Monday, June 20, 2016

Take This Tax and Shove It

Country music has a long history of celebrating outlaw behavior, which naturally extends to celebrating "outlaw" performers. Plenty of fans have heard the album Johnny Cash recorded of his first prison concert at California's San Quentin penitentiary. But Cash's fellow country icon Merle Haggard, who recently passed away at age 80, was there to hear the concert live — because he was actually serving time in the joint! (Haggard was no stranger to the wrong side of the bars — his own mother gave him up to juvenile authorities when he was just 11 years old. Haggard later credited Cash with inspiring him to turn from burglary to music.)
Now the singer-songwriter David Allan Coe is the latest to saddle up with the outlaw brigade. Last week, a federal judge in Cincinnati sentenced the 76-year-old performer to three years' probation and ordered him to pay $980,912 in restitution. So what was his crime? Horse thievin'? Cattle rustlin'? Train robbin'? Uh, no . . . try "impeding and obstructing the due administration of the Internal Revenue laws."
Coe is most famous for writing Johnny Paycheck's 1977 smash hit, "Take This Job and Shove It," which climbed all the way to #1 on the charts and even inspired a movie. Apparently, though, he didn't realize the outlaw act was supposed to be just an act. Prosecutors say Coe performed over 100 concerts a year from 2008 through 2013. But he failed to file returns for 2008 and 2010. And he failed to pay for 2009, 2011, and 2013. Where did the money go? To pay gambling debts, of course. (This is a country music outlaw we're talking here, not Robin Hood — did you think he was using it to sponsor orphans in the Philippines?)
Eventually, of course, the IRS caught up with Coe. They even levied his bank accounts to show him they meant business. That's when Coe decided to circle the wagons. He demanded to be paid in cash only, by 3:00PM on the day of the concert. His road manager would pick up the cash, deduct enough to pay himself and the band, and give the rest to Coe in person or through MoneyGram or Western Union. Oh, and there was one more catch: There were "no $50 bills allowed as Coe believed they were bad luck and would not gamble with them."
Last September, Coe pled guilty to one criminal count. He faced up to three years in prison, so he should probably count himself lucky he won't be recording "David Allan Coe Behind Bars."
Coe isn't the only country crooner to find himself in IRS crosshairs. In 1990, the Service seized most of Willie Nelson's assets in an attempt to collect $32 million in debt. Nelson's lawyer negotiated the arrearage down to $16 million, and then again to $6 million, and Willie went to work. He released a double album titled The IRS Tapes: Who'll Buy My Memories, with proceeds dedicated to paying down the feds. He sued his accountant (naturally). He finally cleared his debt three years later. Willie's 83 now, and it looks like he learned his lesson — the only laws he breaks today involve "the Devil's lettuce."
We understand that paying your tax is no fun (especially if it gets in the way of a good wager). Fortunately, we can help you pay less without singing a sad country song. Just call us for a plan — we can bet you'll be happy with the results!

Tuesday, June 14, 2016

Thrilla in Manila Envelopes

Words like "hero" and "icon" get tossed around pretty casually these days. But the world lost a true card-carrying legend with the passing last week of boxer Muhammed Ali after a long and public battle with Parkinson's disease. Ali first gained fame in the ring, of course, floating like a butterfly and stinging like a bee. But he made his real mark, and redefined the power of an athlete's reach, when he picked a four-year fight to battle induction into the United States Army. Now his estate could be poised for a different and equally expensive sort of battle — this time, with the IRS.

Today's pugilists earn lavish sums for sometimes-mediocre performances — witness Floyd Mayweather's nine-figure payday for 36 minutes of sparring with Manny Pacquiao. But Ali was rarely motivated by money. "What I need money for?" he told Esquire back in 1968. "I don't spend no money. Don't drink, don't smoke, don't go nowhere, don't go running with women." (Pretty smart advice, when you think about it.) The champ gave up millions during the years he was banned from boxing while fighting the army. And he was legendarily generous during his life, giving money to friends, family, and complete strangers.

"The Greatest" continued to earn millions even after retiring from the ring in 1981. Forbes magazine scored his endorsements at $4-7 million per year from 2000-2005. And his estate has been estimated to be worth as much as $80 million.

We don't yet know how he might have divided his assets between his fourth wife and executor, Lonnie, and his nine acknowledged children. However, we do know that he can leave an unlimited amount free of tax to his wife. Anything passing to other parties is subject to a 40% federal estate tax on amounts over $5.43 million. His home state of Arizona levies no additional estate tax.

As is sadly so often the case, it looks like Ali's family is already fighting over the estate. His second wife Khalilah reports that the champ's brother and son have accused Lonnie of cutting them out of the will, and warns that illegitimate children will "come out of the woodwork like roaches."

But the biggest bout over Ali's estate probably won't concern who gets what. Rather, it will involve how much everything is worth — especially intangible assets like "name" and "image." Pop legend Michael Jackson was one of the most recognizable people on the planet, yet his executors valued his name and image at just $2,015. The IRS countered with a slightly higher $434 million, and naturally the two sides are duking it out in court. (Ironic, considering how Jackson declared "I'm a lover, not a fighter!")

Ali ducked part of that left-hook by selling 80% of those rights for $50 million back in 2006. (He named the company he established to manage those rights "Goat, LLC," which modestly stands for "greatest of all time.") But Lonnie and the IRS still have to score how much the 20% he kept for himself is worth.

We spend a lot of our time planning for punches that life might throw, market crashes and business downturns among them. And there are some punches we know we're going to take. Unfortunately, dying tops that list. But it really is possible to avoid estate taxes — and plenty of other taxes — entirely. All you need is a plan. So call us for help with that plan, before you step into the ring with the IRS!

Tuesday, June 7, 2016

Have a Coke and a Tax

When most of us hear the word "tax," we immediately think "IRS." It's natural to associate those three-letter words with each other (even if "IRS" is an acronym and not a word). But our friends at the IRS are hardly the only tax collectors with their hands out for your money. State and local governments need love money too, and they don't have as many options for raising it as Uncle Sam. So every now and then, someone makes headlines with a plan to tax something new.

Philadelphia's incoming mayor Jim Kenney is the latest local official to propose quenching his city's fiscal thirst with a new tax. His inaugural budget would impose a three cents per ounce tax on soda, juices, iced tea, and other sugary drinks. The mayor claims the measure would raise $400 million over the next five years. The issue has even bubbled up into the presidential race — Hillary Clinton supports the tax, while her challenger Bernie Sanders condemns it as disproportionately harmful to the city's poor.

This isn't the first time governments have tried carbonating their revenue by taxing soda — since 2008, 40 similar taxes have been rejected around the country, including twice previously in Philadelphia. Only one place, famously progressive Berkeley, California, has succeeded. New York Mayor Michael Bloomberg actually banned drinks larger than 16 ounces before a state court doused the rule. (Grateful Gothamites fondly remember it as "Bloomberg's $#*@ing Big Gulp ban.")

Now Philadelphia's Kenney is hoping the third time will hit the sweet spot. But this time, he's coming at it from a different direction. He's not positioning it as a public health measure or using it to fight obesity or diabetes. He's just looking to reinvest some of the soda companies' profits into the communities where the biggest customers live. The $400 million would go towards funding universal pre-kindergarten, creating community schools, and renovating parks, community centers, and libraries.

School funding advocates and public health officials are all for it. New York's Bloomberg has joined the fray in support. But naturally, Kenney's proposal has drawn opponents. You'll be shocked to learn that the American Beverage Association has spent $2.6 million to oppose it. (They poured $9 million down the drain fighting the Berkeley referendum.) Local Teamsters oppose it, too, arguing that flat soda sales will cost jobs. And plenty of city residents feel squeezed enough already — for example, there's already a $2 per pack tax on cigarettes that helps fund local schools.

Political infighting is fierce, and council members are looking at a whole menu of alternatives. One council member proposed a 15 cent tax on beverage containers, designed to hit the people who drink mineral water and fancy kombucha teas just as hard as the people who guzzle Mountain Dew. She also introduced a "healthy beverages tax credit" to encourage stores to stock drinks worth drinking. Others are considering taxing (gasp!) diet sodas. But time is running out — council has to pop the top on a final budget by the end of June.

We realize that a three-cent tax on an ounce of soda won't get in the way of your financial goals. But if you're one of the millions who look somewhere besides coffee for your daily caffeine fix, it would be a constant reminder of the government's power to tax. We never forget how destructive that power can be, and that's why we work so hard to give you a plan to pay the least amount possible — and avoid the unpleasant surprise of a "shook-up" can!

Wednesday, June 1, 2016

Barry Good!

Humorist Dave Barry entertained millions of readers with his nationally syndicated column from 1983 to 2004. Along the way, he earned a Pulitzer Prize for commentary, inspired a television series (Dave's World), and even, after mocking the cities of Grand Forks, South Dakota and East Grand Forks, Minnesota, earned the honor of having a sewage pumping station named after him. Dave's slowed down in recent years, but he always had a lot to say about taxes. So here are some of our favorite Dave Barry quotes for your quick enjoyment:

    "It's income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta."

    "We'll try to cooperate fully with the IRS, because, as citizens, we feel a strong patriotic duty not to go to jail."

    "Big business never pays a nickel in taxes, according to Ralph Nader, who represents a big consumer organization that never pays a nickel in taxes."

    "[American tax laws] are constantly changing as our elected representatives seek new ways to ensure that whatever tax advice we receive is incorrect."

    "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."

    "The question is: What can we, as citizens, do to reform our tax system? As you know, under our three-branch system of government, the tax laws are created by: Satan. But he works through the Congress, so that's where we must focus our efforts."

    "If our government is going to be able to provide for the common good, everybody has to contribute his or her fair share in the form of taxes. And when I say "everybody," I mean, "not everybody." Because the truth is that a lot of people don't pay taxes. Poor people, for example. Also many rich people. Also a fair number of middle-income people."

    "Q. At 9 a.m. today, I made large cash contributions to both major political parties. As of 1:30 this afternoon, the federal government had still not enacted special tax-break legislation just for me. What kind of country is this?

    A. Unfortunately, because of the high demand, the federal government can no longer provide "same-day service," but if you do not see action by noon tomorrow, you should contact your personal congressperson; or, if you are staying in the Lincoln Bedroom, simply stomp on the floor."

This week it seems especially appropriate to remind you that there's nothing funny about overpaying your taxes, and there are no Pulitzer Prizes waiting for people who do it. The solution, of course, is a plan to pay less. So call us when you're ready for a plan of your own, and have a laugh at the expense of everyone else who doesn't have one!

Tuesday, May 24, 2016

Mickelson Lands in the Rough

Spring is here, and golfers across the country are busting out their loudest pants to hit the links. Tiger Woods is taking a break from chasing pancake-house waitresses to shank wedges into water hazards. And Phil Mickelson, everyone's favorite lefty champ, is struggling with a different sort of hazard right now . . . specifically, legal problems over a hole-in-one he shot on Wall Street four years ago.
Phil's a successful guy by most measures. Forbes magazine ranks him #8 in their latest list of highest-earning athletes. They estimate he took home $51 million last year, including $2.8 million in tournament winnings and an enviable $48 million more in endorsements.
But he seems to have a harder time managing his money than most $51-million-a-year guys. He's complained that taxes slice 62% off his income, which makes ends harder to meet. He's even said he passed on buying a piece of his hometown San Diego Padres due to high state taxes.
Mickelson also seems to have an appetite for gambling. But sometimes luck works in his favor. Back in 2012, he found himself in hock to a big-time sports better named Billy Walters. At one point, Walters hinted it might be a good time to invest in Dean Foods. Mickelson sank $2.4 million into the stock. A week later, it spiked 40% on positive earnings news. The very next day, Mickelson sold for a $932,000 gain and paid his debt to Walters.
Last week we discovered how Mickelson teed up such a lucky shot: the government announced insider trading and securities fraud charges against Walters and former Dean Foods chair Thomas Davis. Walters, who allegedly used insider tips to enrich himself by $40 million, says he looks forward to defending himself in court. He'll start out from a poor lie, though — Davis has already pled guilty to 12 counts, and even confessed to throwing a "burner" cellphone he got from Walters into a creek after FBI agents visited his home.
Mickelson was named as a "relief defendant," which means he's not actually charged with a crime. (If you've got to be a "defendant," that sure sounds like the way to go.) So he's not headed to rich-guy jail like his pal Walters and Davis appear to be. But he does have to give back the $932,000. And that raises an interesting tax question. He paid the tax on the gain when he made it — so does he get it back now that it's gone?
You might think he could just take a mulligan and amend his 2012 return. But that's not how taxes work — every year stands on its own.
Yes, he can take a capital loss for the repayment in 2016. But unless he has an equivalent amount in gains to report, that may not give him the full benefit of the deduction this year.
His best option may be Code Section 1341, which may let him calculate the tax he paid on the gain in 2012 and essentially take it as a credit against this year's bill, without actually "deducting" it in 2016.
In short, careful planning should help Mickelson turn his tax bogey back into a par. And it can do the same thing for you, even if you're not fading six-figure purses and seven-figure endorsements. Remember that the next time you get a hot stock tip, and call us first!

Tuesday, May 17, 2016

A Tale of Two CEOs

Every year, business reporters look forward to listing the country's highest-paid CEOs. Corporate chiefs have always done well for themselves — in 1980, the average S&P 500 head earned 42 times more than the average worker. But lately those compensation numbers have swollen fat enough to boggle Stephen Hawking's mind — in 2000, the CEO-to-worker ratio reached a high of 500:1.

Last year's CEO pay champ was Discovery Communications skipper David Zaslav. His total haul started with $3.0 million in salary and $6.1 million in bonus, before piling on $94.6 million in stock and $50.5 million in options, He also scored $1.9 million in "other" comp, like $296,930 for personal use of the company jet and a $16,800 car allowance (because it's hard to afford reliable transportation on a $3 million salary). Not bad for a guy whose company brought us Shark Week and Here Comes Honey Boo Boo!

You would think every CEO wants to make the top of that list. But some of the smartest ones are hiding out at the other end, happy to count themselves among the lowest salaried. Why on earth would they choose to work all year for peanuts? If you guessed "taxes," you're absolutely right!

Let's take a closer look at Zaslav's $9 million in salary and bonus. Sure, stacking that kind of paper sounds great. (Okay, it probably is.) But "$9 million" is really more like an opening offer. First the IRS grabs 39.6% in federal income tax. There's FICA tax of 7.65% on the first $118,500, plus 2.9% on anything above that, plus 0.8% more on anything above $250,000. Then the Empire State piles on another 8.82% more. (OK, here's where we insert the obligatory joke about how Zaslav would rather face one of those sharks his network loves to film.)

Now let's look at another CEO: Larry Page, who heads up search engine Google. His salary last year? A dollar. One measly buck. A year's worth of work for less than the cost of your morning coffee. But (and this is a pretty big but) he saw the value of his stock shoot up about $8 billion — including a mind-blowing $4 billion in just one afternoon. (Friday, July 17, 2015 was a spectacularly good day to be Larry Page.)
And how much tax did Page pay on those billions? Nothing. In fact, he won't be taxed at all until he chooses to sell. Even then, he'll qualify for special lower rates, capped at just 23.8%.

But wait, there's more! If Page wins promotion to that great corner office in the sky without having sold his stock, he'll enjoy a "stepped up basis" and avoid tax on the gains entirely. Well, he won't enjoy it, but Mrs. Page and the surviving Pagelets probably will.

Page's strategy may not make the IRS happy. But Google shareholders love it. Seeing CEOs tie their fortunes to long-term stock prices reassures investors that executives have their best interests in mind. And studies show that CEOs with low salaries are less likely to engage in the sort of shenanigans that lead to surprise earnings restatements, expensive lawsuits, and embarrassing stretches behind bars. (Just because you call it a "country club" prison doesn't actually make it a "country club.")

Here's the bottom line, and it applies whether you make a buck a year or a million. When it comes to paying less tax, it's just as important how you make your money as how much you make. So call us for a plan to help structure your income so you can keep as much as possible!

Monday, May 9, 2016

The Gambler, The Billionaire, and The Game of Kings

Backgammon is an ancient game of dice, strategy, and skill. The name dates back to the 1600s, but the game itself goes back to the Byzantine Emperor Zeno (AD 476-481). While it's never been as popular here as poker or chess, it became a huge fad in the 1960s, with Playboy founder Hugh Hefner hosting high-profile games at his Chicago mansion.
John McManus is an Irish gambler who started out taking bets at a greyhound track before moving up to horses and currency trading. He's parlayed his initial stake of four pounds into a €775 million fortune, enough to make him the Emerald Isle's eighth-richest man.
Alec Gores is a private equity mogul worth $2.1 billion who lives in a $31 million chateau just down the street from home-run king Barry Bonds. Gores has wagered millions in Hollywood poker games with celebrities like Tobey Maguire, Ben Affleck, and Matt Damon. He's not afraid to color a bit outside the lines, and drew fire for hiring a shady Hollywood private eye to wiretap his brother and former wife to confirm that they had become "inappropriately involved."
What do backgammon, McManus, and Gores have in common? Well, both men are backgammon fanatics. In fact, McManus famously travels with a portable set, and he's been known to start games with strangers on airplanes to win back his airfare. (Seriously, the guy flies commercial? What a peasant.)
In 2012, McManus and Gores sat down for "a serious backgammon match." When the dust settled, three days later, the luck of the Irish had prevailed and McManus had taken $17.4 million from the billionaire. "You always feel good after winning," McManus quipped to The Independent after his score. (Gores may be a billionaire and all, but it still had to feel a bit like waking up in a bathtub full of ice with a sore back and a hollow spot where a kidney used to be.)
Here's why we're talking about the story today. Gambling winnings are taxable, of course — at least here in the U.S. So Gores "helpfully" withheld $5.2 million of the Irishman's score and forwarded it to the IRS.
But McManus says he doesn't owe the tax. He stakes his claim on a treaty between the U.S. and Ireland, signed in 1997, designed to prevent double taxation. That treaty lets certain wealthy Irish residents avoid tax on U.S. income in favor of a flat "domicile levy" of €200,000 on their non-Irish income.
McManus filed a U.S. nonresident tax return and requested his $5.2 million back. He says the IRS approved that claim before sending it "to another department" for review. Since then, he hasn't heard a word. So now he's filed suit in the U.S. Court of Federal Claims. The IRS replies that McManus didn't qualify as an Irish resident under the terms of the treaty, and didn't even file an Irish tax return for that year. They have until October 30 to respond to the suit, so we'll have to wait until then to learn what happens next.
Here are a couple of lessons to ponder while the case makes its way through the system. First, don't sit down for a high-stakes gamble without knowing your opponent! And second, don't let the IRS catch you by surprise. Navigating the tax game board without a plan is a gamble you don't want to take! Come to us so you don't have to leave your fortune to a toss of the dice.