Tuesday, March 28, 2017

Rich as Rockefeller

Last week marked the end of an era as David Rockefeller, the last grandchild of Standard Oil baron John D. Rockefeller, died at age 101. Rockefeller, whose name was once synonymous with "wealth," symbolized the eastern establishment in all its glory. His death marks a last living link to an age of robber barons-turned-philanthropists whose fortunes still shape our nation.

Patriarch John D. Rockefeller launched the family fortune before Uncle Sam launched the income tax, which gave "Senior" a big head start. He started out in 1855 as a 16-year-old assistant bookkeeper in Cleveland, Ohio, with a 10-week accounting course under his belt. By 1911, he controlled 90% of America's oil refining. The Supreme Court eventually broke his company into 34 separate pieces. But much to Rockefeller's delight, those pieces became worth more than the original whole. By the time he died in 1937, he was worth the equivalent of $340 billion in today's dollars.

Rockefeller had always been generous. He gave away six percent of his earnings even at age 16. But his fortune helped him really ratchet up his giving. He endowed the University of Chicago with a nondeductible gift equal to $2 billion in today's dollars. (That's because there wasn't any tax to worry about then.) He founded Rockefeller University and made major gifts to Central Philippine University and Spelman College.

Rockefeller's son, John D. Jr, wasn't quite so lucky. In 1923, when the IRS published everyone's tax bills, he ranked #1 in the country, paying $7,435,169. In 1924, he ranked #1 again. And when the Wealth Tax Act of 1935 applied a special rate on income above $5 million, there was only American who paid it — Rockefeller. Junior diversified the family's holdings, financing the 16-building Rockefeller Center complex in midtown Manhattan and helping make Chase Manhattan Bank the world's largest.

By then, Junior was taking advantage of charitable deductions for his own philanthropy. He gave $537 million to charity over his life, more than the $240 million he gave to his own family. He donated the land for New York's Museum of Modern Art and the United Nations headquarters, and gave generously to renovate Colonial Williamsburg in Virginia.

David Rockefeller might have become like those spoiled rich brats you see on Instagram and reality television. He grew up in an eight-story house, the biggest ever built in New York. (Seven stories are for peasants, right?) He and his brothers roller-skated down Fifth Avenue, trailed by a limousine in case they got tired, and vacationed at the family's 107-room cottage in Maine. But as an adult he expanded the family portfolio internationally, cutting banking deals with the Soviets, Chinese, and various oil-rich dictators. He was active in the Council on Foreign Relations and the Trilateral Commission. (If the Illuminati are real, you probably could have found David Rockefeller lurking somewhere near the center of it all.)

Time, taxes, and 150+ descendants have whittled down the Rockefeller fortune. Forbes magazine estimates the family is worth "just" $11 billion today. Ironically, two of the family's charitable funds have announced that they will be selling all their fossil fuel investments as part of their commitment to fight climate change.

We realize you don't have Rockefeller riches to protect. But we know you value what you have, and we know that smart tax planning is one of the best ways to preserve it. So call us when you're ready to pay less!

Tuesday, March 21, 2017

I, Robot

For decades now, governments across the world have struggled with where to impose taxes to raise the revenue they need to offer modern services. Should they simply raise rates? Should they broaden the base by eliminating loopholes and deductions? Should they sock it to smokers, drinkers, or other disfavored groups? How about entirely new levies designed to influence behaviors, like a carbon tax or soda tax? The smartest minds in politics and economics have grappled with these questions. Not only have they failed to make everyone happy, they've failed to make anyone happy.

At the same time, writers and filmmakers have worked to populate our imagination with a variety of more-or-less human robots. These have included the Laurel and Hardy-esque R2D2 and C3PO of Star Wars fame, the seductively human replicants of Blade Runner, and the self-aware killers of Westworld.

Sooooo . . . how long did you think it would take for some mad genius to make a mashup of taxes and robots? Well, today is that day, and Microsoft founder Bill Gates is that genius. His proposal is exactly the sort of thing you'd expect from a guy who dropped out of college to lead the personal computer revolution. Forget trying to squeeze more taxes out of people — let's just tax the robots!

    "Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things. If a robot comes in to do the same thing, you'd think that we'd tax the robot at a similar level."

At first blush, taxing robots might sound like science fiction. But robots don't mind paying taxes. They don't feel pain at the thought that their hard-earned money is going to pay for government spending they might not support. They don't sweat late nights wrestling with W2s, quarterly estimates, or tax forms. And, at least as far as we know, no robot has ever opened a secret bank account or shell corporation in some sunny Caribbean tax haven.

Of course, robots can't really pay taxes. In practice, taxing Team Robot would mean taxing the businesses that own the robots and use them to replace human labor. It's really just a shift from taxing labor to taxing capital. Taxes could likely be calculated on a per-head basis, or an amount based on the revenue the robot helps produce, and be paid to wherever the robot lives.

Taxing robots can also help make up for the money government loses by not being able to tax the workers the robots replace. Right now, there are 3.5 million truck drivers hurtling down America's highways, along with 220,000 taxi drivers and 160,000 Uber drivers. The driverless car revolution is sure to replace some of those jobs. That will torpedo taxes and be a real windfall for businesses that no longer have to hire human workers. Taxing the robots can help restore the current balance.

If taxing robots works, there's no limit to where we can turn next. Taxing smartphones? Taxing video games? Taxing the Muppets? It's all fun and games until somebody tries to tax you. Good thing you've got us! We're here to give you the plan you need to pay less . . . so you can focus on important things like the robot takeover!

Tuesday, March 14, 2017

Monkey Business

In Roman mythology, the hero Hercules used his divine strength to smash through the mountain that used to be Atlas. This created the Straits of Gibraltar, linked the Atlantic and the Mediterranean, and forged the famed Rock of Gibraltar. The so-called "rock" is an enormous limestone monolith, rising 1,398 feet nearly straight up from the sea, and making Gibraltar a key strategic crossroad. It's also a natural paradise. It's home to over 500 species of plants, as well as the famed Barbary macaques, which are the only wild monkeys living in all of Europe.

Admiral George Rooke seized Gibraltar from Spain in 1704, and the Treaty of Utrecht ceded it to the British in 1713. But the treaty didn't specify a border, and the Spaniards are still bitter bumblebees about the whole thing. Local legend holds that when the monkeys leave, so will the British. Winston Churchill took that legend seriously enough that during World War II, when the population had dwindled to just seven, he issued an order to keep the population at no less than 24. (More about the monkeys in a bit.)

The territory today covers 2.6 square miles, including the Rock. That's barely a tenth the size of Manhattan. It's a bustling port and popular tourist destination. But there's little industry to speak of, and no agriculture at all. So how does a dinky little flyspeck of a state like that make a living? Well, there's new money coming in from online bookies and casinos. And like many territories clinging to the remnants of the British empire, it's become a tax shelter.

Gibraltar has no VAT tax. No sales tax. No wealth tax. No tax on interest, dividends, or capital gains. No gift or estate tax. Personal rates are capped at 26.25%. There's now a flat 10% tax on most corporations. Does that make for a true "tax haven"? Not necessarily — the government is proud to comply with OECD tax standards and our own Foreign Account Tax Compliance Act, which strong-arms foreign banks into identifying Americans with accounts topping $50,000. Gibraltar proudly calls itself a low-tax zone, and even sued a Spanish newspaper for calling it a "tax haven."

Still, the friendly tax regime has made Gibraltar home to 30,000 people and 30,000 corporations. That's quite a ratio! Data nerds will appreciate that Gibraltar has the second-highest number of "Big Four" accounting offices per capita (behind only the British Virgin Islands) and twelfth-highest number of banks. Conspiracy theorists will note that Mossack Fonseca, the law firm at the heart of last year's Panama Papers revelations, kept an office overlooking the harbor before closing it down in the wake of the story.

Gibraltar even has some natural tax collectors. We're talking about those macaques, who live in troops on the upper Rock. They share 99% of our DNA, which makes them curious and intelligent. And they have opposable thumbs, which makes them nimble and dextrous. They're more than happy to pickpocket "tax" visitors of food and even items like hats, sunglasses, earrings, and wigs. Watch out!

You might think after reading all this that your next move should be to someplace like Gibraltar. In fact, the nonprofit Tax Justice Network ranks our own United States as the number three tax haven in the world. The reality is that you don't need to move offshore to save money on taxes — you just need a proactive plan to make the most of legal opportunities here at home. So call us for that plan — we promise no monkeying around!

Tuesday, March 7, 2017

Fixed This for You

For generations, Americans fostered a culture of thrifty self-reliance, especially where it comes to taking care of our stuff. It started all the way back in pioneer days, and living on the frontier's edge. Back when Pa Ingalls lived in that little house in the big woods, if his saw broke, he couldn't just order up a replacement on Amazon. He had to fix it, or he would have a tough time heating his house for the winter! Ma had one nice dress, for Sunday church, and when she got home she spent the rest of the day taking care of it. Folks mended and darned and repaired until household items had more lives than the family cat.

More recently, though, we've become a throwaway society. Maybe it's the flood of cheap, shoddy stuff from Walmart and China. Even formerly big-ticket purchases like TVs are cheap enough now that it rarely makes sense to repair them. (Think about it — your family room TV may have cost less than your phone.) Even real estate has become disposable, as thousands of Americans buy perfectly serviceable houses for the land they sit, then and tear them down to replace with something bigger (and usually gaudier and not as well built).

Our democratic socialist friends in the Kingdom of Sweden have noticed the same trend, and they're not very happy about it. (Yes, Sweden is still a monarchy — King Carl XVI Gustaf hands out the Nobel Prizes every year, and collects Porsche 911s.) It might seem ironic for the country that unleashed IKEA's particleboard aesthetic on the world to champion durability. But they've expressed it through their tax code, of all things, by passing a new law cutting taxes on fixing things.

Here's the scoop. Like most European countries, Sweden imposes a value-added tax, which is a form of sales tax levied at each level of production (such as from producer to distributor to retailer). In Sweden, the tax is 25% for most goods and services, 12% for restaurant meals and hotel stays, and 6% for printed materials, cultural events, and travel within the country. For 2014, the VAT raised 353 billion krona ($39 billion dollars, give or take a couple of meatballs), which amounts to 21% of the country's revenue.

Last November, the legislature chopped the VAT tax on repairs to items like bicycles, shoes, and clothing, from 25% to 12%. The goal is to encourage Swedes to buy higher-quality products. They also "Sweden the pot" by letting taxpayers deduct half the cost of repairs they make to appliances like refrigerators, ovens, and dishwashers. This makes repairs cheaper and helps keep repairmen employed in Sweden. (We suppose it could be possible to outsource refrigerator repairs to China or Mexico, but your food would probably melt before it gets back.)

Per Bolund, Sweden's Minister for Financial Markets, told BBC News, "I think it will be a good incentive and I think there's also a possibility that people will buy high-quality products and repair them, rather than buying cheap products they know will break down and then buy something new instead." He estimates the new law will cost Sweden about $250 million krona, not to mention slowing the growth of landfill fjords.

As long as we're on the topic of taxes and maintenance . . . how's your tax plan looking these days? Still shiny and new? Or showing some wear and tear at the seams? Tax planning isn't something you do just once and forget about. It's an ongoing process that needs periodic maintenance and tuning. So count on us to help keep your plan running in tip-top shape! (And if you don't already have a plan, what are you waiting for?)

Monday, February 27, 2017


Every year, the IRS gives us a peek inside the wallets of the highest-earning 400 Americans. It's full of juicy facts like their average income ($318 million in 2014), how much they give to charity ($37 million each) and how much they pay Uncle Sam ($73.5 million). But there's one set of facts the IRS guards as carefully as the secret formulas they use to decide who gets audited — the top taxpayers' names.

That wasn't always the case. Back in 1924, the stock market was soaring, flappers were dancing the Charleston, and bootleggers were exploiting arbitrage opportunities in cross-border commodity transactions. The federal income tax wasn't quite the big deal it is today. For starters, it didn't kick in until you earned $5,000 of taxable income (about $71,000 in today's dollars). Just seven million out of 114 million Americans even filed returns. Form 1040 and its instructions were just two pages each.

That's when Congress decided to shake things up. Tax rates were still near their wartime highs, and new gift and estate taxes were unpopular. So the Revenue Act of 1924 dropped the top rate to 46% on incomes over $500,000, reduced the estate tax, and repealed the gift tax entirely. And, much to the delight of gossips everywhere, it directed local tax collectors to publish the names, addresses, and tax bills for every filer in their district.

Topping the national list, to nobody's surprise, was Standard Oil heir John D. Rockefeller, who paid $6,277,669 (just north of $89 million today). Henry Ford and his son Edsel brought home the silver and the bronze. Treasury Secretary Andrew W. Mellon was number four. And lucky Payne Whitney, heir to the Payne and Whitney family fortunes, was number five.

The rest of the top 100 includes plenty of old-money names like Vanderbilt, Astor, and Guggenheim, along with newer Gilded Age tycoons and their progeny. The average top earner was married, fiftyish, with two children and five servants. But there were a few exceptions to that predictable profile: tobacco heiress Doris Duke, "the richest girl in the world," paid $252,241 in tax — at age 17!

Of course, not everyone on the list inherited their fortune. John G. Shedd began his career as a stock clerk for Marshall Field, then rose to run the company. Thomas Lamont, who started out as a reporter for the New York Tribune, became a partner of J.P. Morgan and helped President Wilson negotiate the Treaty of Versailles. Arthur Cutten started out as a $4/week clerk for a Chicago commodity broker before speculating his way into, then out of, a $100 million fortune. He died under indictment for tax evasion.

Why did Congress pass a law making federal income tax bills public? Progressive supporters argued it would discourage cheating. Big-city newspapers split on whether to publish the information, with about half going for what today's editors call "the easy clickbait" and the others sanctimoniously resisting the temptation. Just two years later, the buzzkills in Washington repealed the publicity provision, and tax returns have been private ever since.

Most of yesterday's fortunes have long since faded into history, divvied up by generations of heirs or diverted into philanthropic foundations. But there's one lesson that survives a century of changing fortunes, and it's worth heeding, whether you're a flashy celebrity or a discreet millionaire next door: the key to paying less is planning. So count on us to help you keep more of your fortune!

Tuesday, February 21, 2017

Survey Says . . . !

The people who work at the IRS can be proud to do an important job. They're the "accounts receivable" department for the federal government, and whether you think we need more government or less, we should collect the revenue to finance it as effectively as possible. Treasury Secretary Mnuchin has already stated that the incoming administration's ban on new government hiring shouldn't apply to the IRS — perhaps because he's seen the research showing every dollar invested in tax enforcement yields seven dollars in tax. (If you could spend one dollar to make seven, you might do it all day long!)

At the same time, IRS staffers understand the work they do isn't especially popular. As Louis XIV's Finance Minister Jean-Baptiste Colbert once said, "the art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing." So you could say the IRS is similarly looking out for ways to boost the plucking while minimizing the hissing.

Towards that end, the IRS collections division has engaged the Pacific Consulting Group to send a "Customer Satisfaction Survey" (Form 13257-A, revised April, 2016) to a random group of taxpayers who have gone through the collections process. It included the usual collection of questions you would expect from a government survey, like rating how much you agree with statements like, "I received an adequate description of the collection process," and "I was treated with respect during the collection process." But we thought there were a few more questions that might have made sense — like these:

    "Did you feel violated when agents picked you up by the feet to shake the change out of your pockets?"

"Did the Revenue Officer put the cushions back on the couch after searching for spare quarters that might have fallen between them?"

"What would you have done with that money if you didn't have to pay your taxes?"
"If you could tell the government exactly how to spend your tax dollars, what would you tell them?"
"Does the tax code make any more sense to you than it does to us?"
"Be honest . . . you'd rather give the money to us than to the sales tax goons, amirite?"
"When the robots finally take over, how do you think we should tax them?"
"Pinch yourself. Does it hurt? If so, consult IRS Publication 502, Medical and Dental Expenses."
"You seem nice . . . what are you doing next Thursday?"
"What's your favorite BBQ joint? (Asking for a friend.)

Here's another question they should ask, but probably never will. "Do you have a plan in place to pay less tax so you don't get caught up in collections in the first place?" If not, call us, and see if we can silence some of the hissing!

Tuesday, February 14, 2017

Better Call Saul!

On January 20, 2008, AMC debuted a promising new drama called Breaking Bad. The series chronicled the highs and lows of high-school chemistry teacher Walter White, who was diagnosed with terminal lung cancer and put his knowledge to work opening a meth lab to secure his family's financial future. Millions of viewers became addicted to White's exploits as he plunged deeper and deeper into a life of crime, breathlessly watching him juggle relationships with his DEA-agent brother-in-law, arms dealers, cartel soldiers, and crooked strip-mall lawyer Saul Goodman. All fun to watch, sure . . . but there's a reason the announcer always says, "Kids . . . don't try this at home."

Jack Vitayanon is a 41-year-old, Ivy League-educated attorney in the IRS Office of Professional Responsibility, where he investigates crooked accountants, attorneys, and IRS agents. He even taught a class called "Tax Lawyering and Professional Responsibility in Tax Practice" at Georgetown Law School. But apparently he needed to crank out some adventure in his life. And while we may never know if he drew his ambition from AMC's antihero, it's crystal clear that he decided to join the methamphetamine trade.

Agents from the Department of Homeland Security say that back in December, they intercepted a FedEx package containing 460 grams of meth at the end of its journey from Arizona to Long Island. (Everyone knows you ship your drugs FedEx instead of regular mail — who needs U.S. Postal Inspectors all up in your grill?) The unlucky recipient did what everyone does when they get busted with a pound of meth — he flipped and agreed to rat out someone further up the supply chain. Unfortunately, that chain included Vitayanon, who had been dealing with the Arizona sender since 2014.

Two weeks later, our new confidential source recorded a video chat with Vitayanon, "who was observed in his Washington DC apartment smoking what appeared to be methamphetamine from a glass pipe." (C'mon, Jack, you never get high on your own supply!) Vitayanon promised to send a "zip" (one ounce of meth) to the source. A day later, he texted to confirm he was packaging the shipment and helpfully provided a FedEx tracking number for the delivery. (You'd expect that sort of attention to detail from an IRS attorney, wouldn't you?)

Last month, agents tailed Vitayanon as he shipped two more zips to the same source on Long Island. At that point, he was pretty much cooked, and on February 1 he was arrested. Naturally, the Justice Department dropped a Breaking Bad reference in the press release announcing the bust.

Now the disgraced attorney is looking at spending several years surrounded by fellow Walter White wannabes. Adding insult to injury, he might face another smack for failing to pay tax on his side gig. Remember, the IRS doesn't care how you make your money. They even tweaked the tax code with a special provision, Section 280E, that prevents drug dealers from writing off their legal business expenses. No deductions for delivery and shipping, business use of the home, or even "cost of goods sold"!

Jack Vitayanon won't be making much money over the next few years, so taxes will be the least of his worries. Unfortunately, you don't have that luxury. So count on us to help you pay less — legally, morally, and ethically!