Monday, February 8, 2016


Football fans who enjoyed Super Bowl 50 all know that while offense may sell tickets, it's defense that wins championships. The Carolina Panthers learned this lesson the hard way Sunday night, losing to the underdog Denver Broncos, 24-10. The Broncos scored just one offensive touchdown on their way to winning the Lombardi Trophy, and gained just 194 yards in total offense, the lowest for any Super Bowl champion. Defense ruled the game — linebacker Von Miller led Denver's top-ranked defense to victory, forcing two fumbles en route to winning MVP honors.

But there's one player that every NFL player fears even more than a strip-sacking linebacker, and that's the one who wears number 1040 on his jersey. The league minimum salary is $450,000 this year. That's enough to push even the greenest rookie into the top 39.6% federal income tax bracket. Pile on 3.8% for Medicare, plus state and local taxes, plus whatever state and local "jock taxes" he owes for road games, and it all adds up to a serious financial concussion.

Fortunately for the Super Bowl-losing Panthers, punter Brad Nortman and long snapper J.J. Jansen are there to help. Nortman majored in accounting at Wisconsin and recently passed the CPA exam; he's currently working on a master's degree in finance at Indiana University. And Jansen graduated with an accounting degree from Notre Dame. "I would say J.J. and I are the go-to corner for tax questions, investing questions and personal finance questions," Nortman told after Carolina embarrassed Arizona for the NFC title in January. "Any guys that want to know about it know where to go to."

How important can those questions be? Let's look at a story coming to us out of the same northern California Bay Area that just hosted the big game.

Oakland Raiders owner Al Davis and his partners have been battling the IRS for years over their income from 1988-1994. In 2005, Davis and his wife finally entered a settlement which required the IRS to make "computational adjustments" to determine the effect on each partner's income. That settlement gave Davis and the partners 60 days to review those calculations. However, by the time the IRS sent Davis the final calculations, calling for an extra $2.5 million, the statute of limitations was about to expire. So the IRS issued the final assessments after just one week, rather than the 60 days the agreement promised.

In 2011, Davis suited up in court to invalidate that assessment. Last month Judge Andrew Hurwitz blitzed his claim. IRS closing agreements are contracts, the judge said, and the default remedy for breach of contract is damages. Yes, the IRS breached the contract with the partners by letting the play clock run down. But that doesn't let Davis wriggle out of the IRS's grasp. Davis could have challenged the accuracy of the IRS calculations, filed an administrative claim for a refund, or sought reimbursement for the IRS's breach. "Instead, he threw a Hail Mary and sought a full refund. That pass falls incomplete," said the judge. (Apparently he isn't much of a Raider Nation fan).

No self-respecting NFL coach would ever take the field without a careful game plan designed to defeat the opposition. So why would you try to line up against the IRS without a plan of your own? Call us when you're ready for your own plan, and we'll see if you're wasting enough to cost you a ticket to next year's big game!

Tuesday, February 2, 2016


Rock & roll fans lost an icon last month with the death of David Bowie just two days after his 69th birthday. Bowie made a career out of breaking molds, pioneering "glam rock" and reinventing himself constantly along the way. Rolling Stone magazine's obituary hailed him as "one of the most original and singular voices in rock & roll for nearly five decades," whose "flair for theatricality won him a legion of fans." His last album, Blackstar, dropped on his birthday and immediately hit #1 on several Billboard charts.
Rock stars are famous for earning enormous sums of money, and blowing those fortunes on pricey mansions, pricey cars, and pricey entourages. (They've even been rumored to dabble in pricey drugs.) But Bowie's fame made him a man who'll take things over — he became one of rock's savviest money managers, and that naturally included proactive steps to beat the tax man.
Bowie's first wife Angie wrote in her autobiography that in 1979, Bowie was living large in California. But he found himself under pressure from $300,000 tax bill, and it seemed the taste was not so sweet. "These were tax debts accumulated over the past few years," she recalled, "during which time vast quantities of taxable cash he had generated had vanished into various murky areas." Strange fascination indeed!
Bowie had several choices. He could stay in sunny California, where combined federal and state rates topped out at 81%. He could head home to England and pay 83%. Instead, he sent Angie to her birthplace in Switzerland and arranged residency in the village of Blonay above Lake Geneva. Sure, it meant spending "significant amounts of time in Switzerland." But Angie likened it to "work release from a very nice, court-ordered health resort," with "an almost ludicrously low tax rate of about ten percent."
In 1992, Bowie opted for a more modern love and married the supermodel Iman, who preferred the glamour of London and New York to the quiet charms of a Swiss village. Would that mean a return to high taxes? Of course not! He bought a 640-acre estate near Dublin in Ireland, which exempts artistic royalties from tax.
Then, in 1997, Bowie released his greatest financial hit: the so-called "Bowie bond." Bowie needed cash to buy out his former manager. But he didn't want to sell the rights to any of his songs. Instead, he transferred the copyrights into a special purpose trust which then issued $55 million in bonds secured by the royalties to the songs. By borrowing against those future royalties rather than selling them, he was able to take tax-free cash. Bowie's deal made him a hero for artists looking to securitize future royalties. It even offers significant estate-tax advantages — an artist's heirs can pay estate tax on their intellectual property without having to sell it.
How well did Bowie's moves succeed? Time may have changed Bowie, but in his golden years, he really did become a richer man. This weekend, reports surfaced that he left a $100 million estate, with half going to his wife and half to his children. He also left $2 million to his longtime personal assistant and $1 million to his daughter's nanny. (We realize that half plus half plus $3 million equals more than the entire estate, but when you've sold 140 million (!) records, you can get away with that sort of math.)
Want to put the same smart tax moves to work for yourself? You sell the records and we'll handle the rest! Seriously, though, you don't need to hit #1 on the charts to pay less. You just need a plan. So call us when you're ready to "turn and face the strange"!

Tuesday, January 26, 2016

We Bring Good Things to Boston

Way back in 1889, the inventor Thomas Edison and the financier J.P. Morgan put their heads together to create the Edison General Electric Company. Just seven years later, it was one of the original twelve companies listed on the new Dow Jones Industrial Average. Today, GE is the fourth-largest company in the world. It's the very model of a modern "multinational," with 350,000 employees generating $150 billion in annual revenue from jet engines, financial services, clean energy, life sciences, appliances and lighting, and railroad equipment.

Naturally, all that money sloshing around attracts the tax man's attention. GE files literally thousands of tax returns every year, for every country in the world (or at least every one that requires a tax return), every state in this country, and more cities than you can name. Their federal Form 1120, which is the corporate equivalent of your Form 1040, runs over 50,000 pages — and it gets audited every single year. So naturally, GE works hard to avoid paying anything more than it has to. The New York Times reports that the company's tax department "is often referred to as the world's best tax law firm," and its staff of 975 lawyers takes advantage of every trick in the book to pay the legal minimum. And all that work pays off — from 2008 to 2012, the company paid zero federal corporate income tax.

40 years ago, GE moved its headquarters out of Manhattan to suburban Fairfield, Connecticut, a WASPy town on the coast of Long Island Sound. But last year, Connecticut legislators adopted a budget that raised taxes by $1.9 billion statewide. The very next day, GE chairman Jeffrey Immelt stamped his little foot and said "I'm taking my ball and playing somewhere else!" Who would have expected him to wind up in the commonwealth formerly mocked as Taxachusetts?

That's right, GE has announced they're moving their headquarters and 800 jobs to Boston's Seaport District neighborhood. (No word yet on whether the company's Yankees fans will be expected to start rooting for the Sox.) The city's concentration of elite universities and innovative tech firms was the main draw. But city and state officials seasoned that chowder with one of the richest incentive packages in Massachusetts history, too.

It seems that old "Beantown" offered up to $25 million in property tax breaks. Massachusetts state officials have added up to $145 million in grants, infrastructure improvements, and help with real estate acquisition costs. But the brightest light of all is a special discount on state corporate taxes.

Massachusetts imposes a corporate excise tax of $2.60 for every thousand dollars of Massachusetts tangible personal property or taxable net worth, plus 8.0% of net income attributable to Massachusetts. But the state offers what they call a "single sales factor apportionment" break to three specific industries: defense contractors, mutual fund managers, and manufacturers. That break lets eligible companies pay tax solely on their in-state net income. The state's Department of Revenue reports that this break saved qualifying companies over $3 billion in tax from 1996 to 2011. GE has confirmed that they plan to cash in on the same break moving forward.

Now, you probably don't have the option to simply pull up stakes and move just to save some tax dollars. The good news is, you don't have to move to pay less. You just need a plan — the same sort of plan that lets GE minimize its tax burden. So call us when you're ready to pay less, and keep rooting for the home team!

Monday, January 18, 2016

Spinning Garbage Into Gold

Centuries ago, medieval alchemists used all the technology at their disposal to try to transform base elements like lead into precious substances like gold. Occasionally they even succeeded! Alas, in most cases, transmutations that seemed too good to be true turned out to be just that, and alchemists who tried to pass off their fools' gold as the real thing could count themselves lucky if jail was all they got.

Today, a new breed of financial alchemists use all the resources at their disposal to turn ordinary financial transactions into tax-advantaged gold. Occasionally they, too, even succeed! But alas, in too many cases, transactions that seem too good to be true also often turn out to be false — or even fraudulent — and our intrepid schemers are glad that the worst they face is jail.

Joseph Furando, of Montvale New Jersey, is a thoroughly nasty piece of work who came up with a can't-miss business idea. Biodiesel fuel is made from renewable resources like soybean oil and used restaurant grease. It qualifies for two valuable tax credits — a "blender's tax credit" of $1 per gallon, plus a "renewable identification number" that manufacturers can use to show compliance with federal renewable fuel obligations. It's not especially glamorous, but the tax credits make it a predictably profitable proposition.

Furando's lightbulb idea was to take biofuel that had already qualified for those credits in New Jersey, truck it to a different blender in Indiana, then re-certify it to qualify for the credits a second time. Naturally, he dubbed his scheme "alchemy." And for two years, life was good. Furando sold 35 million gallons of his fraudulent fuel and spun $56 million in profits. He poured that money into a Ferrari and other cars, a million-dollar home, artwork, a piano, and two biodiesel-fueled motorcycles. (He probably had an enviable pinky-ring collection, too.)

Unfortunately for Furando, his scheme attracted the wrong sort of attention, from people like the FBI, the IRS Criminal Investigation unit, and the EPA's Criminal Investigation Division. (I bet you didn't know the EPA even has a criminal investigation division.) No need to bore you with the Court TV details — last week, Judge Sarah Evans Barker sentenced Furando to 20 years in the pen and ordered him to pay $56 million in restitution.

And why do we call Furando "a thoroughly nasty piece of work"? For starters, prosecutors claim he threatened to kill anyone who ratted him out. He also has a history of casual violence, like denting a wall with one employee's head and telling another employee's mother, "Young guys like your son are found dead in ditches all the time in New Jersey." When law enforcement officials executed a search warrant on his home, they found 46 firearms, two sets of brass knuckles (because, hey, you can only use two at a time, right?), and three switchblade knives.

Surely Furando must have had a mother who loved him. Surely she must have told him "crime doesn't pay." Unfortunately, some of us have to learn our lessons the hard way.

The good news is, you don't have to be a sociopath to take advantage of valuable tax credits. You just have to know where to look. So call us when you're ready to make sure you're not missing out on your fair share of these opportunities!

Monday, January 11, 2016

Golf Course Owners Go for the Green

Golf courses may be some of the most beautiful manmade environments on earth. Millions of Americans actually hate the game itself, but tolerate topping their drives, shanking their wedges, and losing $2 Nassau bets by missing three-foot putts just because they get to do it all on a golf course. But while most of us can appreciate the serene beauty of the links, that lush green doesn't always translate into financial gold. (As Rodney Dangerfield told us in Caddyshack, golf courses and cemeteries are the two biggest wastes of prime real estate.)

A "conservation easement" is a gift of a partial interest in real estate to a publicly-supported charity or government. If you own a historic building, for example, you might donate the right to make changes to the façade, to keep its historic character. If you own a farm at the edge of town, you might donate development rights to keep the space green. In 2012, 1,114 taxpayers claimed conservation easement deductions. That might not sound like a lot, but the average amount claimed was $872,250. So we're talking real money here — and the IRS is paying attention and cracking down on inflated appraisals.

Golf course owners love to save some green as much the next guy, so of course they've worked to hop on the conservation easement bandwagon. In 2009, the owners of Kiva Dunes, on Alabama's Gulf Coast, won a Tax Court case letting them deduct $28.7 million for limiting their property's use to a golf course, park, or farm. In that dispute, the Court took the "conservation" aspects for granted, and focused solely on the value of that gift. But sometimes the Court takes a closer look at the validity of the gift itself which brings us to this week's story.

Back in 2003 and 2005, the operators of St. James Plantation, a pair of North Carolina courses, deducted nearly $7.9 million for easements on their properties, located in exclusive gated communities. They claimed the gifts would help preserve fish, wildlife, plants, and the overall ecosystems of the properties, located in the Cape Fear Arch "biodiversity hotspot" and the Boiling Springs Lake Wetland Complex. Both properties provide travel corridors for the Red-Cockaded Woodpecker (although there have been no reports of actual sightings of the elusive bird), and the 2005 easement area houses the "significantly rare" Eastern Fox Squirrel.

But (and there's always a "but," or there wouldn't be much of story), the easements also let the owners keep operating their golf courses. That means digging sand traps, maintaining cart paths, removing trees, and building rain shelters, restrooms, and food concession stands. It also means assaulting the turf to within an inch of its life with herbicides, fungicides, insecticides, and other chemicals, "in such manner as the owner deems appropriate" as long as they follow "the best environmental practices then prevailing in the golf industry." And of course the courses are surrounded by the usual instant mansions that developers love to crank out wherever they can drive up prices for fairway views.

The IRS teed off on the operators' deduction, which set up a playoff in Tax Court. Last month, it came to the fore when Judge Thomas Wells issued a 60-page opinion ruling that the properties didn't qualify as "significantly relatively natural habitat." That means, unfortunately for our golf course operators, their greens aren't green enough. The Judge's ruling is also likely to mean bad news for other golf courses waiting for rulings on their proposed deductions.

Smart tax planning may not necessarily score a hole in one. But it's still your best bet to stop giving the IRS too much of your hard-earned green. So call us for the plan you need, and see if we can put your next golf vacation on the IRS!

Monday, January 4, 2016

The Rich Are Different

Back in the Gilded Age, an ambitious social climber and noted toady named Ward McAllister coined the phrase "the Four Hundred," named for the number of people that Manhattan heiress Caroline Astor could fit in her Fifth Avenue ballroom. In 1982, Forbes magazine borrowed that same number for their annual "Forbes 400" list of the richest Americans. Ten years later, our friends at the IRS borrowed it again for their annual report on America's top earners. And while the IRS doesn't give us the names we really want (or tell us which ones are currently single), it's an insightful look into some of the fattest wallets in the country.
Last week, the IRS released the Fortunate 400 report for 2013. It took an adjusted gross income of $100,066,000 to join the elite group (down from $139,663,000 in 2012). But that was just the price of entry. The average income was nearly $265 million. That means the 400 as a group reported $106 billion, or 1.2% of the entire country's personal income for the year. It's also about the gross domestic product of a minor-league country like Morocco or Ecuador.
As usual, wages and salaries made up a surprisingly small fraction of these incomes — just 8.45%. That means our average winner isn't some corner-office executive raking in a nine-figure salary. Taxable interest made up 5.75% of the total, and taxable dividends another 10.78%. So we're not talking idle heirs and heiresses clipping coupons, either. The real action comes on Schedule D, where our lucky winners report capital gains. The average "Fortunate 400" reported 51.69% of their income from capital gains, or $139 million each. (That's way down from $191 million in 2012 — more on that little info-nugget in a bit.)
Brass tacks time: How much tax did our 400 supersized earners actually pay? For 2013, their average IRS bill was $60.8 million, or 22.9% of their income. That's up considerably from just 16.7% in 2012. So why was 2013's bill so much higher than 2012's? Blame changes in the tax code, especially on capital gains. The 2013 "fiscal cliff" bill raised the top rate on most long-term gains from 15% to 20%. And the Affordable Care Act piled on an additional 3.8% "net investment income tax" on capital gains, interest, and dividends. Those changes encouraged sellers to unload assets in 2012 rather than wait for 2013's higher rates. In some cases, corporate muckety-mucks (including Walmart founder Sam Walton's heirs) accelerated dividend payments into 2012 as well.
The top 400 earners could see even more changes in capital gains taxes after this year's sure-to-be-entertaining presidential election. Democratic candidates Hillary Clinton and Bernie Sanders have proposed raising rates on capital gains and investment income. On the Republican side, nearly all the candidates propose lowering those rates, while Marco Rubio has proposed exempting that income entirely.
4,474 taxpayers have joined the IRS top 400 over the last 22 years. 3,213 of them appeared just once, which reinforces the fact that most of those lucky winners make it by selling a business they spent a lifetime nurturing. (Really, isn't one hundred-million-dollar year enough?) Just 129 taxpayers have appeared on the list 10 or more times, and you can imagine they all had pretty nice holiday seasons on their private islands somewhere warm.
What does all of this mean for you? It means that even for us ordinary mortals, tax planning really can make a difference, especially when it comes to cashing out your gains. And now is a great time to start. Why not resolve to make 2016 the year you finally take control of your tax bill, and call us for the plan you need!

Monday, December 28, 2015

Cast Your Ballot

The 2016 presidential election is almost here. Are you excited yet? (Some cynics would say the campaign actually started as long ago as November 7, 2012 — the day after the last election!) In just a few weeks, voters in Iowa and New Hampshire will gather to cast the first ballots to determine who takes the oath of office to become the 45th President of the United States. And while we aren't here to predict the winner, we can be sure that taxes and tax policy will take center stage. So we've assembled a collection of quotes from Presidents and presidential candidates to finish up your 2015:
"Our income tax system is a disgrace to the human race."
Jimmy Carter
"The really rich people figure out how to dodge taxes anyway."
George H.W. Bush
"If our current tax structure were a TV show, it would either be 'Foul-ups, Bleeps and Blunders,' or 'Gimme a Break.' If it were a record album, it would be 'Gimme Shelter.' If it were a movie, it would be 'Revenge of the Nerds' or maybe 'Take the Money and Run.' And if the IRS ever wants a theme song, maybe they'll get Sting to do 'Every breath you take, every move you make, I'll be watching you.'"
Ronald Reagan
"Make sure you pay your taxes; otherwise, you can get in a lot of trouble."
Richard M. Nixon
"I apologize for the inequities in the practical applications of the tax, but if we should wait before collecting a tax to adjust the taxes upon each man in exact proportion with every other, we shall never collect any tax at all."
Abraham Lincoln
"I'm delighted to pay big taxes. Big taxes mean big income."
H. Ross Perot
"[The tax code] is a monstrosity and there's only one thing to do with it. Scrap it, kill it, drive a stake through its heart, bury it and hope it never rises again to terrorize the American people."
Steve Forbes
"The taxpayer — that's someone who works for the federal government but doesn't have to take a civil service examination."
Ronald Reagan
Of course, 2016 is almost here too. And that means time for New Year's resolutions. This year you could be like everyone else and promise to lose weight, quit smoking, or call your parents every week. Or you could resolve to pay less tax. If that sounds like a resolution worth keeping, call us and we'll set you up with the plan you need!