Monday, July 17, 2017

Caliente

Summer is here, and in most of the country, it's hot! The All-Star game has come and gone, dog days are right around the corner, and if your air conditioner makes a funny noise, the hair stands up on the back of your neck. Now, we can't help you if your air conditioner breaks, but we can try and put a smile on your face with a few tax quotes to start your day. Try and spot the summer references hidden inside — they might not be quite as easy to find as you think!
  • "A dog who thinks he is man's best friend is a dog who has obviously never met a tax lawyer."
    Fran Lebowitz
  • "The United States will get a value added tax when conservatives realize that it is regressive, and liberals realize that it is a money machine."
    Lawrence Summers
  • "Baseball is a skilled game. It's America's game — it, and high taxes."
    Will Rogers
  • "Taxes are paid in the sweat of every man who labors. If those taxes are excessive, they are reflected in idle factories, tax-sold farms and in hordes of hungry people, tramping the streets and seeking jobs in vain."
    Franklin D. Roosevelt
  • "Taxation with representation ain't so hot either."
    Gerald Barzan
  • "The IRS spends God knows how much of your tax money on these toll-free information hot lines staffed by IRS employees, whose idea of a dynamite tax tip is that you should print neatly. If you ask them a real tax question, such as how you can cheat, they're useless."
    Dave Barry
  • "Republicans believe every day is the Fourth of July, but Democrats believe every day is April 15."
    Ronald Reagan
  • "If [a United States Supreme Court Justice is] in the doghouse with the Chief [Justice], he gets the crud. He gets the tax cases."
    Harry BlackmunNot many of us are thinking about taxes after April 15. But the reality is, there's never a bad time to stop wasting money on taxes you don't have to pay. The sooner you start planning, the sooner you'll rescue those dollars from your paycheck or quarterly estimates. So call us before the heat gets too high and see if we can bring you some cool relief! 
  • Tuesday, July 11, 2017

    Accountants Behaving Badly

    Actress Alyssa Milano first gained fame playing Tony Danza's daughter on the television sitcom Who's the Boss. The show ran for eight seasons, snagged ten Emmy and five Golden Globe nominations (winning one of each), and established Milano as a bone fide teen idol. While her star has dimmed since then, she continues to work in Hollywood and seems to be one of the few child stars in recent memory to grow into adulthood without well-publicized trips to rehab or jail.

    Today, Milano is as busy as a bumblebee. So she and her husband, agent David Bugliari, employed a business manager to handle "the details." Usually those relationships proceed without trouble. But that's not the case with Milano, who just sued her manager, CPA Kenneth Hellie, for $10 million.

    Milano says the relationship first soured with "a home improvement debacle." She and her husband bought their Ventura County home in 2013 with plans to spend $1.1 million remodeling it. They wound up spending $5 million on the house which is now worth $3 million. (That odd math may not sound implausible to anyone else who's done a gut rehab!)

    But Milano soon discovered that Hellie had made eight late mortgage payments in a 13-month period. That destroyed her credit, which meant she couldn't refinance the house. She also says:

        He failed to pay her 2013 and 2014 income taxes,

    He used scotch tape to attach her signature to wire transfers to make unauthorized withdrawals, and

    He failed to pay her employees or their taxes, and
    His reassurances that the finances were in shape gave her the confidence to pass up a $1.3 million paycheck for starring in a third season of ABC's "Mistresses" series.

    Of course, every story has two sides (especially in Hollywood). Hellie's response basically throws her husband under the bus, arguing that he approved additional remodeling expenses and may have been "intentionally or negligently keeping Milano in the dark regarding the couple's deteriorating finances." He blames the couple for their own lavish spending, including "a second home in the mountains, private planes, a country club membership, a boat, and numerous personal staff such as multiple nannies and housekeepers."

    Milano is hardly the only Hollywood celebrity to break with her manager. Actor Johnny Depp, who spent $3 million to shoot author Hunter S. Thompson's ashes out of a cannon, has sued his manager for $25 million for a similar series of offenses. And singer Alanis Morissette's so-called business manager has ironically just reported to federal prison in Oregon for embezzling millions from her and other clients. (She said he would literally cry when she asked where her money had gone!)

    Here's the lesson from today's sad stories. Choose wisely! Don't ask us for advice on remodeling your home or managing your household staff. But do count on us to help stop wasting money on taxes you don't have to pay. And remember, we're here for your co-stars, too!

    Tuesday, July 4, 2017

    IRS Slapshot Misses

    Summer is here, so naturally, everyone's thinking about hockey. The Pittsburgh Penguins have just taken their second Stanley Cup in a row, and the rest of the NHL is working to make sure there's no three-peat. But one of those teams just won a different sort of contest, in Tax Court of all places. So let's go to the tape . . .
    Jeremy Jacobs is the owner and chairman of Delaware North, a concession company operating at places like stadiums, racetracks, and national parks. (Sounds like he's as much to blame as anyone for the $14 beers you bought at your last ballgame.) He also owns the Boston Bruins, which finished 2017 with a 44-31-7 record in the league's Eastern Conference. Forbes magazine pegs his net worth at just $4.4 billion, which means he's barely a billionaire and still has to watch his pennies.
    The Bruins play half their games on the road. Those road trips can get expensive, especially when it comes to feeding everyone: "between 20 and 24 players, the head coach, assistant coaches, medical personnel, athletic trainers, equipment managers, communications personnel, travel logistics managers, public relations/media personnel, and other employees." The team actually requires everyone to attend breakfast, where players meet with coaches to talk strategy, review film, discuss media inquiries, and make roster changes.
    The Bruins spent $255,274 on team meals in 2009 and $284,446 in 2010. Now, we all know those are deductible: you can write off 50% of the cost of meals you eat while traveling for business. But Jacobs wasn't satisfied deducting just 50%. He (or at least his accountants) wanted to deduct 100% of those expenses as de minimis fringe benefits.
    Here's the problem. For employee meals to qualify as a de minimis fringe benefit, they have to be served at a facility "owned or leased by the employer." But the team served half of those meals on the road. So the IRS iced half of those expenses, and the parties wound up facing off in court.
    Judge Ruwe sounds like a hockey fan. His opinion runs a full 34 pages, which is the Tax Court equivalent of overtime for a case that size. The main issue was whether the hotel meeting rooms where the team served meals qualified as their "business premises" under code section 132(e)(2). And the referee judge, exercising some much-appreciated common sense, ruled for the team.
    In short, he said, league rules require the team to play half of its games away from home, and even arrive at least six hours before game time. Wherever the team hosts those meetings is its "place of business," sat least for that contest, so the meals the team serves are 100% deductible de minimis fringe benefits. The decision saved Jacobs $45,205 for 2009 and $39,823 in 2010.
    NHL Hall of Famer Wayne Gretzky once said: "A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." We agree with Gretzky, and we don't settle for playing where the puck is. So call us when you're ready to suit up against the tax code, and let's put some Ws on the board!

    Monday, June 26, 2017

    Clean Tax Savings Here

    Businesses generally try to get the highest price possible for their products. It's called "capitalism," and it generally works to establish "equilibrium prices" between knowledgeable buyers and willing sellers. But every so often, this mechanism breaks down and prices soar, resulting in howls of "price gouging!" from ticked-off customers. This is especially true with pharmaceuticals. In 2015, hedge fund manager Martin Shkrelli made himself the most-hated man in America when he bought Turing Pharmaceuticals and raised the price of the antiparasite Daraprim from $13.50 to $750 per pill.

    Another example: in 2007, Mylan pharmaceuticals bought rights to distribute the EpiPen, a device that costs $5 to manufacture and delivers a dollar's worth of epinephrine to stop severe allergic reactions. Mylan quintupled sales, and even helped pass legislation encouraging schools to stock the devices. But they also jacked pricing from $100 to $609 per pair, which led to harmful side effects for the business. Customers revolted and sent the CEO on a Bataan Death March of bad press. Even Martin Shkrelli piled on the criticism — and when that guy calls you a price gouger, you're "Code Blue."

    With sales going from $200 million to over $1 billion in just nine years, you'd think the IRS would get a full dose of the success, too. It turns out, though, that Mylan is just as clever about cutting its tax bill as it is marketing EpiPens. In 2014, they executed a controversial strategy called a "tax inversion," buying a smaller Dutch company in order to move their nominal headquarters to the lower-taxed Netherlands. And Reuters has just revealed another strategy involving huge stakes in, of all things, coal companies. Here's how it works:

        The company buys a coal-refining facility. (Mylan owns LLCs with 99% stakes in five of them, buried deep in the footnotes of the company's annual report.)

    The facility buys raw coal, often from a utility, and treats it to remove the chemicals that cause the worst pollution.

    The facility sells the coal back to the utility, usually at a loss.
    Finally, the parent company takes federal tax credits, which were equal to $6.81 per ton of refined product in 2016.

    As long as the tax credit from Step Four is more than the after-tax loss from Step Three, the parent company come out ahead! How far ahead? Reuters reports loss from the refining operations, depreciation from the facilities, and tax-savings from credits netted Mylan over $100 million last year. In fact, the company's effective tax rate for that year was an eye-popping -294.4%, which means they made far more in compounding tax benefits than they did in operating profit!

    So where does that leave us? Well, you probably aren't sufficiently well-heeled to buy a coal refining plant as a personal tax shelter. But the code is full of literally hundreds of ways to avoid paying more than your legal duty. All you need is a plan. So call us when you're ready to save, and we promise no harmful carbon emissions!

    Wednesday, June 21, 2017

    This Is Spinal Tax

    In 1984, the documentary filmmaker Marty Di Bergi scored a hit with This is Spinal Tap, a look inside Britain's loudest band and their 1982 Smell the Glove concert tour. Lead singer David St. Hubbins, lead guitarist Nigel Tufnel, and bassist Derek Smalls, were joined by a series of drummers who died under mysterious circumstances, including spontaneous combustion and a bizarre gardening accident that authorities said was "best left unsolved."
    Of course, the whole thing was a spoof. "Marty Di Bergi" was really director Rob Reiner, and the band members were played by actors Michael McKean, Christopher Guest, and Harry Shearer. (Having said that, they really did play their own instruments — and yes, they really did turn the volume up to 11.)
    This is Spinal Tap cost just $2.5 million to make. But it has become a cult classic, and grossed countless millions in ticket sales, home video sales and rentals, merchandising, and foreign rights. The four co-creators signed contracts giving them 40% of the movie's back-end profits, 50% of the the music receipts, and 5% of the merchandising. Yet they report getting just $179 in total income from 1984 to 2006. Now Harry Shearer, backed by the heavy duty millions he made voicing characters for The Simpsons, has spearheaded a $400 million lawsuit against the movie's owner, the French conglomerate Vivendi. And that got us wondering . . . do the fans at IRS have a stake in this particular fight?
    Hits like AvatarTitanic, and Star Wars: The Force Awakens can gross over $2 billion. Yet it's a strange Hollywood rule that as much as a movie might gross, there's never any net for back-end participants to share, never any big bottom line to share with the "talent." Return of the Jedi has earned $500 million since 1983, yet failed to show a profit. Harry Potter and the Order of the Phoenix "lost" $170 million.
    How do the studios do it? Shearer and his bandmates specifically accuse Vivendi of "cross-collateralizing unsuccessful films bundled with This Is Spinal Tap." This is when a studio sells a package of films overseas that includes both stinkers and hits, and assigns the same licensing fee to each of them. It has the effect of shifting income from the hits to subsidize losses from the stinkers. Other tricks seem to date back as far as Stonehenge, like undocumented marketing expenses and other improper deductions.
    Today's lawsuit isn't the first time someone has challenged Hollywood's accounting games. In 1982, humorist Art Buchwald wrote a screenplay he titled It's a Crude, Crude WorldSix years later, Paramount Pictures released it as Coming to America, and credited Eddie Murphy as author. Buchwald sued for story credit and won — but Paramount argued that the movie, which grossed $288 million, still managed to lose money. Having defeated the lawyers, Buchwald wound up settling for $900,000 rather than take on the accountants.
    And why would the IRS care? Well, for the most part, they don't. Studios might play accounting games that keep taxable income out of the talent's pockets — but most of that income winds up taxable to the studio or its subsidiaries. As long as the income stays here in America, the critics at the IRS still get their share.
    We make no representation that we could ever help you navigate the ins and outs of Hollywood studio contracts. Fortunately, it's a lot easier to avoid wasting money on taxes you don't have to pay. Call us for a plan, and we'll see how high we can crank up the savings! 

    Tuesday, June 13, 2017

    Does Your Money Need a Passport?

    Economic inequality is a hot topic in today's world. Researchers here and abroad consistently show the top 1% of earners gobbling a disproportionate share of gains throughout the world. This trend has more and more thinkers debating what to do about it. Do we redistribute the pie, so that everyone has a more equal share? Or do we grow it so that everyone can have a bigger slice? (There, we've just summed up three centuries worth of political economy in two short sentences!)
    Now there's new research that shows the old research actually understates that divide. (Don't you just love when the research changes?) Last month, a team of professors published a paper that reveals another gap between the rich and the poor — the rich hide a larger proportion of their income from the tax man.
    In 2015, the International Consortium of Investigative Journalists analyzed data covering 30,000 accounts and $100 billion of assets held at international banking giant HSBC's Swiss private banking department. In 2016, the same group analyzed data on 22,000 shell companies established by the Panama-based law firm of Mossack Fonseca. The professors matched the information from those leaks to population-wide tax and wealth records from Norway, Sweden, and Denmark.
    Scandinavians are known for their democratic socialist philosophies, relative equality, and overall happiness. (The 2017 World Happiness Report ranks Norway first, Denmark second, and Sweden ninth.) Surely the rich people in those countries are happy to support their less-fortunate brethren through taxes, right?
    Well, not so much. (With all that socialism and equality, it might surprise you to learn that there even are rich people in that part of the world.) While the overall tax evasion rate is 3% in Scandinavia, that rises to 30% for the top 0.01% of taxpayers, which includes households with more than $40 million in net worth.
    How does that correlate to inequality? In Norway, previous figures had estimated that the country's wealthiest 300 families control 8% of the country's net worth. The new data suggest those families keep a full third of their wealth offshore, which means they actually control at least 10% of the country's wealth. Researchers just didn't know where it was hiding!
    Over 1% of the Scandinavian families use HSBC's Swiss private banking services. Another 1% own a shell company created by Mossack Fonseca. One percent may not sound like a lot. But remember, HSBC is just one Swiss bank out of over 300, and Mossack Fonseca is just one law firm out of countless more.
    The paper's authors found that, "In practice, about 95% of all the individuals on the HSBC list that could be matched to a tax return did not report their Swiss bank account." In fact, when Norway and Sweden passed tax amnesty laws letting scofflaws pay reduced penalties, over 8,000 taxpayers 'fessed up. And further, the numbers suggest that 15% of the wealthiest households have stashed at least some money abroad.
    Here's some good news for those of us who live in the U.S. and don't have $40 million to worry about. Our country is actually considered a tax haven by many foreigners. That means we have countless opportunities to save taxes without sending our money on a Swiss holiday. All you really need is a plan. So call us, and see if we can help send you on vacation!

    Monday, June 5, 2017

    Trigger Warning: Snakes

    What scares Americans most? It's not the IRS, or public speaking, or even sharks. No, the answer, as you probably guessed, is snakes. Gallup once polled 1,016 American adults, and found that fully 51% of us are afraid of the scaly, coldblooded carnivores. Snakes have been bad guys going as far back as the Book of Genesis, when the serpent tempted Eve with an apple. And they've terrorized the rest us ever since. Who can forget Samuel L. Jackson, snapping out the only line anyone remembers from Snakes on a Plane, declaring "I have HAD it with these @#$%^ SNAKES on this $%^$@ PLANE!" or words to that effect.

    If you're part of that 51%, you won't be happy to hear the latest news from Mother Nature. Last month, a scientist announced he had observed a species of snake, the Cuban boa, that hunts in packs, using teamwork to catch their prey. He watched the three-to-six foot serpents join each other to hang upside down from roof of a cave to create a "curtain" and snatch bats trying to fly out. (Last we heard, he was spotted sprinting headlong away from the cave, screaming at the top of his lungs.)

    If this news hasn't sent you sprinting from the room, you're probably wondering what any of this has to do with taxes. We'll confess, we took the "snakes hunting in packs" story to test our own scientific hypothesis that we can find a tax connection anywhere. And it did take a few minutes on Google. But we did it!

    So . . . halfway around the globe, the world's most populous country is struggling to stamp out a pattern of petty corruption and bribery that keeps it stuck in the ranks "emerging democracies." Mother India currently ranks 79th out of 176 on Transparency International's corruption index. This puts India just behind that paragon of transparency Turkey, tied with Brazil, and ahead of the petty crooks in Albania and Jamaica.

    What does that mean for daily life? Bribery in India is everywhere. Want to open a business, get a drivers license, or schedule an appointment with a doctor? Pay up. Anticorruption campaigns have helped tame the problem, including one clever effort to post Youtube videos of ordinary citizens naming and shaming corrupt officials. But old habits die hard, especially away from the capital in New Delhi.

    Hukkul Khan and Ramkul Ram are two farmers from Narharpur village in Uttar Pradash, a northern state bordering Nepal. The men wanted tax records for their land, but officials refused to turn them over without the usual bribes. And Khan is known in his village as a snake charmer. So one day, the farmers showed up at the tax office with three bags full of snakes. There were about 40 in total, all different sizes and species, including at least four deadly cobras.

    One state official said they started climbing up the tables and chairs. "There was total chaos. Hundreds of people gathered outside the room, some of them with sticks in their hands, shouting that the snakes should be killed." Fortunately, no tax collectors or taxpayers were harmed during the making of the farmers' stunt. Police and forest officials rounded up the snakes, and everyone who wasn't in that office had a good laugh. (As Indiana Jones said in Raiders of the Lost Ark, "Snakes . . . why'd it have to be snakes?")