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.)
Porn Publisher Offers $1 Million for Romney's Tax Returns
This ad appeared in Sunday’s Washington Post:
The ad also will run Tuesday's USA Today.
August 21, 2012
Does Flavor Flav Have a $900k Tax Problem? Yeah Boy!
(Hat Tip: Bob Kamman.)
August 19, 2012
Wealthy Italians Take Tax Lesson From John Kerry
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)
August 16, 2012
Usain Bolt Sprints From the British Tax Man
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)
August 15, 2012
UBS Sues Billionaire Olenicoff For Malicious Prosecution in Offshore Tax Fraud Case
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
August 14, 2012
Taxes in The Twilight Zone
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.
August 10, 2012
More on the Tax Treatment of U.S. Olympic Medal Winners
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
August 6, 2012
Will Mark Zuckerberg Ever Pay Taxes Again?
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.
August 3, 2012
Will Ferrell Favors a 75% Tax Rate on the Wealthy
July 31, 2012
Olympic Athletes Get Special U.K. Tax Break
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
July 30, 2012
Keeping Up With the Kardashians' Taxes
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.)
July 22, 2012
A Taxing British Open
[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.)
July 17, 2012
H&R Block Amends Batman's Tax Return
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
July 15, 2012
IRS Bogarts Medical Marijuana Pharmacy's Deductions, Drives Founder Into Bankruptcy
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.
July 14, 2012
Argentine President: Criticize Me, the Taxman Will Punish You
If you want to publicly criticize Argentina’s government, make sure all your tax filings are in order.
That was the thinly veiled message President Cristina Fernández de Kirchner sent Wednesday near the end of a speech broadcast on all national television and radio stations. Reiterating her standard criticism that media “operations” are depressing Argentinians with gloom-and-doom stories, she derided an article published last Sunday. ... In the story, the owner of a real-estate agency, one of its directors and an employee were quoted complaining that recent government measures essentially blocking the sale of foreign currency to citizens had paralyzed their business.
Kirchner then dropped this bit of information: the firm in question hasn’t filed taxes since 2007 and neither has the director quoted in the story, whom she named.
How did she know? She had called up the head of the tax agency to ask, and this, too, she openly revealed on Wednesday’s broadcast. ... [B]y saying that she had called the taxman out of supposed concern for the real-estate agency, she unabashedly established cause and effect: you criticize me; I punish you.
July 13, 2012
Holy Taxation, Batman! H&R Block Messes Up Bruce Wayne's Taxes
Kay Bell notes that H&R Block's flashy campaign -- Superhero Economics: Bruce Wayne (Batman) v. Peter Parker (Spiderman) -- wrongly asserts that Batman would not be liable for any federal income tax on his $143 million income because of his $279 million of charitable giving:
Section 170(b)(1)(A) limits the charitable deduction to 50% of the taxpayer's adjusted gross income. So Batman would be taxable on roughly $72 million, leaving over $200 million of the charitable contribution deduction to be carried over to future years.
Update: 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
NPR: Did Steve Nash Sign with the L.A. Lakers for Tax Reasons?
National Public Radio, 'Sports Tax Man' Is a Financial Quarterback:
NPR's Kevin Leahy consulted an accountant who calls himself the Sports Tax Man. ...
KEVIN LEAHY: Last week, point guard Steve Nash was on the market. Nash is Canadian, beloved in his home country. And the Toronto Raptors wanted him badly. ...
RAY RAIOLA: The way I like to look at it, he'll receive 50 cents on a dollar.
LEAHY: That last voice belongs to Robert Raiola, CPA. On Twitter, he's known as Sports Tax Man. Raiola ignored the Prodigal Son storyline and referred to a new Canadian tax law.
RAIOLA: In 2012, the top rate in the province of Ontario is 48%. In 2013, the top rate will be 49.5%.
That means Nash would pay more tax in Toronto than if he signed in, say, California. Suddenly a big offer from the Raptors doesn't look quite as enticing. Raiola doesn't work for Steve Nash, but it's his job to think this way. He calls himself a financial quarterback. ...
As for Steve Nash, the Canadian? He wound up signing with the Los Angeles Lakers. He'll play with Kobe Bryant, soak up the sunshine and avoid those steep Canadian taxes.
(Hat Tip: Nicole Zumwalt.)
July 9, 2012
Denise Rich Dumps U.S. Passport, Will Save Tens of Millions in U.S. Taxes
Reuters: Socialite Denise Rich Dumps U.S. Passport, by Lynnley Browning:
Denise Rich, the wealthy socialite and former wife of pardoned billionaire trader Marc Rich, has given up her U.S. citizenship -- and, with it, much of her U.S. tax bill.
Rich, 68, a Grammy-nominated songwriter and glossy figure in Democratic and European royalty circles, renounced her American passport in November, according to her lawyer. Her maiden name, Denise Eisenberg, appeared in the Federal Register on April 30 in a quarterly list of Americans who renounced their U.S. citizenship and permanent residents who handed in their green cards.
By dumping her U.S. passport, Rich likely will save tens of millions of dollars or more in U.S. taxes over the long haul, tax lawyers say.
Rich, who wrote songs recorded by Aretha Franklin, Mary J. Blige and Jessica Simpson, is the latest bold-faced name to join a wave of wealthy people renouncing their American citizenship. Facebook co-founder Eduardo Saverin gave up his U.S. passport to become a citizen of Singapore, an offshore tax haven, before the company's initial public offering in May.
Nearly 1,800 citizens and permanent residents, a record since data was first compiled in 1998, expatriated last year, according to government figures. ...
Rich's ex-husband, commodities trader Marc Rich, fled the United States in 1983 when indicted on charges of tax evasion, fraud, racketeering and illegal trading of oil with Iran. They divorced in 1996. Marc Rich received a presidential pardon in 2001 on President Bill Clinton's last day in office. Federal prosecutors and Congress investigated the pardon, and in 2002 a House of Representatives committee concluded Denise Rich had swayed the action through [$450,000 in] donations to the Clinton library and campaign.
- New York Post, Denis Rich Dumps U.S. Passport to Save Millions in Tax
July 1, 2012
Tax Aspects of the Tom Cruise-Katie Holmes Divorce
Katie Holmes' master plan to file for divorce in New York may have created HUGE tax problems for Tom Cruise ... sources connected with the couple tell TMZ. ...
Katie filed divorce docs in NYC, in large part because she wants sole legal custody of Suri and New York courts are way more likely to grant Katie sole legal custody and control over child-rearing decisions than California courts. But here's the problem ... sources connected with the couple tell us ... Tom has been trying to do everything legally within his power to avoid strong ties to New York City because the tax rates are ridiculously high ... and he does not want any appearance that he or Katie have been living there. ...
TMZ has obtained documents which show Tom deeded their NYC apartment to Katie last August and our sources say it was done specifically for tax purposes. ... Sources say Katie is using the apartment to establish residency in New York for the purpose of the divorce -- something we're told can screw Tom tax-wise.
June 16, 2012
Taxpayers Pay $1.2 Million for Lunch with Warren Buffett
Wall Street Journal: Lunch With Warren Buffett: One Giant Tax Deduction, by Laura Saunders:
Is the donation tax-deductible? Experts say most of it probably is, meaning taxpayers in effect will pick up about $1.2 million of the tab. ...
Like any other charity, Glide will have to send the donor a letter saying how much of the gift is tax-deductible, and the assessment must be able to withstand a challenge by the IRS. Last month, the U.S. Tax Court, in a case known as Mohamed v. Commissioner, denied an $18.5 million charitable deduction by a California couple who didn't have correct paperwork before they filed their return.
Experts expect Glide's letter to exclude the fair-market value of the lunch from the donation total. The law mandates a disallowance for any goods or services received in connection with the donation, such as the lunch, which includes Mr. Buffett, the donor and up to six invited guests. The fair-market value is the cost of the prepared food to regular diners, not the purchase price of the groceries at a market.
What is Mr. Buffett's company and conversation worth? Nothing, under an IRS rule in effect since the mid-1990s. It deems "celebrity presence"—as when a famous artist gives a museum tour to a donor who has won it in a charity auction—to have no value in and of itself. Mr. Buffett has specified that talk of investments is off limits, so he isn't providing a service.
Update: Forbes, Should Warren Buffett's $3.46M Lunch Be Tax Deductible?
June 1, 2012
From L.A. Dodgers to Alleged Tax Dodgers
[T]he investigation is focused not only on your run of the mill fraud but on federal and state income tax issues (the MLB has already confirmed via the bankruptcy petition that the Dodgers owe the City of Los Angeles nearly a quarter of a million dollars in back taxes). ...
Jamie McCourt had previously alleged in the nasty, public – did I mention nasty? – divorce of the former owners that the couple had paid no federal or state taxes for at least six years, beginning 2004, the year the McCourts bought the Dodgers. That was as of last year. There’s no word on whether any taxes had been filed or paid for 2010 and/or 2011. Last year, Frank McCourt’s accountant confirmed that the McCourts and/or related entities were under examination for 2006, 2007 and 2008. That was confirmed by Major League Baseball (MLB) Commissioner Bud Selig last year. ...
The MLB alleges that Frank McCourt – who holds a degree in economics from Georgetown University – improperly converted as much as $189 million. If that’s true – and if he didn’t report it as income – that could result in a pretty sizable tax bill and potentially, criminal charges.
- Bloomberg, Feds Ask for Docucments From McCourts
- L.A. Times, Dodgers' McCourt-Era Finances Investigated by Federal Panel
- L.A. Weekly, Frank McCourt Under Federal Investigation For Possible Tax Evasion, Financial Wrongdoing
May 16, 2012
Tax Savings From Facebook Co-Founder's Renunciation of U.S. Citizenship: $67 Million
- Facebook Co-Founder Renounces U.S. Citizenship in Advance of IPO, Saving Millions in U.S. Taxes (May 11, 2012)
- Will Facebook Co-Founder's Renunciation of U.S. Citizenship Increase His U.S. Tax Bill? (May 12, 2012)
- Seto, Kleinbard Explain Tax Consequences of Facebook Co-Founder's Renunciation of U.S. Citizenship (May 13, 2012)
Bloomberg, Facebook’s Saverin May Save $67 Million on U.S. Tax Bill, by Jesse Drucker:
Facebook co-founder Eduardo Saverin will save at least $67 million in federal income taxes by dropping U.S. citizenship, according to a Bloomberg analysis of the company’s stock price. Those savings will keep growing if Facebook’s shares increase. ...
Saverin’s stake may be worth as much as $2.89 billion, based on the company’s 1.898 billion total shares outstanding. His stake was worth about $2.44 billion in September. Bloomberg calculated the $67 million figure by applying the 15 percent U.S. capital gains rate to the approximate $448 million spread between the two values. Bloomberg’s methodology was reviewed by Robert Willens, an independent tax adviser based in New York.
“The calculations and assumptions are not only erroneous, they also further perpetuate the false impression that tax was the reason behind Eduardo’s decision,” Goodman said, declining to cite specific errors. “His motive had nothing to do with tax and everything to do with his desire to live and work in Singapore.”
Saverin’s capital gains tax liability comes “at a time when the rate is probably the lowest it ever will be, and it’s a substantial discount to the value of what his position in Facebook will likely be two weeks from now,” said Edward Kleinbard, a tax law professor at the University of Southern California in Los Angeles. Any profit from future appreciation of Saverin’s Facebook stock will be earned free of capital gains tax in the U.S. and Singapore, which doesn’t impose the tax. “That’s got to be by far the biggest benefit, assuming Facebook’s stock appreciates at even a fraction of the level people expect,” Willens said.
Will Smith Backs President Obama's Call for Higher Taxes on the Rich (But Not France's Proposed 75% Rate)
Fox News, Will Smith Backs Obama Tax Jack:
One of Hollywood's biggest and best-paid stars is supporting President Barack Obama's call for higher taxes on the country's top earners. Will Smith said while promoting Men In Black III last week that he supports the move. "I'm very supportive of that idea," Smith told The Associated Press in an interview. "America has been fantastic to me. I have no problem paying whatever I need to pay to keep my country growing."
But Mr. Smith, who was paid $20 million for Men in Black III, recoiled when asked about French President-elect Francois Hollande's proposal to tax millionaires at a 75% rate:
May 1, 2012
Stephen King: Tax Me, for F@%&’s Sake!
The iconic writer scolds the superrich (including himself—and Mitt Romney) for not giving back, and warns of a Kingsian apocalyptic scenario if inequality is not addressed in America.
I guess some of this mad right-wing love comes from the idea that in America, anyone can become a Rich Guy if he just works hard and saves his pennies. Mitt Romney has said, in effect, “I’m rich and I don’t apologize for it.” Nobody wants you to, Mitt. What some of us want—those who aren’t blinded by a lot of bullshit persiflage thrown up to mask the idea that rich folks want to keep their damn money—is for you to acknowledge that you couldn’t have made it in America without America. That you were fortunate enough to be born in a country where upward mobility is possible (a subject upon which Barack Obama can speak with the authority of experience), but where the channels making such upward mobility possible are being increasingly clogged. That it’s not fair to ask the middle class to assume a disproportionate amount of the tax burden. Not fair? It’s un-f***king-American is what it is. I don’t want you to apologize for being rich; I want you to acknowledge that in America, we all should have to pay our fair share. That our civics classes never taught us that being American means that—sorry, kiddies—you’re on your own. That those who have received much must be obligated to pay—not to give, not to “cut a check and shut up,” in Governor Christie’s words, but to pay—in the same proportion. That’s called stepping up and not whining about it. That’s called patriotism, a word the Tea Partiers love to throw around as long as it doesn’t cost their beloved rich folks any money.
This has to happen if America is to remain strong and true to its ideals. It’s a practical necessity and a moral imperative. Last year during the Occupy movement, the conservatives who oppose tax equality saw the first real ripples of discontent. Their response was either Marie Antoinette (“Let them eat cake”) or Ebenezer Scrooge (“Are there no prisons? Are there no workhouses?”). Short-sighted, gentlemen. Very short-sighted. If this situation isn’t fairly addressed, last year’s protests will just be the beginning. Scrooge changed his tune after the ghosts visited him. Marie Antoinette, on the other hand, lost her head.
April 25, 2012
School's Out for Summer!
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!
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
April 24, 2012
Jon Lovitz Critiques President Obama's Tax Policy
Former Saturday Night Live cast member Jon Lovitz, a registered Democrat who voted for Barack Obama in 2008, criticizes the President's tax policy (language warning: many f-bombs):
April 20, 2012
Tax Court: Documentary Is Not Hobby, Filmmaker-Attorney Can Deduct Six Years of Losses
Following up on my prior post, Tax Court to Decide: Are Documentaries Hobbies for Tax Purposes?: Forbes, Maker of 'Up With People' Movie Knocks Down IRS, by Janet Novack:
In a big win for documentary filmmakers, a U.S. Tax Court Judge Thursday ruled that Lee Storey, the producer and director Smile `Til It Hurts: The Up with People Story, can write off hundreds of thousands of losses from her filmmaking against her substantial income as a Phoenix lawyer, even though she failed to make a profit for six straight years. ... In her 46-page decision, [Judge] Kroupa not only accepted documentary filmmaking as a legitimate business, but also recognized it is one where the unprofitable start-up phase may be longer than normal and allowed Storey ever penny of her claimed losses. [Storey v. Commissioner, T.C. Memo. 2012-115.]
See also Double Taxation.
April 3, 2012
TaxMasters Bankruptcy Leaves CNN, Fox News With Unpaid $3.5 Million Advertising Bills
Forbes, TaxMasters Leaves CNN, Fox News, MSNBC Holding Empty Bag, by Janey Novack:
TaxMasters, the heavily advertised “tax resolution” company that filed for bankruptcy last month, has left several big media companies, as well as its clients and law firms, holding an empty bag. In a court filing yesterday, TaxMasters listed TimeWarner’s CNN unit at its largest unsecured creditor, owed $2.6 million. Its second largest creditor is the Philadelphia based law firm of Blank Rome, owed $2.3 million.
TaxMasters’ unsecured creditors are unlikely to see much, if any, cash. ... In addition to CNN, TaxMasters’ 20 largest listed creditors include News Corp.’s Fox News Channel (owed $938,414); Houston advertising firm Maxximedia (owed $1,326,676); American Express (owed $679,497); radio network Westwood One, now a part of Dial Global (owed $676,000); the History Channel (owed $653,820); MSNBC (owed $259,441); Yahoo (owed $196,475); Dial Global’s Weather Channel (owed $172,233); The Discovery Channel (owed $136,850) and Disney’s ESPN (owed $94,265).
F. Lee Bailey Represents Himself in Tax Court
Noted criminal defense attorney F. Lee Bailey represented himself in Tax Court in a convoluted $4 million dispute with the IRS. Mr. Bailey won the major issue in the case -- the tax issues arising from his handling of client funds under a verbal agreement with the U.S. Government -- but lost most of the other issues in the case (including his claimed loss deductions for his yacht). The court also approved negligence penalties against Mr. Bailey:
If Mr. Bailey had disclosed to a tax professional the facts underlying the adjustments we have sustained, and if the professional had advised him to report the items as he did, then he might have a colorable claim of reasonable cause based on reliance on advice. However, Mr. Bailey offered no evidence of such informed advice, nor of any other claim of reasonable cause and good faith. This defense is therefore unavailing to Mr. Bailey.
Bailey v. Commissioner, T.C. Memo. 2012-96 (Apr. 2, 2012) (143 pages). For more, see:
April 1, 2012
Warren Buffett Issues Tax Mea Culpa, Launches 'Tax It Forward' Movement
Warren Buffett today issued a mea culpa on the Buffett rule, acknowledging that it would have a trivial impact on his very low tax rate. Buffett admitted that the $8 billion of appreciation in his Berkshire Hathaway stock would continue to be untaxed under the Buffett rule. Instead, Buffett announced his support for the annual 15% mark-to-market tax on appreciation in publicly traded stock held by the wealthy proposed by David S. Miller (Cadwalader, New York).
As a first step, he today mailed a $1.2 billion check to the U.S. Treasury and announced the formation of the Tax It Forward Foundation, modeled after the Pay It Forward Foundation, popularized in the 2000 movie Pay It Forward (starring Kevin Spacey and Helen Hunt). Buffett urged others to follow his example and Tax it Forward by sending checks to the U.S. Treasury to compensate other taxpayers for bearing the burden of their prior tax planning. In response thus far, the following tax miscreants have sent checks to the U.S. Treasury (or other state and foreign tax authorities) and issued press releases:
- Timothy Geithner: TurboTax did not cause me to underreport my income
- Mitt Romney: I abused the IRA rules to stuff my IRA with $100 million
- Newt Gingrich and John Edwards: We abused the Sub S rules to avoid paying employment tax
- John Kerry: I moored my boat in Rhode Island to avoid Massachusetts tax
- Joe Biden and Barack Obama: We only increased our charitable giving when we realized we would have to publicly release our tax returns
- Charlie Rangel: As Chair of the House Ways & Means Committee, I knew all along that I was liable for tax on the rental income from my Dominican Republic beach condo
- Cindy Sheehan: I used my opposition to the Iraq and Afghanistan wars to avoid meeting my tax obligations
- General Electric: We have downsized our tax department and will no longer use aggressive tax strategies to avoid U.S. income tax
- Wesley Snipes: I knew all along that my income was properly subject to tax
- Alec Baldwin: I am a New York City resident and am responsible for New York City taxes
- Bono: I should not have moved my music empire to the Netherlands to avoid paying Irish taxes
- Al Sharpton: I should have used part of my MSNBC salary to pay my taxes
- Alex Rodriguez: I should not have taken special tax relief for my Manhattan condo
- OJ Simpson: I should not have taken the homestead exemption on my Florida home while I am in prison
March 29, 2012
NYU Hosts First Encounters with the Income Tax
The NYU Graduate Tax Program hosts its 3rd Annual Tax Movie Night tonight, First Encounters with the Income Tax:
[W]e will screen three classic television episodes, spanning four decades, involving individuals’ first encounters with the U.S. income tax system. The episodes featured are from The Bill Dana Show (1963), Green Acres (1970) and 3rd Rock from the Sun (2000). Professor Lawrence Zelenak from Duke Law School will join us as a special guest speaker. After we screen the episodes (about 75 minutes), Professor Zelenak will lead a Q&A discussion. Refreshments, including popcorn, will be served.
March 14, 2012
Grover Norquist on The Daily Show With Jon Stewart
March 8, 2012
Facebook Billionaires Used GRATs to Transfer More Than $200 Million Free of Gift Tax
Forbes, Facebook Billionaires Shifted More Than $200 Million Gift-Tax Free, by Deborah Jacobs:
Mark Zuckerberg and Dustin Moskovitz, the co-founders of Facebook and two of the world’s youngest billionaires, may seem too young to be thinking about estate planning. But in 2008, when they were both 24, they used an estate planning tool that is more familiar to people two or three times their age. It involved putting pre-IPO stock into a special kind of trust that will explode in value when the company goes public. In the process Zuckerberg and Moskovitz, by Forbes conservative estimate, will together shift $185 million to trust beneficiaries without having to pay gift tax. Sheryl Sandberg, Facebook’s CEO, who was then 39, used the same strategy to transfer at least $19 million tax-free.
There’s nothing illegal about what these executives did. In fact, their experience is a case study in how the ultra-rich and even the moderately wealthy can work within the parameters of the tax law to transfer vast sums of money without having to pay gift tax. Incidentally, according to the 2012 Forbes Billionaires list, Zuckerberg (#35 on the list) has a net worth of $17.5 billion and Moskovitz (#314) is worth $3.5 billion.
The wealth-transfer strategy that the Facebook billionaires used gets a passing reference in footnotes of the company’s public stock offering. It indicates that each of these company executives is the trustee for a separate annuity trust named after them and funded with shares of Facebook stock. (Moskovitz left Facebook in 2008 to co-found Asana.) This is almost certainly a reference to the popular estate planning technique known as the grantor retained annuity trust or GRAT.
March 2, 2012
Stephen Colbert on The Hill's Tax Poll
Stephen Colbert responds to The Hill's Poll: 70% of Likely Voters Support Lower Individual, Corporate Tax Rates:
The Colbert Report
(Hat Tip: Ann Murphy.)
March 1, 2012
Grover Norquist on The Daily Show With Jon Stewart
(Hat Tip: Ann Murphy.)
February 26, 2012
Taxing the Oscars
- TaxProf Blog, Oscar Swag Bags to Result in $100k Income to Celebrity Presenters
- TaxProf Blog, The Tax Treatment of Oscars
- Forbes, Biggest Winner At Oscars? IRS, by Robert W. Wood
Forbes: Estate Planning Issues in The Descendants
Forbes, George Clooney Makes Estate Planning Sexy, by Deborah Jacobs:
Estate planning doesn’t often make it to the Academy Awards. But that’s happened this year, with The Descendants nominated for Oscars in five categories, including best picture, best actor (George Cloney) and best director (Alexander Payne).
Based on the novel by Kaui Hart Hemmings (see related story here), it’s a multi-layered story about Matt King (played by Clooney), a rich trial lawyer in the throes of a midlife crisis and personal tragedy. ... [T]he movie title refers to the fact that King is the descendant of a wealthy white banker and a Hawaiian princess. They left valuable real estate on Kauai in a trust. With that trust about to end, King must decide whether to sell the land to a developer, enriching himself and his greedy cousins.
To most viewers, estate planning themes are secondary to the film’s other dramas. But it turns out that the legal issues were painstakingly developed and fact-checked. On location in Hawaii in March, 2010 to get the lay of the land and soak up its culture, Alexander Payne, the director, consulted Randall Roth, a professor at the University of Hawaii School of Law and a nationally known trusts and estates expert.
Roth, who hails from Kansas, is a 30-year resident of Hawaii and happens to be an authority on land trusts in the state. He’s the co-author of Broken Trust, a book about the mismanagement and political manipulation of America’s largest charitable trust. With private land trusts, he says, there’s often a tension, as there was in The Descendants, about whether to pave paradise and convert a land-rich/cash-poor trust to a highly profitable venture. ... Roth says he spent about six hours — not counting the time it took to read the book — making notes, talking and exchanging e-mails with Payne. He says he wasn’t paid for these efforts, but “thoroughly enjoyed the experience and was thrilled” when Payne gave him a screen credit. ...
Forbes talked with [Roth] about the estate planning themes that thread through the movie:
- Unearned wealth causes conflicts
- Express your final wishes
- There are legal limits to how long a trust can last
- Joint ownership of land can be “a train wreck”
- Long-term trusts pose special challenges
- A trustee must be objective
February 24, 2012
Anti-War Activist Cindy Sheehan Refuses to Pay Taxes
Anti-war activist Cindy Sheehan, who is being sued in California by the federal government, said she has a duty to not pay taxes because her son died in what she called an "immoral" war.
An IRS officer, in a federal filing Tuesday in Sacramento, said Sheehan has refused to provide financial information for the 2005 and 2006 tax years. The filing asks the court to order Sheehan to comply.
Sheehan, of Vacaville, told CNN affiliate KXTV she has not paid federal incomes taxes since 2004 -- and has not disguised the fact.
"I feel like I gave my son to this country in an illegal and immoral war. I'll never get him back," Sheehan said. "And, so, if they can give me my son back, then I'll pay my taxes. And that's not going to happen."
Sheehan drew national attention when she camped outside then-President George W. Bush's home in Crawford, Texas, throughout August 2005 to demand a meeting with the president over her son's death.
Casey Sheehan, a 24-year-old Army specialist, was killed in an April 2004 battle in Baghdad. His death prompted his mother to found Gold Star Families for Peace.
In 2011, Sheehan raised questions about whether U.S. special forces had indeed killed al Qaeda leader Osama bin Laden.
"It's not that I don't believe (President Barack) Obama about Osama because he's Obama, I don't believe him because he is just one in along (sic) line of butt-naked emperors," Sheehan wrote on a blog.
From Ms. Sheehan's blog:
It’s not a secret, and hasn’t been one for about 8 years now, that I am a conscientious tax objector. It’s also no secret that the IRS has been on my case about it recently. ... I made a moral decision to refuse to fund the Empire’s crimes, tortures and wars. I have not been hiding from anybody and am fully accessible and easy to find. ...
I consider that my debt to this country was paid in full when my son, Casey, was recklessly with no regard for his safety (remember the rush to war with the “Army you have” which was not properly trained or equipped?) murdered for the lies of a regime, whose members (Bush, Cheney, Rice, Rumsfeld, Yoo, Wolfowitz, Perle, etc.) roam around the world free and unfettered by threatening prosecutions or persecutions after committing war crimes, crimes against humanity, crimes against the peace, and high crimes and misdemeanors against our own Constitution.
Ms Sheehan requests tax deductible donations here.
February 23, 2012
Bruce Bartlett Talks Tax Reform With Jon Stewart
Chris Christie to Warren Buffett: 'Write a Check and Shut Up'
February 21, 2012
Ray Charles Foundation Demands Return of $3 Million Donation; University Says Gift was Unrestricted
February 19, 2012
Candy Man (Tax Edition)
(Hat Tip: Jim Maule.)
February 16, 2012
Rick Santorum Releases Tax Returns
Rick Santorum yesterday released his 2007-2010 tax returns:
Press and blogosphere coverage:
Whitney Houston's Estate Planning
- Daily Star, Whitney Houston's Bid to Pay Tax
- E! Online, How Much Was Whitney Houston Worth When She Died?
- Forbes, Whitney Houston’s Death and Taxes
- Financial Planning Magazine, Broke or Not, Whitney Houston Now Understands Value of Estate Planning
- Trial & Heirs, Whitney Houston Denies She's Broke, Wins Lawsuit vs. Step-Mom
- Wills, Trusts & Estates Prof Blog, More Lessons to Come From Whitney Houston's Estate
- Wills, Trusts & Estates Prof Blog, Whitney Houston's Financial and Family Woes
February 6, 2012
Did Taxes Force Lottery Ticket Buyer to Forgo $14 Million Prize?
That’s one explanation for a weird story where a New York lawyer acting on behalf of holder of a winning lottery ticket purchased at a Des Moines convenience store let the ticket expire rather than revealing the identity of the ticket owner.The ticket was turned in hours before its expiration by a Des Moines law firm hired by a New York attorney employed by a Belize trust claiming to be the ticket owner. The lottery wouldn’t approve the prize without knowing who was behind the trust, and the trust wasn’t telling. Apparently $14 million wasn’t enough money to get the human(s) behind the trust to come out of the cold.It’s hard to imagine what would cause somebody to walk away from a $14 million prize. ... Could unpaid taxes be the problem? Belize is noted as a tax haven, Could the winner be a Des Moines millionaire-next-door who has been stashing money illegally in Belize, didn’t want to draw attention, and was willing to claim the prize only anonymously? If so, it seems like a play gone wrong. Winning the lottery would seem to be a godsend for a tax evader. Suddenly nobody would think twice about your new sports car and big house in Florida.
January 25, 2012
Jon Stewart on Mitt Romney's Tax Returns
January 18, 2012
Tax Court Rejects Buy.com Founder's $45 Million OPIS Tax Shelter
Blum v. Commissioner, T.C. Memo. 2012-16 (Jan. 17, 2012):
This Court has not previously considered an Offshore Portfolio Investment Strategy (OPIS) transaction. The question before us is whether petitioners are entitled to deduct certain capital losses claimed from their participation in the OPIS transaction. We hold that they are not because the transaction lacks economic substance. We must also decide whether petitioners are liable for gross valuation misstatement penalties and negligence penalties under § 6662(a). We hold they are liable for the penalties.Petitioners claimed an artificial loss of over $45 million. This is exactly the type of “too good to be true” transaction that should cause a savvy, experienced businessman to seek independent advice. See Neonatology Associates, P.A. v. Commissioner, 299 F.3d at 234 (“When, as here, a taxpayer is presented with what would appear to be a fabulous opportunity to avoid tax obligations, he should recognize that he proceeds at his own peril.”). ... Petitioners’ decision to rely exclusively on KPMG in structuring, facilitating and reporting their OPIS transaction was therefore not reasonable. Petitioners did not take their position in good faith and thus lacked reasonable cause for that position. Accordingly, we sustain respondent’s determination that petitioners are liable for accuracy-related penalties for 1998 and 1999.
From the Tax Notes Vault: Richard Nixon's Charitable Deduction for the Donation of His Pre-Presidential Papers
In celebration of the 40th anniversary of the publication of its inaugural issue, Tax Notes is re-publishing memorable articles from its archives. Here is a memorable 1973 exchange involving President Nixon's claimed charitable deduction from the transfer of his pre-presidential papers to the National Archives:
- Ira Tannenbaum, Income Tax Treatment of Donation of Nixon Pre-Presidential Papers, 134 Tax Notes 313 (Jan. 16, 2012)
- Letter from Thomas F. Field to Donald C. Alexander (July 30, 1973), 134 Tax Notes 320 (Jan. 16, 2012)
- Letter from Donald C. Alexander to Thomas F. Field (Oct. 25, 1973), 134 Tax Notes 321 (Jan. 16, 2012)
- Letter from Thomas F. Field to Donald C. Alexander (Oct. 30, 1973), 134 Tax Notes 321 (Jan. 16, 2012)
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January 16, 2012
Martin Luther King Jr. and Tax
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.