What's on The Grill?"

If you're like millions of Americans, you spent last weekend welcoming the unofficial start of summer. (Time to start wearing white again!) You might have enjoyed a day at the pool, a game of tennis, or a round of golf. You may have even hosted a backyard barbecue. If so, you probably didn't realize that serving fancy fare like lobster or crabcakes would impress the tax man as well as your guests — at least, if you live in England.

Across "the pond," Her Majesty's Revenue & Customs is the equivalent of our IRS, charged with collecting the taxes that pay for royal kibble for the Queen's royal corgis. And just as here in the former colonies, there's a "tax gap" between what officials believe they should be collecting and what they actually get. In England's case, that difference is about £35 billion (a spot under $60 billion depending on the exchange rate).

HMRC has already drawn heat for going all "Big Brother" in their efforts to ferret out tax evaders. Last year, they announced a new program to use credit checks to find suspected tax cheats. The goal is to cross-check what people report on their tax returns against they actually spend. Officials started with a pilot program involving 20,000 people — and they expect to expand it to as many as two million. (Blimey!)

But now they're going even farther. Now they're using images from Google Earth and Google Street View (for that all-important "kerbside" look) to literally spy on homes to trap suspected tax cheats! Are you paying proper tax on your home improvements as you've described them on tax forms? Are you paying enough tax on all the cars parked in your driveway? Presumably, if the images of your lawn party are detailed enough to distinguish between ordinary bangers and high-end potted shrimp, they'll use that against you too!

And what are they doing with those images? Four years ago, they dropped £50 million on a supercomputer named "Connect" to help decide who to investigate. According to the Daily Mail, it already holds more than a billion records, including "tax payment records, interest on bank accounts, details of any properties owned, loans, job history and electoral records." Bragging about your new car or your "trip of a lifetime" on Facebook can also trigger unwelcome attention.

Back here in the states, our National Security Agency's wholesale snooping in the name of fighting terrorism ignited a row of protest — and that was nothing compared to what HMRC freely admits doing, just in the pursuit of a few bloody quid. Can you imagine the outcry if, say, the reporters who helped break the Edward Snowden story discovered the IRS was analyzing credit scores and voting records to help decide who to audit?

(In related news, the latest trend among the Russian oligarchs, Arab sheiks, and ordinary billionaires who have made London the world's hottest real-estate market is excavating luxury basements with swimming pools, ballrooms, and gymnasiums. They say they're going underground because there's just no place else to build — but avoiding the tax man's probing electronic eye can't hurt, either!)

Well, old chap, what should we make of all this? The happy news is that you don't need to hide from satellites if paying tax isn't your cup of tea. You just need a plan — and it's our job to give you that plan. Call us now, and we'll have it in place before you put away the whites on Labour Day!

Oops!

Politicians in Iowa, like politicians everywhere, want to encourage their local economy to grow. (Happy voters lead directly to reelection, of course.) But back in 2008, construction in Iowa, like construction everywhere, had slowed because of the recession. So the Hawkeye state's legislators did what they thought was a smart thing. As part of an overall reform that raised the sales tax rate from 5% to 6%, they streamlined the rules regarding heavy construction equipment. Specifically, they said that sales would be subject to the equipment excise tax — but rentals and leases would not. Makes sense, right? Why make construction more expensive by imposing a sales tax on folks who aren't actually buying the equipment they use?

Since then, the Iowa Department of Revenue has collected more than $20 million in tax on equipment sales. Nobody paid any special attention to the new rules — at least, until last summer. That's when a curious attorney for an equipment buyer contacted the Department with the unwelcome news that the legislature had streamlined the tax a little too well. In fact, the language of that legislation had accidentally repealed it entirely!

And nobody noticed. Not the staffers who wrote the law. Not the legislators who introduced it into the statehouse, marked it up, and passed it. Not the governor who signed it. Not the 185 or so equipment vendors who mistakenly collected the tax on behalf of the state. And certainly not the Department of Revenue who happily took the vendors' deposits, year after year after year.

Oops. "I think you call that a mess," said Rep. Tom Sands, Chair of the Iowa House Ways & Means Committee.

What could Iowa do? Honoring the mistake would mean paying back $20-30 million in taxes and interest, plus giving up $7 million more every year going forward. That may sound like a drop in the bucket compared to the state's overall $15 billion budget. But in today's tight economy, every bit counts.

The legislators who accidentally repealed the tax probably would have preferred to ignore the whole thing and hope that nobody noticed. (Insert your own joke about political cover-ups here.) But once that lawyer discovered their goof, the game was up. So they did something any golfer understands. They took a mulligan! On March 10, the Iowa House voted 95-0 to pass a "technical administration" bill reinstating the tax, retroactive all the way back to 2008. On March 27, the state Senate concurred, 26-21. And on April 10, Governor Branstad signed it into law.

So, does it count as "raising taxes" to pass a bill retroactively reinstating a tax you never meant to repeal in the first place?

When a tree falls in the forest and no one is around to hear it, does it make a sound?

You probably shouldn't hold your breath waiting for Congress to accidentally repeal the Internal Revenue Code. Fortunately, you don't need that sort of foul up to pay less. You just need a plan — a blueprint for taking advantage of all the deductions, credits, loopholes, and strategies you're legally entitled to. So call us when you're ready for that plan, and see what we can construct for you!

From Russia With Love

The former Soviet republic of Ukraine has become the world's hottest military and diplomatic flash point as Ukrainian nationalists face off against pro-Russian separatists. Russian President Vladimir Putin courteously waited until after the Sochi Olympics to seize Crimea, then position troops throughout eastern Ukraine. Now he's announced he'll withdraw the troops he denied dispatching in the first place. But sabers are rattling, and the situation is so volatile that combat could explode before you finish reading this email.

The United States obviously wants to avoid that possibility. But Secretary of State John Kerry's best efforts appear to be having little effect. We're certainly not going to involve our own military anytime soon. Even James Bond himself would be hard-pressed to parachute in with a solution. So, who can we turn to?

Well, how about those stalwarts of democracy at the IRS?

Back in 2010, Washington passed the Foreign Account Tax Compliance Act ("FATCA") to stop tax evaders from parking assets in secret foreign accounts. (Add another "t" to that acronym and you'll see who it's aimed at!) That law requires all foreign banks to spill the beans on American accounts with more than $50,000. If they don't, starting July 1, they'll have to withhold 30% of the interest and dividend payments their clients earn on most U.S. stocks and bonds.

Almost 50 countries have agreed to let their banks participate and avoid that penalty. That list includes traditionally "sunny places for shady people" like the Cayman Islands. But guess who still says nyet? That's right, Russia. What's worse, Russia's bank secrecy laws prevent banks from going around the country and working directly with our Treasury. And even worse, at least for Putin and his henchmen, our Treasury suspended negotiations entirely when Russia rolled into Crimea.

At this point, then, it looks like law will make it way more expensive for investors to use Russian banks to invest in the U.S. And private investors who use Russian banks to facilitate trades are also subject to the law. It gets worse in 2017 — if there's still no agreement in place, banks will have to withhold 30% of the gross proceeds of stock and bond sales, on top of the interest and dividends they earn.

FATCA may not be the only way to marshal the power of taxes against Russia. Putin's cronies — the billionaires who own Russia's biggest oil, gas, mining, and retail companies — have moved tens of billions of dollars of assets out of Russia and into western jurisdictions like Luxembourg, the Netherlands, and Switzerland. They did so to dodge Russian taxes (apparently, ex-commies resent paying them as much as any other capitalists). But now they find their assets exposed to possible U.S. sanctions and vulnerable to freezes. It's probably too soon to break out the balalaikas and celebrate — but we can hope that the risk of losing their assets motivates the oligarchs to pressure Putin to pull back.

Closer to home, we help you pay less tax on your investments. Fortunately, you don't have to risk international sanctions to do it! You just need a plan. So call us for that plan, and save a bunch of rubles on your bill!

Nice Mouth

Two weeks ago, few Americans had heard of Los Angeles Clippers owner Donald Sterling. Now, thanks to Sterling's big mouth, we're all talking about him. As President Barack Obama said, "when ignorant folks want to advertise their ignorance you don’t really have to do anything, you just let them talk. And that’s what happened here." National Basketball Association commissioner Adam Silver wasted no time banning Sterling from the league for the rest of life. (No communication with players, coaches, or staff. No practices or games. No owner meetings at cushy resorts or other league activities of any kind.) He announced he would urge the league's Board of Governors to force Sterling to sell the team. And he fined Sterling the maximum $2.5 million allowed by the league constitution.

At first glance, $2.5 million sounds like a mere technical foul for a guy with Sterling's wealth. (Forbes estimates his total net worth at $1.8 billion.) But the real cost of Sterling's words may turn out to be $100 million or more. Where does that extra penalty come from? Thank our friends at the IRS, of course. Sterling bought the team in 1981 for just $12.5 million. According to the Wall Street Journal, it's worth $700 million or more today. We'll assume for the purposes of this discussion that Sterling could sell it for $700 million. If Sterling holds onto the team until his death, his estate will owe Uncle Sam 40% on the $700 million. The $280 million tax will leave his heirs with just $420 million. That's an big bite, bite, of course. But the heirs will take the team with a "stepped-up basis" equal to the full $700 million. In other words, they avoid tax on the full difference between the $12.5 million purchase and the $700 million value. Now let's say Sterling's fellow NBA owners force him to sell. Sterling will owe 20% federal capital gain tax on his $687.5 million gain (the $700 million selling price minus his $12.5 million "basis.") He'll owe the new 3.8% "unearned income Medicare contribution" on the same amount. And, as a California resident, he'll owe the Golden State another 13.3%. The California tax is deductible from his federal income. Still, all told, he'll pay in the neighborhood of $230 million on his gain. Talk about fouling out!

Those tax hits will leave Sterling with just $468 out of the team's $700 million. At his death, estate taxes will take another $187.2 million, leaving his heirs with just $280.8 million. That's nearly $140 million less than if he had held the team until his death. As bad as $140 million sounds, the real penalty could climb even higher. The team's television contract expires after the 2015-16 season, which could mean hundreds of millions in new revenue from a more lucrative replacement contract. Plus, celebrities from NBA great Magic Johnson to rapper-entrepreneur Sean "Diddy" Combs, and even Oprah Winfrey have announced interest in buying the team. That sort of financial jump shot could push the price to well over a billion dollars. Selling appreciated assets like stocks, mutual funds, real estate, or a business can feel like striking it rich. But you can't forget that your friends at the IRS are waiting to share your good fortune, too. That's why it's crucial to have a plan to minimize your tax when you sell. And that, of course, is where we come in. So call us before you sell, and remember, it's what you keep that counts.