Tuesday, July 21, 2015


Nina Olson is the most important person you've never heard of at the IRS. She's the "National Taxpayer Advocate," and she heads up an organization created to cut through the red tape when the Service can't get the job done itself. If you're stuck between cogs in the IRS machine, Olson and her staff of 1,400 Case Advocates are poised to pull you out. She's like the Lorax, except she speaks for the taxpayer instead of the trees.
Last week, Olson released her mid-year report to Congress. It's hundreds of pages long, full of dense bureaucratese and government jargon, all leading to one inescapable (and rhyming) conclusion: the IRS is a mess. Olson likened the situation to Charles Dickens' Tale of Two Cities. "For the majority of taxpayers who filed their returns and did not need IRS assistance," she writes, "the filing season was generally successful. For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory."
Take a look at some of the "customer service" statistics Olson revealed, and you'll see why we put the term "customer service" in quotes:
  • The IRS answered just 37% of the phone calls taxpayers made to customer service representatives, with an average hold time of more than half an hour. That's down from 71% for the 2014 filing season.
  • Olson's own unit did barely better, answering just 39% of calls made to the National Taxpayer Advocate Toll-Free Hotline. (Hint: a toll-free number won't save taxpayers much money — and really, it isn't much of a "hotline" — if nobody answers the phone!)
  • Tax professionals have always been able to "cut the line" by calling the Practitioner Priority Service line. Surely they get better service, right? Not so much. The IRS answered just 45% of those calls, with an average hold time of 3/4 of an hour.
Where do all those unanswered calls go? Here's a clue: the number of "courtesy disconnects" jumped from 544,000 last year to 8.8 million this year. "Courtesy disconnect" is the ironic term the IRS uses when the phone lines get so jammed there's no hope you'll ever reach an actual human being anyway — so the system just says "peace out" and hangs up on you.
Why are things so miserable? The problem, of course, is money. The IRS budget is down 17% (adjusted for inflation) from 2010. Yet even as Congress has gleefully slashed funding for everyone's least-favorite agency, they've stuck the IRS with the responsibility of riding shotgun over big chunks of both the Affordable Care Act and the new "FATCA" rules designed to sniff out hidden offshore accounts. The end result is a "customer service" experience that makes a trip to the DMV look like a beach vacation.
If you've never gotten a dreaded "CP-2000" notice, you might not see the connection between IRS "service" and what we do. But here it is, in a nutshell: the sort of tax planning we offer doesn't just save you money, it helps protect you from IRS bureaucracy to save you time. So make sure you've got a plan in place before you file your next return!

Monday, July 13, 2015

Forensic Filings

We tend to think of the Internal Revenue Service mainly as Uncle Sam's "collections department." But it's also a true law enforcement agency. Special agents from the Criminal Investigations unit take on obvious crimes like tax evasion and tax preparer fraud. They also partner with local police, the FBI, the DEA, and even foreign governments to combat public corruption, money laundering, drug trafficking, and international terrorism. The tax cops are good at what they do — the IRS boasts the highest criminal conviction rate of any federal law enforcement agency (93.4% in 2014).
But sometimes the IRS plays a surprising role in more ordinary crimes . . . which brings us to today's story.
On May 17, 2005, 38-year-old Amy Bosley frantically called 911 to report a break-in and shooting at her family's holiday cabin in Alexandria, Kentucky, just across the Ohio River from Cincinnati. Police arrived to find her 41-year-old husband, Bob, dead on the bed with at least seven bullet wounds. The cabin had been ransacked, and the couple's terrified sons, ages six and nine, were huddled in their room.
Local authorities were stumped at first. There were no witnesses and no DNA evidence. The Bosleys were well-liked in their community. They owned a million-dollar roofing business, along with all the grown-up toys their success could buy: sports cars, horses, an airplane, and a 50-foot yacht.
But officials soon learned there were secrets beneath the Bosley's successful facade. Bob had made enemies in his business. And he would disappear for days at a time to his boat on nearby Lake Cumberland, where he entertained women who weren't his wife.
Then came the call that cracked the case wide open. It seems that Amy, who served as the roofing company's accountant, had been as cavalier with the business's taxes as her husband had been with his wedding vows. The company owed a whopping $1.7 million in back taxes. Amy had hidden the investigation from her husband and even impersonated him on the phone.
Not being able to talk to Bob had the IRS smelling a rat. So they demanded an in-person meeting with the couple that was scheduled to take place . . . the morning after the murder! And that morning, the "grieving widow" was even so bold as to call the IRS and say they wouldn't need to meet because Bob was dead. Given the astounding coincidence on top of all the suspicious behavior, the IRS agent called local police and suggested a suspect and motive they might want to look into.
You can probably guess where the story goes from here. Investigators focused their attention on Amy and began to pull apart her story. They found hundreds of checks to the IRS, unmailed, in the back of her car. The coup de grace came from the children, who told interviewers they heard gunshots first, then breaking glass. Ten days later, Amy was in custody. She pled guilty to protect the children from having to testify, and now she's serving a 20-year sentence.
Campbell County Prosecutor Michelle Snodgrass told the court that Amy set out to destroy the business to get even with Bob for the cheating. She even thought killing him would make the tax problems go away. And where did all the money go? Snodgrass says, "I think that there's money buried, and when she makes parole, one of the first stops she makes is to go get that."
When we work with couples, we make sure both spouses are on board with the plan. And while we probably couldn't have saved the Bosleys, wecan help eliminate financial conflicts that threaten relationships. So don't wait to reach out to your better half. Call us today for a plan to help bring you closer together!

Monday, July 6, 2015

A Tax in a Pineapple Under the Sea

You know what's even worse than paying tax on money you make? Try taking a loss on money you lose. Make $100, pay a 40% tax, and you've still got $60 left. But lose $100, take a tax loss, and you're still out your $100. Yeah, you can deduct it against future income. But it's kind of like those "mail-in" rebates you get when you walk out of Staples with a new printer. It sounds good when you're still in the store. But in the back of your mind, you realize you'll probably never actually mail it in.
It's no fun if you lose money in a bad investment. It's no fun if you get ripped off in some sort of fraud. It's even worse if you get ripped off in an investment fraud! And that brings us to this week's story, which starts out in the underwater city of Bikini Bottom.
SpongeBob SquarePants is a kids' cartoon chronicling the adventures of a sponge named Bob, who lives with his pet snail Gary in a pineapple on the ocean floor. (If you're a parent of a young child, you can just skip ahead to the next paragraph.) SpongeBob has become Nickleodeon's most popular series, squeezing up a boatload of awards, and spawning two movies. In 2011, mycologists working in Malaysia even discovered a new species of fungus in the Bolotaceae family which they named spongiforma squarpantsii.
With a franchise that successful, every huckster within 20,000 leagues wants a SpongeBob tie-in to promote their business. One of those hucksters was a company called SpongeTech. Don't let the "tech" fool you; these guys were in the decidedly low-tech business of selling soap-filled sponges, including a SpongeBob SquarePants model filled with baby soap. But their real business was soaking investors — and after all the hype was washed away, SpongeTech was just another penny-stock scam. Scratch that — as one reporter put it, "SpongeTech was no ordinary pump-and-dump penny-stock scheme; it was, to play on Churchill's famous definition of Russia, a fraud wrapped in a stock-market rig inside a money-laundering conspiracy."
Robert and Penny Greenberger were two of those unlucky investors who watched their "investment" in SpongeTech circle down the drain. By the time the company filed for bankruptcy, the Greenbergers had lost $569,220. In 2010, they wrote the capital loss off on their taxes. Which was fine, except for one thing. They can carry that loss forward to absorb future gains. But they can only deduct $3,000 per year against their ordinary income. At that rate, they'll still be writing it off in the 23rd century.
But theft losses are deductible against ordinary income. Right now! So, in 2012, the Greenbergers amended their 2010 return to claim a theft loss, and asked the IRS to send them a refund for $177,102. The IRS said no, and everyone sailed off to court. Last month, Judge James Gwin ruled that, to prove theft, the Greenbergers had to show two things: 1) that SpongeTech's "nauty" scammers acted specifically to take their money through fraud, and 2) that the Greenbergers had transferred their property to the thieves. Unfortunately for our losing investors, they had bought their stock on "the open market, without any knowledge of who was on the other side of the transaction." And with that, he sank the Greenbergers' case.
Remember when you were a kid and your mom told you not to buy something just because there was a cartoon character on it? She was right, and she would tell you the same thing about your portfolio. The most important lesson here may be to make the right financial decision first, then find the most tax-efficient way to do it. So call us for help — we're here to help you clean up your messiest financial mistakes!

Monday, June 29, 2015

What Goes Around Comes Around

Ask anyone what makes them happy. (Go ahead, see who's around and ask them.) We're pretty sure they didn't say "paying taxes." Most of us just grumble and pay up. But millions of citizens from all walks of life express their unhappiness by choosing not to pay. The IRS currently has over 12 million accounts in collections, with state and local governments managing millions more. That's a lot of money not getting paid.
Of course, tax collectors are hardly powerless to collect those debts. They can garnish wages to pay back taxes. And they can seize property. Usually, this means financial assets like bank accounts, investments, and retirement accounts. But it also includes physical assets like houses, cars, and boats they can sell to raise cash. The IRS has seized less obvious assets, too, such as the contents of an Alabama scofflaw's hair salon, a pair of Boston parking spaces that sold for $280,000 each, and even $2 million worth of annuity payments that used to be New York Mets slugger Darryl Strawberry's deferred salary.
Now we've learned that a Florida tax collector is taking aim at an even bigger target. Last month, Escambia County Tax Collector Janet Holley filed suit to seize the 200-foot-tall Skyview Ferris wheel, which has thrilled riders since 2013 near Atlanta's Centennial Olympic Park.
The Ferris wheel features 42 climate-controlled gondolas, including a VIP car with leather seats and glass floors. And it's enjoyed a scenic ride of its own. It originally opened in Paris, across from the famed Louvre museum. Then it moved to Bern, Switzerland. Then it crossed the Alps and the Atlantic for a year-long stop in Pensacola, Florida before finally settling in "the ATL."
Here's where taxes step aboard. When the wheel landed in Pensacola, it became subject to Escambia County property tax. The county assessed the wheel's value at $11.4 million, then billed the ride's operator $237,000. That company, Expo 60 Ventures LLC, has since gone out of business and dissolved. However, Florida law lets the tax on tangible property follow the property, in addition to the owner, which makes the wheel itself still subject to seizure. What's worse, interest and penalties have rolled the bill up to $350,000!
The wheel's current operators are quick to defend Atlanta's newest overpriced tourist trap scenic attraction. A spokesman says "This is a vendetta by a public official who's up for re-election in Pensacola, Florida. Pensacola has always been angry that this wonderful icon left their city and came to Atlanta." Having said that, they also paid $50,000 towards the debt. "Our only contention is that they're charging some ridiculous penalties and interest and things like that on the taxes, and we're willing to pay those as soon as the court tells us that that's what we have to pay," he added. (Doesn't exactly sound "willing" when you put it like that!)
Of course, the county doesn't really want to take possession of the Ferris wheel, not any more than the IRS really wanted a couple of parking spots in Boston. They just want their money. (We can just imagine Pensacola's roughest, toughest repo man gulping in disbelief when he getsthis assignment!)
Ferris wheels are fun, but in the end you just wind up back where you started. That's fine for a scenic ride, but it's not good enough when it comes to your taxes. What you need is a plan. Whether you're running a business, managing a portfolio, or just raising a family, we can give you that plan — and you can save the thrill rides for the amusement park, not the IRS!

Tuesday, June 23, 2015

Little Tax Lien on the Prairie

Us Weekly is one of those glossy tabloid magazines you see in the checkout line at your local supermarket. Every week, they run a photo feature called "Stars: They're Just Like Us," with revealing, slice-of-life gems such as a Bachelorette throwing a ball to her dog in the park, a former supermodel cheering at her kid's soccer game, or Matt Damon adjusting his fly while he waits in line to renew his driver's license. (We're explaining this because we know you would never read anything so frivolous.)
Here's another way that stars are just like us . . . they deal with the tax man! (Except when they don't, as the case sometimes may be.) Granted, it's not great television, watching the Kardashians pay their kuarterly estimates. Still, taxes are just a much a bane of their existence as they are of yours. So let's take a look at some celebrity tax stories making the rounds:
  • Melissa Gilbert, who starred as Laura Ingalls in the family drama Little House on the Prairie, is facing a $360,000 lien for unpaid federal income taxes. While we can't be privy to the exact circumstances, the actress, who has since served as President of the Screen Actors Guild, reports that the recession had hit her hard. "That, plus a divorce and a dearth of acting opportunities the last few years, created a perfect storm of financial difficulty for me." Gilbert, her husband, and their two boys currently live in a log house in Michigan, which she refers to as "our own Little House in the Big Woods," and says she has negotiated a plan with the IRS to make good on her debt.
  • Presidential candidate Carly Fiorina may be barely cracking 1% in the polls, but she's jumped to an early lead in the financial disclosure race — she won't be accused of hiding anything in her tax returns. The former Hewlett-Packard CEO had already released her federal returns, along with a 503-page financial disclosure pegging her net worth at $58,954,494.88 (because $60 million would just be vulgar). But last week, she opened up her state tax returns as well. While Fiorina lives in Virginia, her various business and investment interests force her to file tax returns in a total of 17 states. We're not talking a lot of money here — for example, she earned $946 in investment income attributable to Michigan, which meant filing a 58-page return and paying $40 in tax (which Virginia credited back to her on their return). The end result with her state tax returns is a 1,000-page stack of paper that ought to keep her former company 's printers humming profitably for years.
  • Former House Speaker Dennis Hastert is in hot water following revelations that he paid $1.7 million in hush money to conceal "former misconduct." Prosecutors have indicted him for failing to report cash transactions and lying to the FBI. It's been an incredible fall for Hastert: a decade ago, he was two heartbeats away from the Presidency, and now his life is an episode of theMaury Povich show. But will the IRS have a problem with it? Almost certainly not! In fact, Hastert can plausibly claim a theft loss deduction for payments exceeding 10% of his adjusted gross income. The indictment doesn't tell us if Hastert's blackmailer reported the payments as income, and we can safely assume Hastert didn't issue a 1099! Still, this is one case where the IRS might actually make a celebrity's troubles easier.
Celebrities are famed for supporting entourages of publicists, agents, and managers that you probably don't need and can't get. But they also have tax planners — and you can have one of those right now. Just call us for the plan you need to keep your taxes to a legal minimum and outof the headlines.

Tuesday, June 16, 2015

Pomp and Circumstance

June is Graduation Season, and odds are good that you've spent some time seated on a cheap folding chair or arena bleacher watching someone proceed down an aisle in an expensive cap and gown. Commencement speakers will thank the faculty, staff, and parents who made it all possible. But how many of them thank the folks in Washington who drafted Internal Revenue Code Section 170(c) back in 1917?
John Paulson is a hedge fund manager who owns a 28,500 square foot Manhattan townhouse, a $41.3 million Southampton estate with twopools and two guest houses (because one of each wouldn't be enough), and a $49 million Aspen ranch. Back in 2007, he bet against the housing bubble and made close to $4 billion when everyone else was losing their shirt. Forbes magazine ranks him #113th-richest billionaire in the world, with a net worth of $11.2 billion.
So, a couple of weeks ago, John Paulson reached into his couch cushions and found $400 million he didn't need. He gave that money to his alma mater, Harvard University. (Harvard has a $32.7 billion endowment, which means they don't need it either, but that's a different story.) Harvard will use the money to expand their engineering school and rename it in Paulson's honor. And here's where that tax code section 170(c) comes in — it lets Paulson deduct the gift from his 2015 tax return and save $100 million or so.
Paulson isn't the only rich guy to donate millions to see his name on the wall of a building. Last month, another Wall Streeter named Steven Schwartzman ($12 billion net worth), found $150 million in the spare change jar on his bedroom dresser that he wasn't using. He gave it to hisalma mater, Yale University ($23.9 billion endowment), which will use the money to transform the Commons building into a performing arts center. If you guessed that Yale is renaming it "the Schwartzman Center," give yourself 10 points. And if you said "Wow, Schwartzman's gift will save him $40 million or so in taxes," give yourself another 10.
Wall Streeters aren't the only guys getting in on the action. Back in March, a California venture capitalist named Mark Stevens ($1.6 billion net worth), found $50 million in the console between the front seats of his car. He gave it to his alma mater, the University of Southern California ($4.6 billion endowment), to build a biology lab. If you guessed it'll be called the "Mark and Mary Steven Neuroimaging and Informatics Institute," you know a lot more about biology than we do. And while we can't know exactly how much the gift will amputate from the Stevens's taxes, we can be sure it's a lot.
We're having fun here with the amounts these guys can give. But we're not making fun of their tax breaks. That's what lets a John Paulson say to himself, "Hmmmm, I've got $400 million I'm willing to part with," and give it all to the school of his choice, rather than a smaller after-tax amount. It's what lets your neighbor say "I've got 500 bucks I'm willing to part with," and give it all to his alma mater. Americans as a group give nearly $40 billion per year to educational causes. And the tax breaks that encourage that generosity really do help make it possible for you to enjoy those graduation speeches you sat through earlier this month.
You know what else guys like John Paulson, Steven Schwartman, and Mark Stevens all have? Tax plans. They know they can't just wait until April 15 to figure out how much they owe — not if they want to give buildings to universities. Shouldn't you take a page from their success and get a plan of your own? Call us now and see how much more you might be able to give! 

Monday, June 8, 2015

Who Won Most at Roland Garros?

For two weeks every spring, the tennis world focuses its attention on Roland Garros, the Parisian center that hosts the French Open. This year, fans yawned as the dominant Serena Williams cruised to her 20th career major title in the 2015 French Open, defeating the 13th-ranked Czech Lucie Safarova. On the men's side, fans saw an actual contest, as the Swiss Stan Wawrinka used his devastating backhand to take his second major in four sets, upsetting top-ranked Novak Djokovic and denying him a career Grand Slam.
Both winners claimed €1.8 million, or about $2 million, in prize money. But does that mean they actually take home that much? Certainly not. You may have heard about this thing called "taxes" that eat into our bounty. So let's take a look at what happens to those purses to see who really comes out ahead.
Playing professional tennis isn't like signing a contract with a baseball or football team and collecting a guaranteed salary. It's more like running a small business whose "product" is winning tournaments. James Ward, currently ranked #101 in the world, put it well last year when he told International Business Times, "It's difficult . . . You're paying your own expenses, your coach's, you're paying for your food, your hotel, your travel — for two people. And if you lose in the first round you're getting $300, minus tax. It's embarrassing. You've just got to win matches."
James is exaggerating a little bit — first round losers at the French Open get €27,000 in addition to their walk of shame. And in Williams's case, her coach is also her boyfriend, which brings down the cost of her entourage a bit. But still, if you want to get rich playing tennis, you've got to be very, very good. The real money, as with so many sports, is in the endorsements.
France takes the first slice at French Open winnings, and it's a big one. France's top tax rate is 45%, which is actually down, from 75% just two years ago. It's high enough that international athletes grumble about it publicly. In fact, last year Serena told Rolling Stone magazine, "Seventy-five percent doesn't seem legal. Nobody does anything because the government pays you to be broke. So why work?"
Then Williams comes home, and the IRS serves up a maximum rate of 39.6%, plus a Medicare tax of 3.8% on top of that. At least her home state of Florida doesn't impose an income tax.
As for Wawrinka, who ranks fourth in the world after this week's win, he wins the Tax Bracket Open. He pays a maximum federal income tax of just 11.5% on income over SFr700,000. (That's Swiss francs, for those of you keeping score at home — 700,000 Swiss francs equals about $658,000.) His home canton of Vaud (similar to a state government in Switzerland) and his home town of St. Barthélemy lob more taxes at him. Total tax burdens in Switzerland can reach 40% depending on where you live. Even so, Wawrinka squeaks out ahead of Williams. (He may not "love" paying them, but at least he gets to pay a bit less.)
When it comes to tennis, how hard you hit the ball is important. But it also matters where you hit it, too. It works the same way with taxes. Howmuch you make is key. But how you make it and even where you make it are important, too. Serena Williams and Stan Wawrinka both have tennis coaches to help them win more tournaments. And they have tax coaches to help keep as much of what they win as possible. So don't risk double-faulting against the IRS. Call us for the plan you need!