly apologized for riling critics on Jan. 20 when he said an effective federal and state tax rate of 60-plus percent seemed excessive. But he was likely only saying what others were already thinking, especially after California voters approved Proposition 30 last November. In addition to raising the state sales tax, it imposed a menu of new tax brackets. Just the increase of the top bracket to 13.3% from 10.3% cost Mickelson roughly $1.8 million of his $60 million income for 2012.
Thursday, January 31, 2013
Steven Bank (UCLA), Kaka, Beckham, and Taxes:
With the transfer window winding down, Kaka, a favored target of both the New York Red Bulls and the Los Angeles Galaxy in MLS, as well as AC Milan in Serie A, appears to be staying put. At the same time, David Beckham, formerly of the Galaxy, has reportedly been dubbed an “MLS Recruitment Officer” and has been trying to persuade English stars such as Frank Lampard, Steven Gerrard, and Ashley Cole to ply their trades in America. Ironically, the difficulty in moving Kaka in part ties back to Beckham. Kaka may still move, but if he doesn’t it could be because of taxes.
When Beckham was signed by Real Madrid, Spain enacted a provision now referred to as the "Beckham Law," which provided a flat 24% rate for foreign residents. The law wasn't specifically enacted for him, but he was one of the first and certainly the most prominent individuals to utilize it after it was enacted in 2005. It permitted non-residents who moved to Spain as a result of a signed labor contract to choose to be taxed under resident rules or non-resident rules for a period of five years, with the non-resident rules carrying the low flat rate instead of the high progressive rate applicable to residents and exempting income earned abroad from Spanish taxation. The goal was to induce high income CEOs to relocate their businesses to Spain. The Beckham Law became a bit of a failure, though, since it primarily attracted footballers to La Liga from the EPL (where the UK had increased its rates on high income individuals around the same time).
For players currently thinking about a move to La Liga in this transfer period, the Beckham Law is no longer available. It was amended in 2010 to limit its effect to those making no more than €600,000 and was finally repealed in 2012. Kaka, though, signed with Real Madrid before 2010 and is still grandfathered into the old tax rate under his existing contract. If he moves or amends his contract, he will no longer enjoy the low flat tax rate. For a club seeking to match his after-tax compensation, the Beckham Law is soccer’s version of a poison pill.
Monday, January 28, 2013
If Lefty moves to a state with no income tax like Florida, he'll find he has plenty of elite athlete company. ...
The benefit of living in a state without an income tax can be diminished by the "jock tax" that states impose on money earned by athletes when they're playing or training in the state. (Luckily for baseball players, spring training is in no-tax Florida or low-tax Arizona.) But in sports like tennis and golf where athletes can train anywhere in the world, a preponderance happen to migrate to states without an income tax. ...
About 3.5 million Californians have migrated to other states over the past two decades. Almost anywhere they chose to go would allow them to enjoy greater returns on their labor. Is it really surprising that athletes like Mr. Mickelson might be keeping an eye on the leaderboard?
Prior TaxProf Blog posts:
- Golfer Phil Mickelson Plans 'Drastic Changes' in Response to His 63% Marginal Tax Rate (Jan. 21, 2013)
- Golfer Phil Mickelson Takes a Tax Mulligan (Jan. 23, 2013)
Saturday, January 26, 2013
Tina Turner is renouncing her American citizenship to become Swiss, it was revealed today. The American rock diva has lived in the Zurich suburb of Kuesnacht since the mid-1990s and speaks fluent German. The local Zuerichsee-Zeitung newspaper said on its website the local council announced its decision to grant the 73-year-old Turner citizenship in an official notice published in Friday's edition. The decision still requires formal approval from state and federal authorities. ...
Earlier this month, actor Gerard Depardieu announced he was renouncing his French citizenship because of the country's high taxes, and was promptly offered Russian citizenship by President Vladimir Putin. Tina's move has sparked rumors she is following in the footsteps of Depardieu and Facebook's Eduardo Saverin, who now calls Singapore, with its 18% tax rate, home. Wealthy socialite Denise Rich ... renounced her U.S. last year. She was married to billionaire commodities trader Marc Rich, controversially pardoned by Bill Clinton his last day in office. ...
But Forbes says of the singer's move: 'There’s little to suggest taxes motivate the decision, and Swiss rates are high.' ... Her agent did not return MailOnline's request for comment about whether the move was for tax reasons.
- ABC News: Tina Turner to Become Swiss Citizen
- The Atlantic: Why Tina Turner Won't Be an American Citizen Anymore
- Forbes: Swiss Tina Turner Giving Up U.S. Passport
- The Guardian: Tina Turner Takes First Steps to Swiss Citizenship
- L.A. Times: Tina Turner May Become a Swiss Citizen, Give Back U.S. Passport
Wednesday, January 23, 2013
Following up on Monday's post, Golfer Phil Mickelson Plans 'Drastic Changes' in Response to His 63% Marginal Tax Rate: Wall Street Journal editorial, The Mickelson Vote: Lefty Offends the Lefties:
California golfer Phil "Lefty" Mickelson says he will no longer publicly criticize the government for taking most of his paycheck. That's a shame. But even if it's now socially unacceptable for high achievers to suggest they should keep the fruits of their labor, that doesn't mean they will keep supplying that labor....
Mr. Mickelson was beginning to spark a useful conversation about the way that confiscatory tax rates discourage productive effort. But the critics began to emerge on various websites, and, alas, on Monday night the golfer took a rhetorical mulligan. "Finances and taxes are a personal matter, and I should not have made my opinions on them public," Mr. Mickelson said in a statement. "I apologize to those I have upset or insulted, and assure you I intend to not let it happen again."
Too bad Lefty will no longer help educate the lefties on the incentive effects of marginal tax rates. But he can still vote with his Gulfstream and take his tour winnings and his endorsement income to a more friendly locale, such as Florida, Nevada or Texas. All three still have no state income tax, which may be one reason Tiger Woods and so many other golfers (including many Europeans) also live in Florida. Expect a continued migration.
Monday, January 21, 2013
In honor of Martin Luther King, Jr. Day: reports on how some southern officials tried to use state tax laws to stop King and the nascent civil rights movement:
- "In Alabama, ... Governor John Patterson in early 1960 directed state revenue authorities to charge Martin Luther King, Jr., with tax evasion and perjury in completing his Alabama state income tax returns. The charges against King, who had already moved his ministry from the Dexter Street Church in Montgomery to his father's church in Atlanta, specified that he had diverted money raised for the Southern Christian Leadership Conference (SCLC) into his own pockets without ever reporting it as income." Kermit L. Hall, "Lies, Lies, Lies": The Origins of New York Times Co. v. Sullivan, 9 Comm. L. & Pol'y 391, 404 (2004).
- "The only person ever prosecuted under the Georgia income tax perjury statute was Martin Luther King." Corey R. Chivers, Desuetude, Due Process, and the Scarlet Letter Revisited, 1992 Utah L. Rev. 449, 454 n.27.
Sports Illustrated: Mickelson Plans 'Drastic Changes' in Response to Tax Hikes:
Phil Mickelson said he will be making "drastic changes" because of recent tax increases, including California's new, highest-in-the-nation income tax on the wealthy, and he suggested that the tax was one of the reasons he withdrew from the investment group that purchased the San Diego Padres.
"There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and, you know, it doesn't work for me right now," Mickelson said after his T37 finish at the Humana Challenge in Palm Spring, Calif. "So I'm going to have to make some changes."
Unlike most of his fellow PGA Tour players who live in tax-friendly states like Florida and Texas, Mickelson chooses to live in high-tax California, his home state, where residents voted in November to raise tax rates to 13.3 percent from 10.3 percent for those making more $1 million. ...
"If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63 percent," Mickelson said. "So I've got to make some decisions on what I'm going to do."
- CBS News, Phil Mickelson Says Changes Coming Because of Taxes
- Forbes, Golfer Phil Mickelson May Call It Quits Due To Climbing Tax Rates
- New York Times, Uneasy in the Political Climate, Mickelson Talks Like Someone Ready to Step Away
- USA Today, Phil Mickelson Talks Taxes, 'Drastic Changes'
Wednesday, December 26, 2012
- Business Insider, Facebook Funneled Nearly Half a Billion Pounds Into the Cayman Islands Last Year
- The Guardian, Facebook Paid £2.9m Tax on £840m Profits Made Outside US
- The Telegraph, Big Firms Play 'Double Dutch' to Skip on Tax
- The Telegraph, Facebook Defends its 'Double Irish' Tax Reduction Deal
Monday, December 17, 2012
- CNN, Prince of Wales Defends Tax Status
- The Daily Mail, Prince Charles Reported to the Revenue Over 'Well Entrenched Tax Avoidance Scheme' on £18m Earnings
- The Daily Record, Prince Charles Attacked Over 'Tax Avoidance' Claims
- The Guardian, Prince Charles's £700m Estate Accused of Tax Avoidance
- The Independent, Prince Charles Attacked Over Tax Payments
Thursday, December 6, 2012
Actor Stephen Baldwin was arrested today in New York charged with failure to file state income returns and failure to pay over $350,000 in state income taxes for 2008, 2009 and 2010.
(Hat Tip: Bob Kamman.)
Wednesday, November 28, 2012
Tuesday, November 27, 2012
Fox News: Tax Increases Could Factor in MLB Negotiations, by Ronald Blum:
As free agents negotiate deals this offseason, tax policy is an area that comes up along with the usual issues. Some players are wrangling for as much money as they can get before the end of the year to avoid a take hike in 2013. ... With baseball contracts worth as much as $275 million (Alex Rodriguez) and the major league minimum $480,000, tax policy affects every player who spends most of the season in the big leagues. ...
According to an analysis done by a tax lawyer on the staff of agent Scott Boras, a player with a $10 million salary and average deductions who plays in Florida and is a resident of that state will see his taxes rise from $3.45 million this year to $4.09 million next year under current law. If traded to the Blue Jays, that player's 2013 tax would rise to $4.27 million. And if dealt to a California team, the tax would go up to $4.4 million.
By moving money from salary into signing bonuses, players can sometimes lower their state tax bills. Shifting money into December this year could reduce federal taxes.
In the end, most free agents choose teams based on where they want to play, not on lowering the tax cut on their income.
Monday, November 26, 2012
Don't ever say Charlie Sheen's not the charitable type -- because he recently cut Lindsay Lohan a $100,000 check to cover the actress' six-figure tax bill. ... [S]he and Charlie became close pals while on the set of "Scary Movie 5" back in September. ...
During their bonding period, we're told Lindsay and Charlie talked about everything -- and at one point, Lindsay mentioned her ongoing tax problems. We're told Charlie offered to cut her a check then and there to get the IRS off her tail, but Lindsay refused. Fast forward to last week -- sources close to Lindsay tell TMZ, Lindsay's biz manager received a check from Charlie for $100,000. We're told Lindsay was blown away by Charlie's generosity -- and immediately applied the money to her outstanding tax bill. TMZ broke the story ... Lindsay allegedly owed Uncle Sam $233,904 in unpaid taxes for 2009 and 2010 -- but thanks to Charlie, that number's nearly been cut in half.
Sheen presumabky will be filing a gift tax return to report the transaction. (Hat Tip: Ann Murphy.)
Update: Forbes, Sorry Charlie: Sheen's $100K Taxes For Lindsay Lohan Itself Is Taxable, by Robert W. Wood
Saturday, November 17, 2012
Comedian and actress Janeane Garofalo revealed on Saturday that she was married, unbeknownst to her or her husband, for 20 years. Garofalo wed writer and producer Rob Cohen in what they both thought was a sham ceremony in Las Vegas in the 1990s. Does the couple have to file 20 years of amended tax returns to reflect their married status?
No. The statute of limitations on honest mistakes in tax filing is three years, so Garofalo and Cohen are off the hook for 85% of their union. Even for the last three years, it probably wouldn’t make sense for the couple to amend their returns. Taxpayers have no legal obligation to notify the IRS of innocent errors, and the couple would likely owe more taxes plus interest if they were to amend. (Garofalo and Cohen are probably both high-income earners who pay higher taxes filing married than single.) They should simply wait for the IRS to audit them, which likely won’t happen. The IRS tends to avoid situations that would inflame public opinion. (For example, there is always speculation about the tax hit of catching a historic home-run baseball, but the IRS never goes after the lucky fans.) If the IRS decides to audit the couple, the most likely result is that they’ll pay the higher married rate. No penalty will apply, because they made an honest mistake and acted in good faith.
Garofalo and Cohen might also argue that they weren’t actually married. Nevada law allows for an annulment of marriage because of “mutual mistake.” When a marriage is annulled, the law treats it as having never existed. If the couple got an annulment of their 20-year-marriage — a unique circumstance — they could try to convince the IRS that it should consider the marriage to never have happened.
Thursday, November 15, 2012
Monday, November 12, 2012
In Spain, new austerity measures mean higher sales tax on everything from beer and wine to clothing and movie tickets. But in Bescanó, a small town in the country's northeast, the local theater director has come up with a rather creative way to get around a new 21% tax on tickets for plays at his theater –- by selling carrots instead.
"We sell one carrot, which costs 13 euros [$16] -– very expensive for a carrot. But then we give away admission to our shows for free," he explains in Spanish. "So we end up paying 4% tax on the carrot, rather than 21%, which is the government's new tax rate for theater tickets." ...
Spanish media have dubbed this the "Carrot Rebellion," and the Bescanó theater has won kudos from arts advocates nationwide. Shows are sold out.
But the theater must also follow the law, says Fernando Fernandez, an economist at Madrid's IE Business School. "This is called tax evasion," says Fernandez. ...
Marcé, the theater director, says he consulted a lawyer before launching his carrot sales. He's got backing from the local mayor too. And no one has stopped him so far.
(Hat Tip: Mike Talbert.)
Confirming the advice I have been giving my daughter for 20 years ("All men are pigs"): Scientific American: Men and Women Can't Be "Just Friends":
Can heterosexual men and women ever be “just friends”? Few other questions have provoked debates as intense, family dinners as awkward, literature as lurid, or movies as memorable. Still, the question remains unanswered. Daily experience suggests that non-romantic friendships between males and females are not only possible, but common—men and women live, work, and play side-by-side, and generally seem to be able to avoid spontaneously sleeping together. However, the possibility remains that this apparently platonic coexistence is merely a façade, an elaborate dance covering up countless sexual impulses bubbling just beneath the surface.
New research [Benefit or Burden? Attraction in Cross-Sex Friendship] suggests that there may be some truth to this possibility—that we may think we’re capable of being “just friends” with members of the opposite sex, but the opportunity (or perceived opportunity) for “romance” is often lurking just around the corner, waiting to pounce at the most inopportune moment.
In order to investigate the viability of truly platonic opposite-sex friendships—a topic that has been explored more on the silver screen than in the science lab—researchers brought 88 pairs of undergraduate opposite-sex friends into…a science lab. Privacy was paramount—for example, imagine the fallout if two friends learned that one—and only one—had unspoken romantic feelings for the other throughout their relationship. In order to ensure honest responses, the researchers not only followed standard protocols regarding anonymity and confidentiality, but also required both friends to agree—verbally, and in front of each other—to refrain from discussing the study, even after they had left the testing facility. These friendship pairs were then separated, and each member of each pair was asked a series of questions related to his or her romantic feelings (or lack thereof) toward the friend with whom they were taking the study.
The results suggest large gender differences in how men and women experience opposite-sex friendships. Men were much more attracted to their female friends than vice versa. Men were also more likely than women to think that their opposite-sex friends were attracted to them—a clearly misguided belief. In fact, men’s estimates of how attractive they were to their female friends had virtually nothing to do with how these women actually felt, and almost everything to do with how the men themselves felt—basically, males assumed that any romantic attraction they experienced was mutual, and were blind to the actual level of romantic interest felt by their female friends. Women, too, were blind to the mindset of their opposite-sex friends; because females generally were not attracted to their male friends, they assumed that this lack of attraction was mutual. As a result, men consistently overestimated the level of attraction felt by their female friends and women consistently underestimated the level of attraction felt by their male friends. ...
These results suggest that men, relative to women, have a particularly hard time being “just friends.” What makes these results particularly interesting is that they were found within particular friendships (remember, each participant was only asked about the specific, platonic, friend with whom they entered the lab). This is not just a bit of confirmation for stereotypes about sex-hungry males and naïve females; it is direct proof that two people can experience the exact same relationship in radically different ways. Men seem to see myriad opportunities for romance in their supposedly platonic opposite-sex friendships. The women in these friendships, however, seem to have a completely different orientation—one that is actually platonic.
Here is Steven Colbert's take:
Sunday, November 11, 2012
Following up on my previous post, NY's Highest Court Rules 4-3: Lap Dances Are Not 'Art' and Thus Not Exempt From Sales Tax:
Friday, November 9, 2012
As a result of the doping scandal, Lance Armstrong has been stripped of his seven Tour de France wins. In addition to being erased from the record books, Armstrong will have to return up to $16 million in purses and bonuses he received as a result of his win. In this paper, I discuss the tax consequences to Armstrong of his returning his winnings.
Friday, November 2, 2012
Following up on yesterday's post, Owners Race to Sell Their Businesses by Year-End to Avoid 67% Capital Gains Tax Increase:
- MarketWatch: George Lucas’s Jedi Estate Planning
- San Francisco Business Times, George Lucas Saves Hundreds of Millions in Taxes by Selling Before Year-End
Thursday, October 25, 2012
Tax lawyers, especially aging men losing their hair, should be forgiven for looking past the numerous other aspects of this latest little Trump tempest in a teapot to taxes. Surely Mr. Obama will ignore Mr. Trump’s offer, but if he didn’t, who is taxed? Could The Donald deduct the payment? Is there any taxable income to the President?
The tax law tries to get a piece of just about everything. Even so, I don’t see any income to Mr. Obama. If he did produce the documents he would not be selling them. He would merely be revealing them in exchange for a donation. You don’t have income when you do a walk-a-thon for charity, even if your miles end up causing someone else to pledge money.
But the charitable contribution that Mr. Trump is surely assuming he would get on the off-chance that Mr. Obama complies is another matter. Can Mr. Trump deduct the $5 million if he gives it to Mr. Obama’s chosen charity? Whether or not it seems fair, probably. ...As for Mr. Trump, even if (as seems likely) there’s ultimately no $5 million gift to charity, there’s another tax angle. I would bet that some expenses associated with this gambit end up on his tax return as business expenses. After all, there surely must be some respect in which even this latest from The Donald helps to enhance Mr. Trump’s illustrious—and hard to define—brand.
Wednesday, October 24, 2012
Forbes: The Tax Implications of Lance Armstrong's Banishment From Cycling, by Anthony J. Nitti (WithumSmith & Brown, Aspen, CO):
What will be the tax consequence if Armstrong repays race winnings and bonus amounts that were previously included in his taxable income as compensation?
The issue is not one of deductibility. Because the bonuses were originally earned in Armstrong’s trade or business of being a cyclist, any repaid compensation should be deductible as an ordinary and necessary business expense. Rather, the problem Armstrong faces is one of tax benefit.
If the doomsday predictions surrounding Armstrong’s future income stream are to be believed, it’s possible Armstrong may pay out more in bonus restitution during 2013 than he takes in as income. As a result, he may not be able to reap the full tax benefit of the deductions related to his repayments. And even in the event Armstrong is able to fully utilize his deductions in the current year, he may have been subject to a higher tax rate when the bonuses were originally earned — particularly during the pre-Bush tax cut years of 1999-2001 — than he is today. In either scenario, Armstrong would likely enjoy a larger tax benefit if he could travel back in time, exclude the bonus payments from income in the year they were received, and redetermine his prior years’ tax liability.
Fortunately for Armstrong, there is an Internal Revenue Code provision that contemplates such a dilemma. Section 1341 provides that if the facts are right, a taxpayer like Armstrong who is required to repay amounts previously included in income can compute their tax consequences on a “best case scenario” basis. ... Unfortunately for Armstrong, Section 1341 is rife with requirements that must be met before a taxpayer can take advantage of the retroactive reach of the provision. While Armstrong will satisfy the majority of these hurdles with ease, there is one that poses a potentially fatal challenge. ...
The income must have been originally included in the taxpayer’s income because the taxpayer believed he had an unrestricted right to the income. This requirement poses a significant threat to Armstrong’s ability to use Section 1341 to obtain the most advantageous result from any bonus repayments. Because Armstrong has been accused of knowingly violating race rules and the terms of his sponsorship contracts by doping throughout his seven Tour victories, it is difficult to envision the IRS concluding that Armstrong could have believed he had an unrestricted right to his bonus money. Stated in another way, because Armstrong knew his doping was against the rules, he couldn’t have believed he had an “unrestricted right” to the bonus payments. Rather, he would have accepted the bonus money knowing that a subsequent failed drug test — or as it happened, an investigation eight years after his last race — could result in his being forced to forfeit the bonuses.
Previous case law would support this theory, as the courts have made clear that Section 1341 does not apply to any “ill gotten gains,” such as embezzled income, smuggled goods, or illegal kickbacks. Armstrong’s PED use poses a similar problem in that his bonus payments appear to have been earned through “fraud or deceit,” precluding him from using Section 1341 to achieve the most beneficial tax result of any subsequent repayments.
Should Armstrong be unable to utilize Section 1341, he would be limited to merely deducting any bonus repayments in the year they are made, with the tax benefit of those deductions being dictated by the law — and Armstrong’s specific tax picture — in the year of repayment. Of course, given all that Armstrong has been through over the past two weeks, his future tax returns are likely the least of his worries.
(Hat Tip: Ann Murphy, Peter Prescott, Paul Rozek.)
Monday, September 24, 2012
Yale Law Library New Exhibit: The Comic Art of Joseph Hémard:
It would take a genius to illustrate one of the most boring books imaginable, a code of tax laws, and create a comic tour-de-force. That genius was Joseph Hémard (1880-1961), who in his lifetime was probably France's most prolific book illustrator. His illustrations are the focus of the latest exhibit in the Yale Law Library, And then I drew for books: The Comic Art of Joseph Hémard.
The exhibit, on display until December 15, is curated by Farley P. Katz and Michael Widener. Katz, a tax attorney from San Antonio, has built one of the world's finest collections of Hémard's works. Widener is the Rare Book Librarian at the Lillian Goldman Law Library.
Hémard's illustrations have a distinctly French character, usually comic, and often mildly erotic. Many of his illustrations were executed in pochoir, a hand stenciling process producing intense, gorgeous colors still vibrant after three-quarters of a century.
The exhibit showcases eight of the 183 illustrations in Hémard's Tax Code, donated to the Yale Law Library by Katz, along with two of the other three law books on display from the library's Rare Book Collection.
(Hat Tip: Charlotte Crane.)
Tax codes are notoriously dull reading. They are devoid of interest to anyone but professionals trained in the arcane language of the tax laws who, even then, never actually consult them except when required by a specific task at hand. The idea of a lengthy, commercially published tax code, profusely illustrated with humorous cartoon-like drawings full of puns and whimsy, with illustrations beautifully hand printed in color, seems almost unimaginable. But such an incredible book exists! Add to this the facts that the book was printed in occupied Paris near the end of World War II and that it contains numerous risqué and decidedly antiauthoritarian images, and one begins to appreciate how truly fantastic this book is.
In a brief preface to the Code, Hémard observed that, given “the complexity of the tax system,”22 it is understandable that some must rely on qualified persons to comply with their tax obligations, and that others, although essentially blind to the tax laws, choose to handle their tax obligations themselves, “strengthened by the illusion that a dark night does not offer more perfidious obstacles to the blind man than to the perceptive one.” He then expressed his hope—which must be taken as purely artistic in context—that “the especially arid matters covered by the general Code of direct taxes would receive some useful light through the art of the illustrator.” Hémard brilliantly achieved his goal; his illustrations bring the sterile world of the tax code to a vibrant and wonderful life, filled with humor and populated with peasants and shopkeepers, children and relatives, lovers and crooks, wealthy businessmen and vagabonds, all being squeezed for their last sous by the relentless and merciless tax collector.
Monday, September 10, 2012
Newspaper to France's Richest Man Leaving Country to Avoid 75% Tax Rate: 'Get Lost, You Rich Bastard!'
The News Statesman: French Newspaper to France's Richest Man: "Get Lost, You Rich Bastard":
In response to the news that France's richest man has applied for Belgian nationality, the country's leading left-wing daily has declared: "get lost, you rich bastard!"*
The forthright headline, emblazoned across today's front page of Libération, is aimed at Bernard Arnault, CEO of the luxury fashion conglomerate LMVH. Arnault applied for Belgian nationality after the socialist president François Hollande proposed a new 75 per cent tax rate on earnings over one million euros. He denies he is trying to avoid tax, but Libération nonetheless condemns his decision as "a symbol of the arrogance of the wealthiest".
The headline is actually a play on a famous gaffe made by the former president, Nicholas Sarkozy, who muttered "casse-toi, pov' con" ("get lost, you poor bastard") at a member of the public who refused to shake his hand. The phrase subsequently became a taunt taken up by Sarkozy's left-wing opponents.
UPDATE: Arnault is now suing Libération, according to a press release from his company. Arnault, "has no other choice, given the extreme vulgarity and violence of the headline," it says.
(Hat Tip: Luke McQueen.)