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.)
Tuesday, August 21, 2012
(Hat Tip: Bob Kamman.)
Sunday, August 19, 2012
Italy has a public debt of nearly 2 trillion euros, and it's cracking down on its notoriously wily tax evaders. Owners of luxury yachts are a prime target, with tax police launching dockside raids to see how individual tax files line up with owning and maintaining an expensive boat. ...
But yachts are mobile assets. In response, many boat owners are simply weighing anchor and setting course for more tax-friendly Mediterranean marinas. ...
Since the tax crackdown was announced in March, around 30,000 boats have fled Italy, seeking safer havens. They include Slovenia, Croatia and Montenegro to the east, France and Spain to the west, and Tunisia and Malta to the south.
The Italian association of marinas says the yacht exodus has cost the Italian economy some $350 million this year in lost revenues from marina fees and services, and fuel sales. Tax authorities are unrepentant, saying it's important to strike fear in the hears of tax dodgers.
Prior TaxProf Blog posts:
- Sen. John Kerry Skips Town on Sails Tax (July 23, 2010)
- Sen. Kerry Sails Around the Tax Issue (July 27, 2010)
- Sen. Kerry Abandons (Tax-Dodge) Ship, Agrees to Pay $500k MA Tax on Yacht (July 28, 2010)
- Sen. Kerry & Yacht-Gate: Learned Hand's Perspective (July 29, 2010)
Thursday, August 16, 2012
Wall Street Journal editorial: Usain Bolt's Tax Lesson:
As the post-Olympics glow fades, U.K. policy makers are trying to figure out how to keep the flame of British sports burning. They could start by changing Her Majesty's tax laws. After Jamaican sprinter Usain Bolt won his third gold in London last week, reporters asked him why he doesn't compete in the U.K. more often. "As soon as the [tax] law changes I'll be here all the time," he said.
Punitive tax policy had kept the world's fastest man from competing in Blighty for the past three years. Explaining Mr. Bolt's decision to skip a 2010 race in London, his agent told reporters: "He will earn a lot less by competing in Britain if he maintains his current endorsement level." ... Britain takes a cut of an athlete's worldwide endorsement earnings—that means overseas sponsors in addition to those in the U.K.—proportional to the time spent in Britain. By comparison, the U.S. only taxes nonresident athletes on endorsement fees paid by American sponsors. ...
So if in a given year Mr. Bolt ran in six races, one of which was in Britain, Her Majesty's government could collect income tax on one-sixth of his total income from sponsorships. Given that Mr. Bolt's contract with Puma alone is worth $9 million annually, the final U.K. tax bill for a single London race could dwarf his appearance fee, which has been in the range of $150,000 to $250,000. ...
Superstars ... can tailor their professional schedules to maximize earnings without risking damage to their fame or competitive standing. So the best athletes stay out of U.K. competitions, the events have less popular appeal, fewer people attend, and the country forfeits both the economic activity and the tax revenue. The lesson is that taxes influence behavior, and punitive taxation hurts everyone, not least the punitive nation.
- BBC, Usain Bolt: Tax Stops Olympian Running in the UK
- The Telegraph, Usain Bolt Refuses to Race in UK Until Tax Laws Are Changed
Prior TaxProf Blog posts:
- Usain Bolt Runs From the Tax Man (July 12, 2010)
- Olympic Athletes Get Special U.K. Tax Break (July 31, 2012)
Wednesday, August 15, 2012
Forbes: UBS Sues Billionaire Olenicoff In Offshore Tax Cheating Case, by Janet Novack:
UBS, Switzerland’s largest bank, has sued California billionaire developer Igor Olenicoff for malicious prosecution, charging he pursued a meritless federal lawsuit against it built on lies in part to “deflect blame” from his own offshore tax sins.
The suit, which UBS quietly filed in Orange County Superior Court last week, also names Olen Properties Corp., and two of Olenicoff’s lawyers as defendants, and asks for punitive damages, as well as compensation for damage to UBS’ reputation and the $3 million in attorneys’ fees UBS spent defending itself against Olenicoff’s now-dismissed federal suit. UBS’ attorneys in this case, as in the federal one, are from the pricey and prominent law firm of Gibson, Dunn & Crutcher.
In Dec. 2007, in a deal with federal prosecutors, Olenicoff, one of the 400 Richest people in America, admitted he had lied on his tax returns about his ownership of foreign accounts from 1998 through 2004, paid $52 million in back taxes, penalties and interest for those years, and pleaded guilty to a single felony of filing a false 2002 tax return. Then, in September 2008, he turned around and sued UBS and others, claiming they had mislead him about the legality and taxation of his secret offshore accounts. ...
Another one of those Olenicoff sued, Bradley Birkenfeld, his UBS banker, has a request for court costs from Olenicoff pending in federal court. Birkenfeld helped the government build its case against UBS. But while Olenicoff, now 70, escaped without jail time, Birkenfeld was sentenced to a stiff 40 months in jail for conspiracy after prosecutors decided he hadn’t been forthcoming about Olenicoff’s enormous offshore accounts. Birkenfeld, 47, was recently released to a halfway house and is scheduled to be released from federal custody at the end of November. He is still pursuing a claim for an informant’s reward from the IRS for his role exposing UBS.
- American Lawyer, After Squashing $1.7 Billion Olenicoff Suit, Gibson Dunn Takes Offensive for UBS
- Bloomberg, UBS Sues Billionaire Olenicoff for Filing Failed Tax Suit
Tuesday, August 14, 2012
One of my readers was watching a Twilight Zone episode (The Man in the Bottle) in which a tax issue arose. A genie granted a man four wishes. One of the wishes was for $1,000,000. The couple gave $57,355 to friends. Then an IRS agent showed up and in 60 seconds calculates a federal income tax liability of $942,640 (leaving the man and his wife with $5). The agent says that he is using the standard deduction and married filing jointly rates. The episode aired in 1960. Time travel exists in the Twilight Zone. So, the reader wants to know, in what year did the wish get granted? To quote the reader, “In other words, can you recreate the tax liability [as computed by] the IRS agent?” The reader says he has tried tax years 1913-1960 without success, and asks, “Is it possible the IRS agent was wrong?”
Then I tried. It’s a roughly 95% effective tax rate. Even in the World War II years, with top marginal rates in the 90s, I don’t think one could get to a 95% overall rate. My guess is that the screen writers wanted to make a shocking outcome! Tax is Everywhere, Even in the Twilight Zone.
Friday, August 10, 2012
Following up on last week's post, The Tax Treatment of U.S. Olympic Medal Winners:
- Neil H. Buchanan (George Washington), Taxes, Media Hype, and Dog Bites Man
- Citizens for Tax Justice, The Olympic Tax Exemption: It Gets Worse
- NPR, Should We Tax Olympic Prize Money?
- NY Times, Taxing Olympic Medalists
- L.A. Times editorial, Tax-Free Olympic Glory?
- L.A. Times, Lawmakers Propose Tax Breaks for California's Olympic Medalists
- Slate, Tax the Olympians: Sen. Marco Rubio and President Obama Team Up for a Ridiculous New Tax Break for Olympic Medal Winners
- Tax Foundation, Misunderstanding Tax Reform: The Case of The Olympic Tax Elimination Act
Monday, August 6, 2012
Next year Mark Zuckerberg’s base salary will receive a dramatic pay cut—going from a base salary of $600,000 to just one dollar.
Which raises the question: will he ever pay taxes again? ...
Zuckerberg’s pay cut could reduce his income tax burden to nothing. It’s possible that he might even be eligible for certain types of government aid for those with low-income -- although it’s unlikely that he would collect them.
In order to reduce his tax burden to zero, Zuckerberg would have to forego any future cash bonuses or additional stock awards. He would also have to stop employing certain Facebook services for personal use. Last year, for example, he had imputed income from the use of aircraft for personal use of about $692,679. He also received $90,850 in estate and financial planning from Facebook.
Can Zuckerberg really live without income? ... When you have the net worth of Zuckerberg, you can live for a very, very long time on tax-free debt that you can use as income. Let’s say that Zuckerberg needs $2 million of spending power per year and lives another 60 years. That’s $120 million of spending. If he gets an interest rate of 4 percent and just rolls it.
I have no idea what kind of plans Zuckerberg has for his future income and taxes. He may not want to accumulate debt for his entire life. Perhaps he has plans to become a big spender and will need to derive income beyond what he can get from muni bonds. But it’s very likely that at least some of the $90,850 worth of financial advice Zuckerberg received went to minimizing tax exposure.
Friday, August 3, 2012
Tuesday, July 31, 2012
Forbes: Olympians Get a Free Pass on Taxes at the London Games, by Kelly Phillips Erb:
Olympians at the games are getting a nice tax break under an exemption passed just for the London 2012 games. If not for the exemption, those at the games might have to pony up some pounds for the Queen.
You see, the Brits, like the U.S., have a tax system that attempts to tax global income. Under British tax law, the amount of tax due is pro-rated based on the number of events that an athlete competes in inside the country; this is in addition to a 50% tax rate on appearance fees. If, for example, an athlete participates in ten athletics events in 2012 and one of those events is located in the UK, the Brits take the position that they are more or less entitled to 1/10 of that athlete’s worldwide income (some exceptions apply but you get the idea). The tax is imposed even though the athletes may not live in Britain.
The law has kept big names like Spanish golfer Sergio “El Nino” Garcia and Rafael Nadal out of the country for a number of events. Those omissions made sports news but didn’t make many waves beyond their individual sports. The Olympics, however, is on a completely different scale: you can’t have a competitive Olympics unless athletes from all over the world actually show up – and attendance was threatened by these tax laws. Last year, Jamaican über sprinter Usain Bolt famously declared “I am definitely not going to run [in London]” until the Olympics because of what he viewed as punitive tax laws. His declaration sent the country into a tizzy, worrying that other athletes might make similar proclamations – or not show up for the 2012 Olympics at all.
In order to stem any controversy, the British taxing authorities agreed to a limited exemption to the tax rule. The exemption covers those athletes who are visiting the UK in order to compete in the Olympic Games and a limited number of people who are visiting the UK to work on Games-related activity. It does not apply to those working on construction of the Olympic venues
Monday, July 30, 2012
Huffington Post: Kim Kardashian and Kris Humphries: Trouble at Tax Time?, by Julian Block:
Picture a cozy household of three -- Brad Pitt, Angelina Jolie and the friendly tax man. Fact is, whether Brad, Angelina, Jennifer, Bristol, Levi, Snooki, or anyone else is hooking up, breaking up, or something in between, the odds and ends of their relationships are grist for the Internal Revenue Service mill.
Consider, for example, the splashy wedding of reality TV personality Kim Kardashian (her second marriage) to basketball player Kris Humphries (his first). They wed on August 20, 2011. Seventy two days later, Kim filed for divorce. Kris countered by seeking an annulment on the grounds of fraud (the case is still pending).
The difference between a divorce and an annulment isn't a difference without a distinction. The courts grant a divorce to mark the end of a marriage that was valid when entered into, whereas they grant an annulment to end a marriage that was void or voidable. A marriage is void when it legally couldn't have taken place -- like when one of the parties was under the age of consent at the time of the marriage or already married. Voidable is legalese for incapable of consenting -- for example, one of the parties was intoxicated or the victim of behavior like duress, coercion or force.
To a couple interested only in the fastest way to untie the knot, the question may seem to be an unimportant technicality. Those watchful souls at the IRS, however, think that there's an important difference when Form 1040 time rolls around. According to an IRS ruling, if an annulment is retroactive, the couple was never married. As a result, they had no right to file joint returns [Rev Rul. 76-255, 1976-2 CB 40].
(Hat Tip: Francine Lipman.)
Sunday, July 22, 2012
[N]ow is a good time to review the UK’s taxation rules on non-resident athletes. Not only will the golfers in this week’s tournament be liable for taxes on their winnings, but they will also owe Her Majesty’s Revenue and Customs (HMRC—UK’s tax collector) for taxes on endorsement income. In fact, even those who do not make the cut -- and will therefore not earn money from the tournament -- must pay taxes on endorsements. HMRC has a “Foreign Entertainers Unit (FEU)” whose job is to track the movement of athletes and entertainers who play or perform in the UK throughout the year. Tournaments withhold taxes from athlete earnings, so tracing income and withholding is relatively easy. ...
[G]olfers playing in The Open Championship will pay taxes on the following income from this week’s work:
- Tournament Winnings -- for those who make the cut
- Endorsement Retainers -- taxed based on days playing/practicing in the UK v. days playing/practicing elsewhere
- Winning/Placing Bonuses -- fully taxed by the UK
- Ranking Bonuses -- taxed based on ranking points earned in the UK v. points earned elsewhere
- Paid appearances before, during & after The Open
(Hat Tip: Cory Birkhauser.)
Tuesday, July 17, 2012
Following up on Friday's post, Holy Taxation, Batman! H&R Block Messes Up Bruce Wayne's Taxes: H&R Block has corrected its mistake:
- Don't Mess With Taxes, Holy Amended Tax Infographic, Batman!, by Kay Bell
- Forbes: Batman (Files Amended Tax) Returns After H&R Block Admits Error, by Janet Novack
Sunday, July 15, 2012
Following up on my earlier post: Forbes: Owner of Nation's First Marijuana Pharmacy Now Broke and Fighting IRS, by Janet Novack:
Lynnette M. Shaw, the colorful pot activist who opened the first licensed medical marijuana dispensary in the United States, is fighting an IRS bill for $1.27 million in back income taxes and penalties and has filed for personal bankruptcy, listing $276,000 in state sales taxes among her debts.
Shaw was forced to shut her Marin Alliance for Medical Marijuana in Fairfax, Ca. late last year, after U.S. Attorney for Northern California Melinda Haag wrote a letter to her landlord threatening to seize the building that housed her operation. The letter was part of a coordinated crackdown by four U.S. Attorneys in California on marijuana dispensaries. ...
Shaw’s personal income tax troubles stem from an IRS decision to deny business expense deductions to marijuana dispensaries under a provision Congress passed in 1982 (§ 280E) that disallows deductions for “trafficking in controlled substances” as “prohibited by Federal law or the law of any State in which such trade or business is conducted.” Surprisingly, Shaw never incorporated the dispensary—as either a for-profit or not-for-profit corporation. Instead, she ran it as a sole-proprietorship, reporting its $1 million plus in annual sales and all its expenses on Schedule C of her individual 1040 tax return.
Shaw’s previously unreported lawsuit filed in U.S. Tax Court late last month, shows that rather than reporting profits, she reported losses totaling $186,826 in 2008 and 2009. After denying all her expenses for everything from cannabis to utilities, IRS auditors calculated Shaw had taxable income of $2.83 million for those years. This past March it sent her a bill for $1.27 million n back taxes and penalties, plus an as yet uncalculated amount of interest. Shaw says she owes nothing. (Harborside, which is incorporated, has reportedly been hit with a $2.5 million IRS bill; according to the U.S. Tax Court docket, it filed suit challenging the assessment in December.)
Shaw’s suit argues that the IRS is ignoring state laws legalizing medical marijuana as well as a 2007 U.S. Tax Court decision (Californians Helping To Alleviate Medical Problems, Inc.) that was decided largely in favor of another, now closed, marijuana dispensary. In the CHAMP case, the IRS conceded that 280E doesn’t preclude deducting the cost of goods sold (i.e. the cost of the cannabis). The court also ruled that CHAMP could deduct the cost of providing extensive counseling and caregiving services to its members, although not the cost of actually distributing the marijuana.
The title of this blog post is courtesy of Country Joe and the Fish:
Don't bogart that joint, my friend
Pass it over to me.
Don't bogart that joint, my friend
Pass it over to me.