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Thursday, December 26, 2013

Mark Zuckerberg's $2 Billion Tax Bill

ZuckerbergForbes:  Mark Zuckerberg's $2 Billion Tax Bill Double Last Year, Higher Than Most Billionaries, by Robert W. Wood:

Last year Mark Zuckerberg caused a kerfuffle by generating what many called the biggest tax bill ever for an individual, about $1 billion in taxes. That was impressive, but much of it was done via withholding as part of his Facebook pay. Besides, Facebook got a tax deduction for every dollar.

The Facebook founder and CEO is in for an even bigger tax hit now. But as with last year, it seems largely within his control. Company filings say he is selling 41.4 million shares worth approximately $2.3 billion. Most of the net proceeds are supposed to be used to pay the taxes Mr. Zuckerberg will incur by exercising options to purchase 60 million shares of Facebook Class B common stock.

Mr. Zuckerberg now has 58.8% of the voting power, but this whopping sale of shares would take him down to 56.1%. Still, post-sale he will retain more than 444 million shares. And he may still have unexercised options too.

But it is easy to see that even among elite filers, Mr. Zuckerberg is, well, elite. According to IRS data on the top 400 tax returns, the average in that elite group was about $48 million. And the entire group of 400 paid only $16 billion.

That was in 2009, but even accounting for inflation and a now somewhat more robust economy, the $2 billion tax payment is astounding, on top of big numbers last year. Warren Buffett paid less than $7 million in 2010. Yes, that was million, not billion.

Prior TaxProf Blog coverage:

December 26, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Wednesday, December 25, 2013

Santa's Tax Bill

SANTA CLAUS 1040_Page_1

Forbes:  The True Cost of Christmas: Santa's Tax Bill, by Kelly Phillips Erb:

[W]e’ve had quite a few discussions in my household about how Santa manages, in one night, to get all of his work done. Clearly, he has help. And that has financial and tax consequences, right? So we had a little chat about Santa’s money and his tax bill. And here’s what we – a tax attorney and three kids – decided: ...

His deductions appear to far outweigh his revenue, at least according to our mostly very unscientific surmisings. That said, Santa, if you’re reading, two quick things: One, I realize I’m not under age 14 but I’ve been really, really good this year. Just saying. Two, taxes can be confusing. It wouldn’t do to see Santa audited so call me with any questions. You have the number (my kids are sure of it).

From Jay Katz:  Christmas is the Time of the Year when Tax Nerds Mostly Wonder:

10. If every person who sings Christmas songs is named Carol.
9.  If a person who does not believe in Santa is a rebel without a Claus.
8.  If a prudent taxpayer should shop only at the After Tax Dollar Store.
7.  If Santa’s helpers are W-2 employees or 1099 subcontractors.
6.  How long it takes to prepare and file all of Santa’s gift tax returns.
5.  If Santa is entitled to a tax credit for every solar paneled chimney he goes down.
4.  Whether Santa should depreciate or take the standard mileage deduction for his reindeer.
3.  Whether Santa’s workshop qualifies for a home office.
2.  Whether Santa can take a hobby loss for the model airplane that fell out of his bag.
1.  Whether it is fair that Santa has to work every Christmas Eve.

December 25, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Tuesday, December 17, 2013

Billionaires' Use of Zeroed-Out GRATs Blows $100 Billion Hole in Estate Tax

SandsBloomberg:  Accidental Tax Break Saves Wealthiest Americans $100 Billion, by Zachary R. Mider:

Sheldon Adelson makes no secret of his disdain for the estate tax. “How many times do you have to pay taxes on money?” the casino magnate asks. ... Shares of his Las Vegas Sands Corp. are at a five-year high, making him one of the world’s richest men, worth more than $30 billion. ...

Federal law requires billionaires such as Adelson who want to leave fortunes to their children to pay estate or gift taxes of 40 percent on those assets. Adelson has blunted that bite by exploiting a loophole that Congress unintentionally created and that the IRS unsuccessfully challenged.

By shuffling his company stock in and out of more than 30 trusts, he’s given at least $7.9 billion to his heirs while legally avoiding about $2.8 billion in U.S. gift taxes since 2010, according to calculations based on data in Adelson’s U.S. Securities and Exchange Commission filings.

Hundreds of executives have used the technique, SEC filings show. These tax shelters may have cost the federal government more than $100 billion since 2000, says Richard Covey, the lawyer who pioneered the maneuver. That’s equivalent to about one-third of all estate and gift taxes the U.S. has collected since then.

The popularity of the shelter, known as the Walton grantor retained annuity trust, or GRAT, shows how easy it is for the wealthy to bypass estate and gift taxes. Even Covey says the practice, which involves rapidly churning assets into and out of trusts, makes a mockery of the tax code. “You can certainly say we can’t let this keep going if we’re going to have a sound system,” he says with a shrug.

Covey’s technique is one of a handful of common devices that together make the estate tax system essentially voluntary, rendering it ineffective as a brake on soaring economic inequality, says Edward McCaffery, a professor at the University of Southern California’s Gould School of Law. Since 2009, President Barack Obama and some Democratic lawmakers have made fruitless proposals to narrow the GRAT loophole. Any discussion of tax shelters has been drowned out by the debate over whether to have an estate tax at all, McCaffery says. ...

Facebook Chief Executive Officer Mark Zuckerberg and Lloyd Blankfein, the CEO of Goldman Sachs, are among the business leaders who have set up GRATs, SEC filings show. JPMorgan Chase helps so many clients use the trusts that the bank has a special unit dedicated to processing GRAT paperwork, says Joanne E. Johnson, a JPMorgan private-wealth banker. “I have a client who’s done 89 GRATs,” she says. Goldman Sachs disclosed in a 2004 filing that 84 of the firm’s current and former partners used GRATs. Blankfein has transferred more than $50 million to family members with little or no gift tax due, according to calculations based on data in his SEC filings. Charles Ergen, chairman of Dish Network, and fashion designer Ralph Lauren passed more than $300 million each, calculations from SEC filings show. ...

Congress created the GRAT while trying to stop another tax-avoidance scheme that Covey developed. In 1984, Covey, a lawyer at Carter Ledyard & Milburn in New York, publicized an estate-tax shelter he’d invented called a grantor retained income trust, or GRIT. Covey figured out how to make a large gift appear to be small. He would have a father, for example, put investments into a trust for his children, with instructions that the trust should pay any income back to the father. The value of that potential income would be subtracted from the father’s gift-tax bill.  Then, the trust could invest in growth stocks that paid low dividends so that most of the returns still ended up going to his kids.

Six years after Covey started promoting this technique, Congress termed it abusive and passed a law to stop it. The 1990 legislation replaced the GRIT with the GRAT, a government-blessed alternative that allowed people to keep stakes in gifts to their children while forbidding the abuse Covey had devised. Covey studied the law and found an even bigger loophole. “The change that was made to stop what they thought was the abuse, made the matter worse,” he says. Fredric Grundeman, who helped draft the bill while he was an attorney at the U.S. Treasury Department and is now retired, says the framers didn’t recognize the new law’s potential for abuse.

Covey recognized that a client could use the 1990 legislation to avoid gift taxes if he did something that would otherwise make no sense: put money in a trust with instructions to return the entire amount to himself within two years. Because he doesn’t have to pay tax on a gift to himself, the trust incurs no gift tax. Covey calls the trust “zeroed out.” Because the client isn’t paying any tax upfront, the transaction amounts to a can’t-lose bet with the IRS. If the trust’s investments make large enough gains, the excess goes to heirs tax-free. If not, the only costs are lawyer’s fees, typically $5,000 to $10,000, Covey says.

Three years after the new law took effect, Covey created a pair of $100 million zeroed-out GRATs for Audrey Walton, the former wife of the brother of Wal-Mart Stores Inc. founder Sam Walton. The IRS, which had banned such GRATs through regulation, demanded taxes and took her to court. In 2000, the U.S. Tax Court found in Walton’s favor, determining the 1990 law didn’t prohibit a “zeroed-out” GRAT. Covey had won a rare prize: an official seal of approval for a tax shelter.

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December 17, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (4)

Peter O’Toole's Tax Philosophy

National Review:  Peter O’Toole: He Loved Drink, Feared the Taxman:

OTooleO’Toole could also laugh at himself. He recalled that after he struck it rich in the 1960s, he tried to bully everyone in his household into voting Labour. He thought he had succeeded with everyone, until his working-class driver told him he had taken the Rolls down to the polling station and voted Conservative because his own taxes were too high.

That, he said, got him to thinking. He admitted his fellow actors Michael Caine and Sean Connery had a point when they said Britain’s high tax rates did discourage work, and moved themselves overseas. The year we spoke, Margaret Thatcher began cutting Britain’s tax rates, negating the need for O’Toole to ponder joining them.

(Hat Tip: Glenn Reynolds.)

December 17, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Friday, December 13, 2013

ESPN: PGA Tour's Tax-Exempt Business Model Yields Only 16% to Charity

ESPN Outside the Lines, Tax Breaks Power PGA Tour Giving:

ESPNThe PGA Tour's nonprofit business model has allowed it to avoid paying up to $200 million in federal taxes over the past 20 years, and its tournaments -- designed to benefit local charities -- operate in ways that fall short of acceptable charitable practices, an "Outside the Lines" analysis of IRS data finds.

The tour's charitable giving is a centerpiece of its golf events, tournament telecasts and website. The professional golf organization touts nearly $2 billion in donations over 75 years.

Yet that philanthropy has been bolstered by millions of dollars of annual tax breaks for the PGA Tour and its tournaments, which often are run by charities that spend far more on prizes, catering and country clubs than they do on sick kids, wounded vets or economic development. In one case, running a PGA tournament actually caused a charity to lose money -- more than $4.5 million over two years, the analysis found.

"Outside the Lines" analyzed the tour's U.S.-based tournaments that received charitable tax exemptions in 2011 (the most recent year available) and found they spent, on average, about 16 percent on actual charity. That figure is far below the minimum 65 percent that charity watchdog groups say makes for a responsible charity.

One of the groups, Charity Navigator, gave a "zero rating" to each of the tournament charities it reviewed for "Outside the Lines." ...

A breakdown of the 25 tour stops run as 501(c)(3) charities or private foundations can be found here.

Video here.

Prior TaxProf Blog coverage:

December 13, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Thursday, December 12, 2013

Tax Consequences of Sale of Michael Jordan’s ‘Flu Game’ Sneakers by Former Jazz Ball Boy for $104k

MJSports Illustrated, Michael Jordan’s ‘Flu Game’ Sneakers Auctioned for $104K by Former Jazz Ball Boy:

Preston Truman, a 35-year-old former Jazz ball boy, auctioned off the autographed pair of sneakers worn by Bulls guard Michael Jordan during his famous “Flu Game” for more than $104,000.

GreyFlannelAuctions.com listed the pair of the black and red Air Jordan 12s, worn during Game 5 of the 1997 Finals, at a starting price of $5,000, with bidding opening on Nov. 18. The auction company’s website indicates that 15 bids were received, and that the final price realized Thursday was $104,765. ... Jordan signed both of the Size 13 shoes, and the lot includes Jordan’s black game socks, too. ...

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December 12, 2013 in Celebrity Tax Lore, Scholarship, Tax | Permalink | Comments (1)

Monday, December 9, 2013

IRS Drops Tax Hammer on Stanley Burrell

HammerTMZ, IRS to MC Hammer: We're 2 Legit 2 Quit ... Pay Your $800k in Back Taxes:

MC Hammer just got touched in a big way by Uncle Sam ... for failing to pay almost $800K in back taxes ... according to court documents obtained by TMZ.

The Feds sued Hammer, née Stanley K. Burrell, and his wife Stephanie ... accusing them of stiffing the IRS to the tune of $798,033.48 on his '96 and '97 income taxes.

December 9, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Wednesday, November 13, 2013

What's Tax Got To Do With It? Tina Turner 'Relinquishes' (Not 'Renounces') U.S. Citizenship

TinaWashington Post, Tina Turner Formally ‘Relinquishes’ U.S. Citizenship:

This item just in via an “activity” report from the U.S. Embassy in Bern, Switzerland, headlined “Soul Legend Relinquishes U.S. Citizenship.”

“Long-time Swiss resident Tina Turner” was in the embassy Oct. 24 to sign her “Statement of Voluntary Relinquishment of U.S. Citizenship under Section 349 (a)(1) of the INA” — the Immigration and Naturalization Act. ...

The key word in the embassy report apparently is the term “relinquishment.” That means, a knowledgeable source told us, that she did not “formally renounce her U.S. citizenship under 349(a)(5) Immigration and Nationality Act, but took Swiss citizenship with the intent to lose her U.S. citizenship.” As opposed to formal renunciation — a much more complex process, we were told — there are no “tax or other penalties for loss of citizenship in this fashion.”

For the difference between relinquishing and renouncing U.S. citizenship, see here. As this detailed post makes clear, the tax consequences are the same whether one relinquishes or renounces U.S. citizenship. Previous press coverage suggested that Ms. Turner's actions may be motivated in part by a desire to escape the new FATCA regime.

(Hat Tip: Walter Schwidetzky.)

November 13, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Tuesday, November 12, 2013

What Is Michael Jackson's Name Worth? Estate Says $2,105, IRS Says $434,000,000

BadBillboard: Michael Jackson Estate's Valuation ($2,105) Vs. IRS' MJ Valuation ($434 Mil.):

This case pits the estate of Michael Jackson against the IRS, and centers on the $7 million taxable value of the estate's assets which were reported to the IRS. There's little doubt that the valuation of Michael Jackson's name and likeness rights at a paltry $2,105 raised a few eyebrows at the IRS offices -- the IRS' valuation was greater than $434 million and, in all, valued Michael Jackson's estate at more than $1.1 billion. The IRS has issued a notice of deficiency -- a bill for debts owed -- of estate taxes totaling more than $505 million. And because the IRS contends the executors significantly undervalued the estate's property, it tacked on additions of $196 million for good measure!

In response to the IRS' notice of deficiency, sent on on July 26, 2013, the Jackson estate filed a petition with the U.S. Tax Court, contending the valuations of the assets "were accurate and based upon qualified appraisals by qualified appraisers who had extensive experience valuing entertainment industry assets." On August 20, 2013, the IRS filed its response to that assertion, which detailed all of the proposed IRS valuations of Michael Jackson's assets, including his name and likeness. The disagreement has set the stage for a contentious valuation battle.

There's little doubt that the IRS knows that the exploitation of dead celebrity names and likeness is big business. What makes the estate of Michael Jackson's battle with the IRS of extreme interest is that, while the valuation of an estate's assets for federal estate tax purposes is usually made when a person dies (there is an election of value estate assets as of six months after the date of death), any subsequent dispute with the IRS over the worth of celebrity "name and likeness" rights rarely become public.

The rights of a deceased celebrity's estate to that celebrity's name and likeness rights are governed by state, not federal, law. So unless a deceased celebrity died a resident of a state affording posthumous protection for rights of publicity, such rights literally go to the grave along with that celebrity. This happened in the hotly litigated cases involving Marilyn Monroe, where the ultimate determination of her status as a New York and not a California resident meant Monroe's rights of publicity failed to survive her (since New York has no law protecting posthumous rights of publicity).

Conversely, California has for many years statutorily protected the rights of both living and dead celebrities in their names, voices, signatures, photographs and likenesses. In fact, these rights extend for 70 years after death, and, like most property rights, are licensable, transferable and descendible.

November 12, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Thursday, November 7, 2013

The Tax Treatment of Buyouts of Coaches' Contracts

USA Today:  Tax-Free Buyouts? Coaches Take a Chance With the IRS:

ButchTheir employment contracts were clear: When the head football coaches of 11 major public universities broke their contracts late last year and accepted jobs at other public schools, they faced responsibility for more than $7 million in buyouts.

Equally clear was what has become a basic tenet of college sports business: The coaches weren't going to pay. Their new employers were.

That's where a different interpretation of tax law has gained a foothold. A handful of schools — including Tennessee and Cincinnati earlier this year — have worded recent contracts to shield buyout payments made on behalf of coaches from being subject to income taxes. The schools paid substantial amounts on behalf of football coaches hired last winter: Tennessee sent $1.4 million to Cincinnati after hiring Butch Jones [top right], and Cincinnati sent $943,000 to Texas Tech to cover Tommy Tuberville's [middle right]buyout.

TubervilleUnder federal tax law, it is undisputed that an employer's payment of an employee's personal obligation must be treated as taxable income to the employee. But a buyout payment also is viewed as a business obligation.

Two tax law professors contend that gives schools the ability to treat the payment as a reimbursable business expense by the coach. Douglas A. Kahn, a professor at the University of Michigan law school, and his son, Jeffrey H. Kahn, a professor at Florida State's law school, advanced the idea in a law review article published in 2007 [Tax Consequences When a New Employer Bears the Cost of the Employee's Terminating a Prior Employment Relationship, 8 Fla. Tax Rev. 539 (2007)].

They acknowledged in the article that their assertion is vulnerable to dispute by the IRS. But in a recent interview with USA TODAY Sports, the Kahns said if the IRS challenged it, they think a coach who litigates the matter would prevail.

November 7, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Tuesday, October 1, 2013

Tom Hanks Leaves Captain Phillips Premiere Early to Avoid NYC Tax Man

Tom HanksThe National Enquirer, Tom Hanks IRS Avoidance:

Captain Tom laying low in NYC and it’s all because of his swanky abode in NYC that has the IRS up in arms!

Hanks, 57, has a primary residence in California which means the Tax Man only allows him to spend 183 days per year at his apartment in NYC and the Apollo 13 is already at about 149 days this year, so he has to be careful now with how he splits his time.

According to Showbiz411, the A-lister even had to skip out early at his Captain Phillips preem at the New York Film Festival last Friday night because he had to fly back to California so he didn’t take up an extra day of his New York time.

October 1, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (21)

Thursday, September 19, 2013

Founder of Beanie Babies to Plead Guilty to Tax Evasion

BeanieBabiesTy Warner, CEO of Ty Inc., which makes Beanie Babies, has agreed to plead guilty to tax evasion and pay $53.6 million in penalties in one of the largest offshore tax evasion cases in history.  He tried to enter the IRS's Offshore Voluntary Disclosure in 2009 but was rejected because he was already under investogation.

September 19, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Saturday, September 14, 2013

Johnny Football's Toughest Foe: Alabama or the IRS?

Manzel 2Following up on my previous post, NFL.com: Tax Issues for Manziel Raised From Alleged Autograph Income:

Everyone from opposing defenses to autograph dealers to the NCAA have tried to tackle Texas A&M quarterback Johnny Manziel in various forms in the last year, and the Heisman Trophy-winning sophomore has been too slippery for all of them.

But is he too slippery for the IRS?

That's essentially the question raised by TexasTaxTalk.com, which wondered aloud with an opinion column this week about what Manziel's tax return will look like next April. Or perhaps more to the point, what it looked like last April. If indeed Manziel accepted money for thousands of autographs, as was aggregately alleged in three ESPN reports, he has a tough decision to make come tax time, writes attorney David Gair:

What should he do at tax time? Report the income or keep up his story that he never got anything? He is stuck between a rock and a hard place. If he fails to report his income on his return, then he has just committed a crime. Willfully filing a false tax return is a felony that can net you three to five years in jail depending on the charge. But reporting the income on the tax return could be an admission that he violated NCAA rules. Between the two, if I were him, I would chose not to violate federal law.

September 14, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Thursday, September 12, 2013

Wal-Mart's Waltons Use CLATs, FLPs and GRATs to Shield Billions From Estate Tax

Walmart Logo (2013)Bloomberg, How Wal-Mart’s Waltons Maintain Their Billionaire Fortune, by Zachary R. Mider:

America’s richest family, worth more than $100 billion, has exploited a variety of legal loopholes to avoid the estate tax, according to court records and IRS filings obtained through public-records requests. The Waltons’ example highlights how billionaires deftly bypass a tax intended to make sure that the nation’s wealthiest contribute their share to government rather than perpetuate dynastic wealth, a notion of fairness voiced by supporters of the estate tax like Warren Buffett and William Gates Sr.  

Estate and gift taxes raised only about $14 billion last year. That’s about 1 percent of the $1.2 trillion passed down in America each year, mostly by the very rich, former Treasury Secretary Lawrence Summers estimated in a December blog post on Reuters.com. The contrast suggests “our estate tax system is broken,” he wrote [How to Target Untaxed Wealth]. ...

Closing just two estate tax loopholes [Familty Limited Partnerships and GRATs] -- ones that the Waltons appear to have used -- would raise more than $2 billion annually over the next decade, according to Treasury Department estimates. That doesn’t count taxes lost to the type of charitable trusts the Waltons used to fund projects like the museum; the department hasn’t estimated that cost. ...

[P]rofessional planners have sometimes held up the Waltons as a model. Patriarch Sam Walton, who founded Wal-Mart in Bentonville, cultivated an image as a regular guy from Oklahoma who enjoyed quail hunting and drove a beat-up Ford pick-up truck. He also showed unusual foresight about estate planning. According to his autobiography, “Made in America,” Sam Walton started arranging his affairs to avoid a potential estate tax bill in 1953. His five-and-dime-store business was still in its infancy and his oldest child was 9. That year, he gave a 20 percent stake in the family business to each of his children, keeping 20 percent for himself and his wife. “The best way to reduce paying estate taxes is to give your assets away before they appreciate,” he wrote in the book.

Sam’s retailing success made his family the richest since the Rockefellers, who themselves were pioneers in estate-tax avoidance. As soon as the tax was enacted in 1916, John D. Rockefeller, then the world’s richest man, circumvented it by simply giving much of his fortune to his son. Congress closed that loophole eight years later by adding a parallel tax on living gifts to heirs. ...

[Charitable lead annuity] trusts are often called “Jackie O.” trusts after Jacqueline Kennedy Onassis, the former First Lady who died in 1994 and whose will called for one. According to IRS data, the Waltons are by far the biggest users of Jackie O. trusts in the U.S.

The money put into these trusts is ostensibly for charity. If the assets appreciate substantially over the years, though, the trusts have another desirable feature: they can pass money tax free to heirs.

A donor locks up assets in these trusts, formally known as charitable lead annuity trusts, or CLATs, for a period of time, say 20 or 30 years. An amount set by the donor is given away each year to charity. Whatever is left at the end goes to a beneficiary, usually the donor’s heirs, without any tax bill.

The type of Jackie O. trust used by the Waltons doesn’t generate a break on income taxes. Instead, the big potential saving is on gift and estate taxes. When a donor sets one up, the IRS assesses how much gift or estate tax is due, based on how much of the trust’s assets will end up benefiting charity and how much will go to heirs. Most donors structure the trusts so that the heirs’ estimated leftover is zero or close to it.

The IRS makes its estimate using a complicated formula tied to the level of U.S. Treasury bond yields during the time when the trust is set up. If the trust’s investments outperform that benchmark rate, then the extra earnings pass to the designated heirs free of any estate tax. The rate has been hovering near all-time lows since 2009. For trusts set up this month, it’s 1.4 percent. With a big enough spread between the actual performance and the IRS rate, a Jackie O. trust can theoretically save so much tax that it leaves a family richer than if it hadn’t given a dime to charity.  ...

The historically low U.S. interest rates since 2009 are making Jackie O. trusts more popular and spurring tax planners to develop variations designed to squeeze out even more tax savings. ... The interest rates have prompted calls for reform even by some estate planners who set up Jackie O. trusts and the non-profit groups that benefit from them. One alternative floated at a Senate Finance Committee hearing in 2008 was to value the donation when the trusts actually give the money to charity, rather than guessing at the amount beforehand. ...

Helen Walton funded her first Jackie O. trusts not with Wal-Mart stock, the family’s biggest asset, but with a stake in Walton Enterprises LLC, the family office upstairs from the bike shop. That may have allowed her to exploit another loophole in the tax code -- one that lets the wealthy discount the value of their fortunes by 30 percent or more. ...

The Waltons have held their Wal-Mart stake in a family limited partnership or similar structure since 1953. ... “It’s beyond belief,” said Wendy Gerzog, a professor at the University of Baltimore and a former U.S. tax court lawyer who has written extensively about the discounts. She said the practice creates “a world of unreality.” ...

[L]awmakers, and the Treasury Department under both U.S. Presidents Bill Clinton and Barack Obama, have proposed eliminating some discounts involving transfers between family members. The Obama administration estimated that its most recent proposal, submitted in 2012, would raise an extra $18.1 billion over 10 years. None of the proposals have gone anywhere.  ...

Not long before Helen Walton created her first Jackie O. trust, her former sister-in-law won a court victory validating another tool to fend off the estate tax. As with the Jackie O. trust, this maneuver exploits the inevitable discrepancy when tax officials try to value future gifts. ‘Aunt Audie’ In 1993, Audrey Walton put $200 million of Wal-Mart stock into a pair of “grantor retained annuity trusts” or GRATs, to benefit her daughters, Ann and Nancy.  ...

The difference between the GRAT and the Jackie O. trust is that the GRAT pays an annuity back to the person who set up the trust, rather than to a charity. The trusts were set up to last for two years, and to pay out $217 million in stock and cash to Audrey Walton. If the stock rose in value so that money was left over at the end, it would go to her daughters tax free. ...

Here’s the catch: Walton claimed she owed no gift tax when she set up the trusts, because, under the IRS’s valuation formula, nothing would remain for her daughters. She claimed, in essence, she was just shifting money out of one pocket and into another, with no tax consequences. The result is a bet with the IRS that anyone would take -- one that tax planners sometimes describe as a “heads I win, tails we tie.”

Audrey Walton’s bet turned out to be a tie because nothing was left over for her daughters. She declined to comment on the case. Still, recognizing the potential loophole, the IRS attacked Walton’s trust, demanding a gift tax payment. Walton fought back, and in 2000 the U.S. Tax Court declared the Walton move legitimate and forced the IRS to rewrite federal regulations to allow it.

The “Walton GRAT,” as it’s now known, has become a common estate-planning technique for people with large amounts of liquid assets, such as CEO’s of publicly traded companies. The current low interest rates make it all the more likely that a GRAT bet will be a win rather than a tie. Users of GRATs, according to SEC filings, include the Coors brewing family and billionaire Nike Inc. founder Philip H. Knight.  

President Obama has repeatedly called for closing the Walton loophole in his annual budget proposal, estimating it would save $3.9 billion over 10 years. So far, the proposals have gotten no traction.

Sam Walton’s death in 1992 wouldn’t have resulted in an estate tax bill, assuming he left the bulk of his estate to his widow, Helen. Money flowing to a surviving spouse is exempt from the tax. Helen died in 2007, leaving billions in Jackie O. trusts.

Graphic:  How to Preserve a Family Fortune Through Tax Tricks

Bloomberg Chart_Page_1

September 12, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Saturday, August 31, 2013

Conan O'Brien: ConservoTax: The New Tax Software for Republicans

Friday, August 30, 2013

Should the IRS Investigate Johnny Football?

Manzel 2The NCAA and Texas A&M yesterday agreed on the suspension of Heisman Trophy winning quarterback Johnny Manziel for the first half of Saturday's season-opening game at Rice for violating NCAA bylaw 12.5.2.1, which states that student-athletes cannot permit their names or likenesses to be used for commercial purposes, including to advertise, recommend or promote sales of commercial products. or accept payment for the use of their names or likenesses.

Louisville Courier-Journal, Maybe IRS Should Take a Look at Johnny Manziel, by Tim Sullivan:

The Johnny Manziel case has been settled. Whether it’s over may depend on the IRS. The IRS has investigatory tools unavailable to the NCAA, and someone with subpoena power might be wondering how a college quarterback signs autographs in bulk and no money changes hands. It might be worth looking at some of the memorabilia dealers selling the Heisman Trophy winner’s signature to see if they have undeclared income or large, unspecified expenses. It might be worth squeezing some of these guys until some truth comes out.

August 30, 2013 in Celebrity Tax Lore, IRS News, Tax | Permalink | Comments (1) | TrackBack (0)

Thursday, August 22, 2013

Michael Jackson's Estate to IRS: Beat It

Beat It 2My nominee for tax headline of the year is from Kelly Phillips Erb:  Michael Jackson's Estate to IRS: Beat It:

The estate for the King of Pop is planning to go to the mattress in the fight against the IRS over taxes and penalties assessed as a result of values reported on his federal estate tax return. ...

Jackson’s estate was said to have been valued between $80 million and $500 million. That’s, er, a lot of disparity. And that’s exactly the problem.

The estate has valued the assets at lower amounts than the IRS believes to be appropriate. A number of assets are said to be at issue including Neverland Ranch, automobiles and amounts attributable to the singer’s image, likeness and intellectual property.

August 22, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, August 15, 2013

IRS Hits Estate of Former Detroit Pistons Owner With $2 Billion Tax Bill

Davidson 2Detroit Free Press, IRS Lawyers Defend $2B Tax Bill to Bill Davidson Estate:

IRS lawyers are defending a tax bill of more than $2 billion sent to the estate of the late William Davidson, reiterating claims that the former Pistons owner and industrialist didn’t properly account for huge gifts to family members and the value of stocks put in trust for his heirs.

In a 46-page filing made public in U.S. Tax Court in Washington, D.C., on Wednesday, lawyers for the Internal Revenue Service answered the estate representatives’ arguments filed in June saying the tax bill — $2.8 billion in all — was wildly inflated and that, despite a huge IRS notice of deficiency, the estate didn’t owe anything more. ...

It could set up one of the largest such estate tax fights in U.S. history. No one keeps statistics on the size of tax petitions, but when the Free Press first broke news of the filing two months ago, experts couldn’t think of a recent one with as much money at stake. 

The estate tax bill alone — $1.9 billion — would represent more than one-tenth of the $13 billion collected through that tax nationwide in 2010, when taxes on most estates of those who died in 2009, like Davidson, were paid.

Born in Detroit, Davidson built Auburn Hills-based Guardian Industries into one of the world’s leading makers of glass, automotive and building products. He went on to own the Detroit Pistons, the WNBA’s Detroit Shock and NHL’s Tampa Bay Lightning. He died March 13, 2009, at age 86, with a net worth estimated at more than $3 billion.

August 15, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, July 22, 2013

NY Times: Was James Gandolfini's Will Really a 'Tax Disaster'?

SopranosFollowing up on my previous post, James Gandolfini's Will Is a 'Tax Disaster':  New York Times, A Public Debate Over the Wisdom of Gandolfini’s Will, by Paul Sullivan:

[A] few weeks after he died, the discussion shifted to his will, which, unlike the wills of most wealthy people quickly became public. Almost immediately, many experts found fault with its contents, saying it was so unwisely constructed it could lead to lawsuits from his heirs.

And then there was the estate tax bill — estimated at a whopping $30 million, nearly half of his reported net worth of $70 million all because of supposedly bad tax planning.... [I]t seemed downright bizarre — at least to me — that he might not have had sound financial advice.

Was this true? Were the numbers accurate? Did any of these commentators know what they were talking about? At first blush it certainly seemed to me that there indeed were serious problems with the will. But before I formed my final opinion, I decided to call Roger S. Haber, Mr. Gandolfini’s lawyer, who drafted the will and is one of its executors. In “Sopranos” parlance, he was Mr. Gandolfini’s consigliere in life and was the man, after his death, who was bearing the brunt of the estate tax ire. ...

He told me that Mr. Gandolfini knew the difference between a probate asset — which is governed by his will — and a non-probate asset, like a retirement account, life insurance policy or asset held in an irrevocable trust. Although Mr. Haber would not elaborate, the implication was that perhaps Mr. Gandolfini had assets in other vehicles that would mitigate his tax liability. The prospect was intriguing.

But I sought outside counsel to examine Mr. Gandolfini’s will and two affidavits that were filed after it. ... The burning question is, does Mr. Gandolfini’s estate have an enormous tax bill? The $30 million figure that was floating around is based on two assumptions that could be wrong. The first was that he was worth $70 million; the second was that his will guides how all that money is disbursed....

Another expert agreed that taxes might not always be the most important consideration. “All these people who are out there talking about the taxes, they don’t get it,” said Leiha Macauley, a partner and head of the Boston office at the law firm Day Pitney. “The person who is trying to provide for the children from the first marriage, the second marriage, and a wife who may be the same age as his sisters, he doesn’t care about estate taxes. He wants to provide for them equally.” Had he wanted to avoid federal estate taxes, he could have left everything to his wife, Ms. Macauley said.

The one thing Mr. Haber could have saved Mr. Gandolfini from was this column and every other article or blog written about his will. They would not have been possible if Mr. Gandolfini had had a revocable trust. Such a trust, which is easy and cheap to create, would have enabled him to have a simple “pour-over will,” which would have said that his possessions had been put into the trust. No one would know anything more about his assets or his intentions. ... “Why would a guy with this much notoriety have a will in the public record?” Mr. Scroggin said. “I have high-profile clients and we do pour-over wills as much as anything to avoid this media brouhaha.”...

Mr. Haber said that Mr. Gandolfini’s children would be fine because the actor had focused on their guardians and trustees more than the money they might inherit.“Jim was a very smart guy and he took all of this seriously,” he said. “He did what he wanted to with full awareness of the laws.”If that is the case, then his estate plan accomplished its purpose, regardless of what others think.

(Hat Tip: Mike Talbert, Bill Turnier.)

UpdateJames Gandolfini’s Lawyer Comments on the Will Controversy

July 22, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (2) | TrackBack (0)

Tuesday, July 23, 2013

2009 Estate Tax Value of Minnesota Twins: $24 Million or $293 Million?

TwinsFollowing up on my previous post, Will IRS Strike Out in Estate Tax Litigation Over Valuation of Minnesota Twins?

More than three years after the death of Carl Pohlad, the estate of the billionaire business magnate is mired in a tax dispute with the IRS that has potentially huge financial consequences.

The agency claims that Pohlad’s heirs owe the IRS more than $207 million, largely on the basis of a purportedly low valuation the estate placed on the late patriarch’s most visible asset, the Minnesota Twins. The tax collector also wants $48 million as an “accuracy related penalty” for a total potential tax bill of $255.8 million.

The Pohlad family disputes the IRS position and asserts that the federal agency greatly overvalued Carl Pohlad’s interest in the Twins after he handed most of the control of the ballclub to his sons in the years leading up to his death in 2009. ...

According to the experts hired by the estate, Carl Pohlad’s interest in the Twins was just $24 million at the time of his death in early 2009. The IRS places the value of those assets at $293 million.

The Pohlad estate asserts that Carl Pohlad’s minority ownership of the Twins at the time of his death — with his three sons controlling 90% of the voting shares of the club — is not adequately reflected in the IRS valuation, nor is the Great Recession, which confronted the U.S. economy at the time. ... The Pohlad estate has requested a Tax Court trial in Houston, home of the law firm handling its tax case, Baker Botts. ... At $255.8 million, the dispute would be among the richest pending before the Tax Court. ...

Combined, Carl Pohlad’s financial interest in the Twins was posted at just shy of $24 million, according to the Tax Court petition. The total value of the Twins at the time of Pohlad’s death was estimated at $356 million by Forbes magazine. But [John] Porter, the Baker Botts attorney representing the Pohlads in the IRS matter, said the valuation figures are gross figures that don’t include liabilities such as stadium debt. Moreover, Porter said, the economic environment was not conducive to the sale of sports franchises at the time of Carl Pohlad’s death.

The remarkable story of how the Pohlad family ended up in a nine-figure fight with the Internal Revenue Service over the late Carl Pohlad’s estate isn’t that remarkable at all. It’s called estate planning.

Even though there’s a list of things in dispute with the IRS, including how to treat a block of cemetery plots, this is really all about the chasm between what the IRS thinks Carl Pohlad’s Minnesota Twins ownership stake was worth in January 2009 — $293 million — and the $24 million value the estate’s tax return put on his Twins equity.

Carl Pohlad owned his Twins equity in several pieces. At the time of his death he owned a 52.2% nonvoting interest in MT Sports LLC, which in turn owned a 99%, nonvoting interest in Minnesota Twins LLC. He also owned a 95.5% equity interest in Twins Sports Inc., the managing member of the Minnesota Twins LLC.

In a limited liability company like Minnesota Twins LLC, the managing member is in charge, and usually has authority to borrow money, hire and fire employees and take other actions that the non-managing members have no right to do. But Carl Pohlad owned only 10 percent of Twins Sports’ voting shares, with the rest equally split between Jim and his two brothers.

Sure, there were three separate companies and multiple classes of equity, but as such things go in the ownership of a family business, this structure for the Twins is not particularly artful. What it meant is that at the end of Carl Pohlad’s life, he owned the majority of the franchise but did not control it. ...

Jim Pohlad explained that “you can’t just look up in the Wall Street Journal and figure out the value of things like the Twins,” adding that he and his brothers relied on their valuation experts in wrapping up the estate. ...

When this is settled, the final number won’t be public, but it’s my guess it’s going to be much closer to the position of the Pohlads than the IRS.

July 23, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, July 6, 2013

James Gandolfini's Will Is a 'Tax Disaster'

SopranosNew York Daily News:  James Gandolfini Will a Tax 'Disaster,' Says Top Estate Lawyer:

The taxman is coming after James Gandolfini's heirs. The late Sopranos star's will is "a disaster" that could see over $30 million of his estimated $70 million estate go to the government, a top estate lawyer told the Daily News.

"It's a nightmare from a tax standpoint," said William Zabel, who reviewed the document at The News' request. The 51-year-old's "big mistake" was leaving 80% of his estate to his sisters and his 9-month-old daughter, Zabel said. That made 80% of the estate subject to "death taxes" of about 55%, and the bill is due in nine months, Zabel said.

That means his family will have to start selling off his property and liquidating his assets soon in order to pay the tab, since it's unlikely the actor had tens of millions of dollars in cash on hand. ... The 20% of the estate that Gandolfini left to wife Deborah Lin isn't directly subject to the death tax, but even she'll take a big hit, Zabel said. The will calls for the shares to be divvied up after all the taxes are paid, which means Lin will get 20% of the $40 million left after taxes, instead of 20% of $70 million. "It's a catastrophe," Zabel said. ...

He said there are ways for the beloved actor's family to get out from under the enormous tax burden, but it would be tricky. One solution could be for the sisters and daughter to renounce their shares in the estate for payments later on down the road.

(Hat Tip: Bill Turnier.)

Update

July 6, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (24) | TrackBack (0)

Did Taxes Help Drive Dwight Howard to Sign With the Houston Rockets Rather Than the L.A. Lakers?

DHSeven-time NBA all star Dwight Howard yesterday signed with the Houston Rockets for the maximum free agent contract permitted under the NBA's "Larry Bird Rule" -- $87.6 million over four years (4.5% annual increases over his existing contract).  He spurned a much higher offer from the L.A. Lakers -- $118.0 million over five years (7.5% annual increases).  Several tax folks have run the numbers and concluded that Howard will receive more after-tax income by signing with the Rockets rather than the Lakers, based on California's 13.3% top marginal income tax rate and the absence of a state income tax in Texas, after taking into account the application of various state and local "jock taxes." 

(Hat Tip: Tony Nitti.)

Update:  Slate:  After Taxes, Did Dwight Howard Take a Pay Cut By Moving to Houston?

July 6, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (18) | TrackBack (0)

Tuesday, July 2, 2013

Will IRS Strike Out in Estate Tax Litigation Over Valuation of Minnesota Twins?

TwinsForbes: IRS Calls Foul Against Estate of Late Minnesota Twins Owner Carl Pohlad, by Janet Novack:

When long time Forbes 400 member and Minnesota Twins owner Carl Pohlad died in January 2009 at the age of 93, construction of the primarily taxpayer-financed stadium that the famously penny-pinching dealmaker had sought for years was finally underway. A few months later, Forbes valued the Twins at $356 million and boosted that to $405 million after Target Field opened in 2010. Today, we estimate the major league baseball team is worth $578 million.

But according to a previously unreported lawsuit filed by Pohlad’s estate in U.S. Tax Court last month, it valued his Twins stake as just $24 million for tax purposes. IRS auditors disagreed, pegging it at $293 million and slapping his estate with $121 million in extra taxes for the team, plus a $48 million (40%) penalty for gross valuation misstatement. The lawsuit, filed by Pohad’s sons James (CEO of the Twins), Robert and William, as executors of the estate, contests all of that assessment as well as other smaller adjustments made by the IRS.

Don’t count the Pohlad heirs out. The suit provides a glimpse of how currently legal wealth transfer techniques can shield the well-advised uber-rich from the brunt of estate and gift taxes, provided they plan ahead. ...

John W. Porter, a Baker Botts partner and top FLP litigator who is representing the estate in the Tax Court case, told Forbes that the family disagrees with the IRS over more than just how steeply the ownership positions should be discounted for the selling restrictions and lack of control attached to them. He said the IRS also started with a far too high gross valuation for the Twins franchise that didn’t sufficiently account for the team’s debt or “what was going on in the country, and financial markets around the world” at the time of Pohlad’s death in January 2009. Porter wouldn’t say what value the IRS or the estate put on the franchise, but asserted the IRS’ valuation was out of line with the two most recent MLB team sales before 2009—Major League Baseball’s 2006 sale of the Washington Nationals franchise to billionaire real estate developer Ted Lerner for $450 million and the 2007 stock and asset swap in which billionaire John Malone’s Liberty Media acquired the Atlanta Braves from Time Warner. That deal valued the Braves at $450 million

July 2, 2013 in Celebrity Tax Lore, IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 25, 2013

Will Taxes Drive Dwight Howard to Sign With Rockets Rather Than Lakers?

Howard 2Seven-time NBA all star Dwight Howard is a free agent and, under the NBA's "Larry Bird Rule," can re-sign with the L.A. Lakers for a maximum of $118.0 million over five years (7.5% annual increases over his existing contract) or with any other team for a maximum of $87.6 million over four years (4.5% annual increases).  The Houston Rockets has emerged as a likely bidder for Howard's services, and several tax folks have run the numbers and concluded that Howard would receive more after-tax income by signing with the Rockets rather than the Lakers, based on California's 13.3% top marginal income tax rate and the absence of a state income tax in Texas, after taking into account the application of various state and local "jock taxes."  

June 25, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (2) | TrackBack (0)

Friday, June 14, 2013

Taxes and the NBA and NHL Finals

A reader sent me a note about the NBA Finals and NHL Stanley Cup Finals:

NBA FinalsNBA Finals:  The Miami Heat (founded in 1988) and San Antonio Spurs (1976) are in two of the nine states without an income tax. I have previously mined this topic in:

See also:

NHLNHL Stanley Cup Finals:  The Boston Bruins and Chicago Blackhawks -- two of the NHL's Original Six franchises -- are in two of the highest tax states: Illinois and Massachusetts are tied with the fourth highest individual federal, state, and local tax burden.

See also:

June 14, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (1) | TrackBack (0)

Lionel Messi: Tax Cheat?

MessiBarcelona soccer star Lionel Messi and his father are accused of evading $5.3 million in Spanish taxes in 2007-09.

June 14, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, May 3, 2013

Jay Leno: Gitmo and Small Business Taxes

Jay Leno: President Obama held a press conference earlier today, and he said he still wants to close the Guantanamo Bay prison facility, but he doesn't know how to do it. He should do what he always does: declare it a small business and tax it out of existence.It will be gone in a minute.

May 3, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (5) | TrackBack (0)

Monday, April 29, 2013

Sen. Coburn's Bill Would Strip NFL, NHL & PGA of Tax-Exempt Status

NFLThink Progress:  The NFL Is a Tax-Exempt Organization — But One Senator Wants to Change That:

Oklahoma Sen. Tom Coburn (R) today introduced an amendment to the Marketplace Fairness Act that would end the practice of allowing professional sports leagues to qualify as tax-exempt organizations, a move that would hit leagues like the National Football League, the Professional Golfers Association (PGA) Tour, and the National Hockey League, among others.

Since 1966, the tax code has allowed leagues to classify as 501(c)(6) charitable organizations — a classification used by trade and industry organizations — under the assumption that the leagues were promoting the general value of their sports. But Coburn’s amendment asserts that the leagues are not non-profits engaged in the promotion of their sports but instead are businesses interested solely in the promotion of their business; that is, the NFL isn’t so much concerned about promoting the general sport of football as it is concerned with promoting NFL football, because it is the NFL brand and the NFL teams and logos and products that make it a profitable business. The NFL, for instance, didn’t seem interested in promoting the general spread of football when a competitor league, the United States Football League, was formed in 1983. Likewise, the PGA Tour, NHL, and other sports leagues serve to promote their brand of their sports, not the sport as a whole.

Further, the leagues hardly pay their executives as if they are non-profits. The NFL paid $51.5 million to just eight executives in 2010, according to Coburn, and other leagues are similar — PGA commissioner Tim Finchem made $5.2 million that year, while NHL commissioner Gary Bettman took home $4.3 million....

NFL teams pay membership dues totaling roughly $6 million per team, but they are allowed to write those off for tax purposes as donations to a charitable organization. As Andrew Delaney explained in the Vermont Law Review in 2010, the NFL, which collected $192 million in revenue largely through membership dues in 2009, then pours much of that money back into a stadium fund that allows owners to access interest-free loans as long as they secure taxpayer financing for either new stadiums or improvements to existing facilities. ...

Removing the tax-exempt status would force the leagues to acknowledge the reality that they are businesses, and they would be taxed as such. For the NFL, that would mean that membership dues and assessments would no longer be tax exempt, according to Delaney, and the profits run through the NFL’s or PGA’s tax-exempt organizations no longer would be either (the NFL runs multiple for-profit organizations, such as NFL Films.

(Hat Tip: Greg McNeal.

April 29, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (4) | TrackBack (0)

Wednesday, April 24, 2013

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, and for coming to our home for dinner the past two nights!

Well we got no choice
All the girls and boys
Makin' all that noise
'Cause they found new toys
Well we can't salute ya
Can't find a flag
If that don't suit ya
That's a drag

School's out for summer
School's out forever
School's been blown to pieces

No more pencils
No more books
No more teacher's dirty looks

Well we got no class
And we got no principles (principals)
We ain't got no innocence
We can't even think of a word that rhymes

School's out for summer
School's out forever
My school's been blown to pieces

No more pencils
No more books
No more teacher's dirty looks

Out for summer
Out 'til fall
We might not come back at all

School's out forever
School's out for summer
School's out with fever
School's out completely

April 24, 2013 in Celebrity Tax Lore, Legal Education, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, April 18, 2013

Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes

Cliff LeeStanley Veliotis (Fordham University, School of Business), Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes, 27 J. Sport Mgmt. ___ (2013):

This paper derives equivalent gross salary for Major League Baseball free agents weighing offers from teams based in states with different income tax rates. After discussing tax law applicable to professional sports teams’ players, including “jock taxes” and the interrelationship of state and federal taxes, this paper builds several models to determine equivalent salary. A base-case derivation, oversimplified by ignoring non-salary income and Medicare tax, demonstrates that salary adjustment from a more tax expensive state’s team requires solely a state (but not federal) tax gross-up. Subsequent derivations, introducing non-salary income and Medicare tax, demonstrate full Medicare but small federal tax gross-ups are also required. This paper applies the model to equalize salary offers from two teams in different states in a highly stylized example approximating the 2010 free agency of pitcher Cliff Lee. Aspects of the models may also be used to inform other sports’ players of their after-tax income if salary caps limit the ability to receive adequately grossed-up salaries.

April 18, 2013 in Celebrity Tax Lore, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 17, 2013

Brown: The IRS Should Report on Tax Returns Filed by Members of Congress

Forbes:  It's Time We Learned What Members of Congress Pay in Taxes, by Dorothy A. Brown (Emory):

On Friday President and Mrs. Obama released their most recent tax return for the entire world to see.  They continued a longstanding tradition of sitting presidents releasing their returns, even though no law requires that they do so. The tradition began under the late President Richard Nixon. ...

Itemized deductions often come with a hefty price tag. The Joint Committee on Taxation has estimated that for 2013 the amount of revenue lost because of the three deductions the Obamas took (which happen to be among the most popular deductions taken) will be: $90 billion for mortgage interest, $47 billion for charitable contributions, and $46 billion for state and local income taxes. ... One part of the minority that benefits from itemized deductions is members of Congress.

Although Presidents have voluntarily released their tax returns for the last several decades, nothing could be further from the truth when it comes to members of Congress. McClatchy newspapers reported last July that of the 535 members asked to release their most recent tax returns, just 17 did. ... I suspect that if we looked at the tax returns of eavery member of Congress we would see something close to a 100% itemization rate. Compare that to only a third of the American public, and the numbers would suggest that repeal is the best way forward.

Given that I do not expect members of Congress to change their ways, one way to move closer to reform would be for the IRS to issue a new kind of report, which I call the “535 Report.” It would provide in summary fashion the information from the tax returns of all members of Congress.  The 535 Report would be similar in concept to what the IRS currently produces for the tax returns of the 400 highest-income individuals.

No law is needed, because no privacy rights would be violated. All the IRS would have to do would be to crunch the numbers. Then we would know what percent of Congress itemized deductions and what the most popular deductions were. We could then compare the information with what the IRS already produces about the American taxpaying public in general, and hopefully encourage voters to demand change.

David Cay Johnston reported in The New York Times in June 2003 that the 400 report was begun in response to a professor asking for it.  Let’s see if lightening can strike twice.

For more, see Dorothy Brown, The 535 Report: A Pathway to Fundamental Tax Reform, 40 Pepp. L. Rev. ___ (2013).  For the video of Dorothy's presentation of the paper at the January 18, 2013 Pepperdine/Tax Analysts Symposium on Tax Advice for the Second Obama Administration, see iTunes and YouTube.

April 17, 2013 in Celebrity Tax Lore, Political News, Scholarship, Tax | Permalink | Comments (3) | TrackBack (0)

Wednesday, April 10, 2013

Parks & Recreation's Ron Swanson on President Obama's Budget

(Hat Tip: Ben Leff.)

April 10, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

McCaffery: Mark Zuckerberg May Never Pay Taxes Again

ZuckerbergCNN op-ed:  Zuck Never Has to Pay Taxes Again, by Edward J. McCaffery (USC):

So, you think you have it bad this tax season. Have you heard that Facebook founder Mark Zuckerberg will pay between $1 billion and $2 billion in taxes? That sounds like a tough pill for anyone to swallow.

But it is premature to start a pity party for Zuckerberg. The twenty-something billionaire reaped large financial gains from exercising the stock options that triggered his tax bill, and he has benefited from favorable tax rules along the way. Even better, Zuckerberg will survive his encounter with the tax man in a position to never have to pay taxes again for the rest of his life. ...

The truly rich do not have to pay any tax once they have their fortunes in hand. They can follow the simple tax planning advice to buy/borrow/die: Buy assets that appreciate in value without producing cash (like shares of Internet stocks), borrow to finance lifestyle, and die to pass on a "stepped up" basis to heirs wherein the tax gain miraculously disappears.

Zuckerberg now has $11 billion or more with which to play this game. He can live off money borrowed against that huge sum (rest assured, he can get good interest rates), never having to sell any asset at a gain, and never having to get an "ordinary" salary again.

(Hat Tip: Ann Murphy.)  For more, see Edward J.  McCaffery (USC), Distracted from Distraction by Distraction: Reimagining Estate Tax Reform, 40 Pepp. L. Rev. ___ (2013).

April 10, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (5) | TrackBack (0)

Friday, April 5, 2013

Wesley Snipes Released From Prison

SnipesTMZ reports that Wesley Snipes was released from prison on Tuesday after serving two years and four months of his three-year sentence on three counts of willful failure to file tax returns under § 7203. He is is subject to home confinement until July 19.

April 5, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 3, 2013

ESPN: Athletes' Charities Fall Short of IRS, Nonprofit Standards

ESPN-Outside-the-LinesESPN Outside the Lines, Athlete Charities Often Lack Standards:

An "Outside the Lines" investigation of 115 charities founded by high-profile, top-earning male and female athletes has found that most of their charities don't measure up to what charity experts would say is an efficient, effective use of money.

Using guidelines set by nonprofit watchdogs Charity Navigator, the Better Business Bureau and the National Committee for Responsive Philanthropy, "Outside the Lines" found that 74% of the nonprofits fell short of one or more acceptable nonprofit operating standards. The standards cover all sorts of aspects, such as how much money a nonprofit actually spends on charitable work as opposed to administrative expenses and whether there are enough board members overseeing the organization.

Among the "Outside the Lines" findings:

• Many athlete charities fail the effectiveness test for a variety of reasons, ranging from the deceptive and unethical -- if not illegal -- to the simply neglectful and ignorant. Some athletes set up foundations as tax-planning vehicles. Others dispute the nonprofit standards overall, saying as long as they spend at least some money on actual charity they should not be criticized.

• In many cases, OTL had a hard time measuring a charity's actual effectiveness because it was behind on filing its IRS tax returns or the returns were filled with errors and omissions. Problems can go unnoticed for years as the main agencies that oversee charities -- the IRS and states' attorney general offices -- don't audit every return.

• Even though the athlete charities often are named in honor of wealthy sports icons, only about a third of them had total assets of $500,000 or more. Multimillion-dollar charities that actually run programs, such as those founded by Tiger Woods, Lance Armstrong, Andre Agassi and Richard and Kyle Petty, are rare.

(Hat Tip: Charles Perin.)

April 3, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (2) | TrackBack (0)

Tuesday, April 2, 2013

William Shakespeare, Tax Cheat

ShakespeareThe Independent:  Shakespeare the 'Hard-Headed Businessman' Uncovered:

Hoarder, moneylender, tax dodger — it's not how we usually think of William Shakespeare.

But we should, according to a group of academics who say the Bard was a ruthless businessman who grew wealthy dealing in grain during a time of famine.Researchers from Aberystwyth University in Wales argue that we can't fully understand Shakespeare unless we study his often-overlooked business savvy.

"Shakespeare the grain-hoarder has been redacted from history so that Shakespeare the creative genius could be born," the researchers say in a paper due to be delivered at the Hay literary festival in Wales in May....

He was pursued by the authorities for tax evasion, and in 1598 was prosecuted for hoarding grain during a time of shortage.

(Hat Tip: Jack Chin.)

April 2, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (3) | TrackBack (0)

Friday, March 29, 2013

Ed Koch: 'How'm I doing?' Lousy as an Estate Planner

How'mNYC Legend, Ed Koch, Pays $3M Due to Estate Planning Blunder With No Irrevocable Trust:

The world lost Ed Koch on February 1st, 2013; however, Mr. Koch who left only a 2007 will* to direct the distribution of his estate ... has left much of his estate’s worth to the government in estate taxes and probate fees.

Mr. Koch desired in his will to bequeath his estimated estate of $10 to $11 million to his sister, Pat Thaler, her three sons whom he “adored,” his faithful serving secretary of almost 40 years, Mary Garrigan, and some to the LaGuardia and Wagner Educational Fund with the remainder to other family members.

Mr. Koch’s estate will have to pay a New York state tax of 16% on every dollar over $1 million and a 40% federal tax on every dollar over $5.25 million. If it is assumed that his estate is worth $10 million, this would equate to $1.44 million in NY state estate tax and $1.90 million in federal taxes....

“He was such an accomplished, well rounded bachelor and a man of great Jewish faith. But I find it so surprising, himself being an attorney, that Mr. Koch did not manage his estate plan with the same veracity. I believe he could have done a much better job of avoiding the massive amount of taxes his estate will eventually have to pay,” laments Rocco Beatrice, Managing Director of Estate Street Partners, LLC.

March 29, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (5) | TrackBack (0)

Thursday, March 28, 2013

NYU Hosts Tax Dilemmas in Sitcoms

NYUThe NYU Graduate Tax Program hosts its 4th Annual Tax Movie Night tonight, To Pay or Not To Pay: Tax Dilemmas in Sitcoms:

We will screen four classic television episodes, spanning different decades, where major characters are faced with tax compliance choices. Some characters choose to report their tax liabilities honestly and others do not. The episodes featured are from The Honeymooners (1956), The Phil Silvers Show (1956), The Mary Tyler Moore Show (1975) and The Simpsons (1998). Professor Lawrence Zelenak from Duke Law School will join us as a special guest speaker and will lead a discussion on what popular culture can teach us about public attitudes toward tax compliance.  

March 28, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (1) | TrackBack (0)

Monday, March 25, 2013

Tax Consequences of Winning the $338 Million Powerball Jackpot

PowerBallForbes:  How Much Tax Will You Owe on a [$338] Million Powerball Jackpot? A Lot More Than In 2012, by Janet Novack:

The good news: You are about to win a [$338] million Powerball Jackpot. The bad news: You’ll owe millions more in tax than you would have had you won the same pot in 2012. ... The top combined federal and state rate for a New Jersey resident on lottery winnings would be 46.2%, which translates into a tax bill topping $97 million–$11 million more than it would have been in 2012— if Saturday’s winner elects to take the $211 million lump [sum].

(Hat Tip: Greg McNeal.)

March 25, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (1) | TrackBack (0)

Saturday, March 23, 2013

New York Uses 'Jimmy Fallon Tax Credit' to Lure The Tonight Show From L.A.

Jay LenoNew York Daily News:  Tentative State Budget Includes ‘Jimmy Fallon’ Tax Credit to Lure ‘The Tonight Show’ Back to New York:

Call it the Jimmy Fallon tax credit.

Quietly tucked into tentative state budget is a provision that would help NBC move “The Tonight Show” back to New York, the Daily News has learned.

The provision would make state tax credits available for the producers of “a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season in New York,” budget documents show.

In addition, the episodes “must be filmed before a studio audience” of at least 200 people. And the program must have an annual production budget of at least $30 million or incur at least $10 million a year in capital expenses.

In other words, a program exactly like “The Tonight Show.”

March 23, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (4) | TrackBack (0)

Thursday, March 21, 2013

The Tax Consequences of Superman's Diamonds

Superman MovieTax Consquences of Superman's Diamonds (Part 1, Part 2):

[I]f Superman crushes carbon and makes diamonds, is that taxable income? ... There are two questions here. First, are the diamonds taxable income for Superman (or Clark Kent) and second, are they taxable income for a recipient such as Lois Lane?

The answer to the first question is “probably not.”  A traditional, almost fundamental principle of income tax is that a gain in value must be realized before it can be taxed. ...It seems clear that improving the value of the carbon is not such a taxable event, since there is neither a sale nor disposition of the property of any kind.  An analogy might be made to a painting that appreciates in value; the increase in value is not taxed until the painting is sold, given away, etc.

If the diamonds are given to Lois Lane, however, that is obviously a gift, which has its own set of special rules.  In the US, gifts are generally not taxable income for the recipient.  26 USC 102(a).  But there is a gift tax that is ordinarily paid by the giver.  26 USC 2501(a)(1) and 26 USC 2502(c).  However, there is a significant exclusion for gifts that currently stands at $13,000 per-recipient per-year.  Thus the question is, presuming the diamonds were given as a gift today, would they exceed the exclusion?

Obviously this depends on the size and quality of the diamond and the state of the diamond market, but for example the diamond given to Lana Lang in Superman III appears to be about 3.5 to 4 carats and of very good quality.  Looking at stones for sale on Blue Nile, a similar diamond would cost somewhere between $150,000 and $400,000, depending on the particulars, which is far beyond the gift exclusion.  So how much would Superman be on the hook for?  The answer is “a lot.” ...

Superman could theoretically avoid gift tax liability by performing the gratuitous service of crushing coal into diamonds rather than giving a finished diamond. Although it is true that gratuitous services are not taxed, it is also true that the IRS and the courts frown on tax avoidance schemes that attempt to exalt form over substance.  Gregory v. Helvering, 293 U.S. 465 (1935).  So a scheme by which Superman handed someone a piece of coal, fully intending to turn it into a diamond, then did so, would be tantamount to simply giving them a diamond.  The IRS would focus on the substance of the transaction, not the form, and consider it a taxable gift of property.

But if, for example, Superman were at someone’s house for a barbecue and decided to thank them for dinner by crushing a lump of their own charcoal into a diamond, that would be different.  In that case Superman really would be performing a gratuitous service. ...

Superman has crushed coal into diamonds for various reasons, but one of the best known was his gift of a ring to Lana Lang in Superman III.  This raises an interesting question: is an engagement ring subject to gift tax?  There is, subject to certain qualifications, an unlimited marital deduction for gifts between spouses, but what about an engagement ring, which is given in anticipation of marriage?

The law surrounding engagement rings and other pre-nuptial gifts has a long and complex history, dating back to at least the Romans.  Most of the law has to do with who owns such gifts, particularly if the marriage is called off.  But it turns out that none of that matters for tax purposes.  If the donor and donee aren’t married at the time of the gift, then the marital deduction doesn’t apply.  26 U.S.C. § 2523(a).  So an engagement ring is subject to gift tax, even if the donor and donee get married later that same year.  In practice I suspect that few people actually report such gifts, even in the rare case where it would make a difference in their ultimate tax liability, but maybe Superman would actually be moral enough to do so.

Crushing coal into diamonds still doesn’t create tax liability for Superman, and he still has some ways to avoid liability if he crushes coal into diamonds for other people, but he has to be careful about it.  And strictly speaking he probably should have reported that ring he gave to Lana.

(Hat Tip: Above the Law.)

March 21, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (3) | TrackBack (0)

Tuesday, March 19, 2013

MMA Fighter Nick Diaz's Next Opponent May Not be the IRS

DiazFollowing 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.

March 19, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, March 18, 2013

How Federal Tax Law Killed the Swing Era and Spawned Bebop

SwingWall Street Journal op-ed:  How the Taxman Cleared the Dance Floor, by Eric Felten (Eric Felten Jazz Orchestra):

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.

March 18, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (10) | TrackBack (0)

Actor John Cleese Flees Tax-Free Monaco for High-Tax Britain

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.)

March 18, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (3) | TrackBack (0)

After Losing Unanimous Decision Saturday, MMA Fighter Nick Diaz May Be KO'd by IRS

DiazIn 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."

(Hat Tip: Eric Sachtjen.)

March 18, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, March 16, 2013

Golfer Sergio Garcia Loses Tax Court Case on Allocation of Endorsement Income

Sergio GarciaIn 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.

March 16, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, March 11, 2013

John Paulson May Join Exodus to Puerto Rico for 0% Capital Gains Tax Rate

Puerto Rico FlagBloomberg:  Paulson Said to Explore Puerto Rico as Home With Low Tax:

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

March 11, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (3) | TrackBack (0)

Friday, March 8, 2013

Tax Bite Leaves Joe Flacco Only the Second Highest Paid NFL Player

FlaccoAmericans 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.

March 8, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (4) | TrackBack (0)

Sunday, March 3, 2013

Estate Planning Lessons From 'Downton Abbey'

Downtown AbbeyWall 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

March 3, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (1) | TrackBack (0)

Sunday, February 24, 2013

Reynolds: The Hollywood Tax Story They Won't Tell at the Oscars

Oscar_4Wall 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.

February 24, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (2) | TrackBack (0)