Taxing Situation

MTV's Jersey Shore premiered in late 2009 and quickly became the network's most-watched series ever. Cast members Nicole "Snooki" Polizzi, Mike "The Situation" Sorrentino, Jennifer "JWoww" Farley, and their outrageous, hard-partying housemates have become New Jersey's most famous family since The Sopranos, trying their best to put the "fun" back in "dysfunctional."

Of course, not everyone was in on the joke. Critics objected that the show painted New Jerseyites and Italian-Americans as drunken, brawling louts, obsessed with their "GTL" (gym, tanning, and laundry, for those not in-the-know). New Jersey Governor Chris Christie was so embarrassed at their antics that he vetoed a $420,000 tax credit, dubbed the "Snooki subsidy," for the show's producers. "As Chief Executive," he explained, "I am duty-bound to ensure that taxpayers are not footing a $420,000 bill for a project which does nothing more than perpetuate misconceptions about the state and its citizens."

Now the Jersey Shore crew is making tax news again. But this time, the numbers are even higher and the consequences even more serious. Last week, the U.S. Department of Justice indicted "The Situation" for one count of conspiracy, two counts of filing false tax returns for 2010 through 2012, and one count of failing to file a return for 2011.

Sorrentino and his cast mates may look like the sort of people the word "bonehead" was invented to describe. But when it came to cashing in on their 15 minutes of fame, they weren't slouches. Snooki made as much as $30,000 per episode, commanded $10,000 for personal appearances, and rang the bell to open the New York Stock Exchange. Sorrentino was even more ambitious, charging up to $48,000 for nightclub openings and other events. He also earned millions more from endorsements, a partnership in a vodka company, an "autobiography," a workout DVD, clothing and vitamin lines, and a comic book featuring himself as a shirtless superhero. (The guy made more than $5 million in 2010 alone, which has to make you wonder if you're in the right business — and if there's any justice in the world.)

Now the government is alleging that Sorrentino and his brother Marc avoided tax on $8.9 million of income. The indictment charges that they submitted false documents understating their receipts, and false personal returns failing to report all their income. They also fraudulently "claimed millions of dollars in personal expenses as business expenses, including payments for high-end vehicles and clothing, personal grooming expenses, and distributions – or direct payments – from the businesses to personal bank accounts." It's easy enough to believe that a guy who made his fame on "gym, tanning, and laundry" would think he could deduct the occasional tube of hair gel. Still, $8.9 million does seem a bit excessive.

Sorrentino has pled not guilty to the charges. Meanwhile, he's free on $250,000 bail. He's surrendered his passport and agreed not to leave the New York-New Jersey area. He's also subject to random drug testing and prohibited from drinking alcohol until his trial. Of course, a little sobriety looks like a holiday on the shore compared to what he's facing if he's convicted — the conspiracy charge alone could mean five years in a tightly structured living environment that discourages expressions of personal dress and style.

Sadly, "The Situation" isn't the only Garden State reality star facing IRS heat. "Real Housewife of New Jersey" Teresa Giudice and her husband are awaiting sentencing on their own tax and fraud charges. What's the matter with these people? Don't they know the real key to paying less tax is a plan? And don't they know they could have come to us for that plan? Don't embarrass your cast mates like they did. Call us, and we'll script out a plan that helps you enjoy endless summers on whatever shore you choose.

Lipstick on a Pig?

The personal finance website mint.com reports the average American woman spends $15,000 on makeup in her lifetime, including $3,770 on mascara, $2,750 on eye shadow, and $1,780 on lipstick. Americans spent $33.3 billion on cosmetics and other beauty products in 2010 alone. ("Being a woman is easy and inexpensive," said no one, ever.)

Our friends at the Internal Revenue Service don't bat an eyelash at all that spending. Cosmetics companies pay billions in taxes. And the product they sell is a nondeductible personal item. But that doesn't stop people from trying — including, we now learn, former United States Senator Scott Brown.

Brown has always been an ambitious sort. In 2010, after a career as a lawyer and state legislator, he won a special election to replace the late Ted Kennedy, becoming the first Republican Senator from Massachusetts since 1972. Then, in 2012, he lost his reelection bid to former Harvard professor Elizabeth Warren. Following his defeat, he moved north to New Hampshire and announced plans to run from the Granite State.

But Brown has always had a bit of a vain streak, too. At age 22, while studying law at Boston College, he won Cosmopolitan's "Sexiest Man in America" contest, posing nude for the magazine's centerfold. So it can't have come as too much of a surprise when he made six years of tax returns available to reporters and revealed that he deducted $2,149 in 2010 and $1,401 in 2011 for "TV makeup and grooming" to help promote his memoirs.

At first blush, deducting makeup might seem perfectly appropriate. Brown probably wouldn't wear it if he hadn't been promoting his book. The problem here is that the rules say that's not enough. IRS Publication 529 reports that you can deduct the cost of work clothes if: 1) "you must wear them as a condition of your employment" and 2) "the clothes are not suitable for everyday wear." Courts have extended this foundation to grooming expenses, holding that they're inherently personal and nondeductible.

Most recently, the Tax Court reviewed the case of Anietra Hamper, who worked as a morning and noon news anchor for WNBS-TV in Columbus. Her station's Women's Wardrobe Guidelines required her to maintain her hair in a neat and professional cut and keep her fingernails at a reasonable length, finished with conservatively colored polish. Yet the Court smeared off thousands in deductions she took for contact lenses, makeup, haircuts, manicures, and teeth whitening.

Last week, a Democratic watchdog group by the name of the American Democracy Legal Fund sent a letter asking the IRS to investigate Brown's deductions and citing a litany of cases holding that personal grooming and makeup expenses are nondeductible. Brown's campaign glossed over the letter as a partisan attack. But Brown is polling about four points behind incumbent Jeanne Shaheen, in a close election that will help determine which party controls the Senate for the final two years of President Obama's administration. This sort of negative publicity can't help Brown's chances. And it does nothing to conceal the stereotype of politicians as slick, blow-dried phonies.

Only time will tell if the IRS takes up Brown's case, or if the controversy affects his election. In the meantime, call us if you're worried about blemishes in your finances. We'll give you the plan you need to look flawless under the hottest lights!

Can We Talk?

The world of comedy lost a giant this month. Joan Rivers may have topped out at just 5'2" and weighed 110 pounds soaking wet, but when it comes to influence, she towered above her peers. Rivers established that women can be just as funny as men and paved the way for the Sarah Silvermans and Tina Feys of today. She could alienate people with sometimes-offensive takes on her fellow celebrities. ("Is Elizabeth Taylor fat? Her favorite food is seconds.") But she was never afraid to turn her wit on herself. ("I've had so much plastic surgery, when I die, they will donate my body to Tupperware.")

Rivers hated Washington, and considered herself apolitical. But it's hard to go 50 years in the public eye without having something to say, especially when it comes to taxes. So here are three quick observations:

• Money was important to Rivers. ("People say that money is not the key to happiness, but I always figured if you have enough money, you can have a key made.") She worked hard to make it and worked hard to keep it. Back in 2012, she criticized President Obama's proposal to raise taxes: "If I work very hard, I should be able to gather the fruits of my labor." Of course, this was a woman who also said "I'm definitely in favor of a monarchy because they're there, they look good, and always have good gift shops when you leave the palace." So, you might want to take her specific policy recommendations with a grain of salt!
• Rivers wasn't afraid to take on the jokers at the IRS. Back in 1993, she lost a Tax Court case involving disability insurance premiums. The dispute established the rule that a corporation can't deduct those premiums on an employee unless there's a contractually binding obligation to pay the benefits to the employee. (We'll skip the details because they're so boring and technical that even she couldn't make them amusing.)
• Rivers will get a pretty nice final tax break from the IRS, even though it comes too late for her to enjoy it. Code Section 2053 says that when it comes time to calculating estate tax, you can deduct funeral expenses. And Rivers made it clear that she wanted to go out in style. Here's what she said in her 2012 book, I Hate Everyone . . . Starting with Me:
  "When I die, I want my funeral to be a huge showbiz affair with lights, cameras, action. I want Craft services, I want paparazzi and I want publicists making a scene! I want it to be Hollywood all the way. I don’t want some rabbi rambling on; I want Meryl Streep crying, in five different accents. I don’t want a eulogy; I want Bobby Vinton to pick up my head and sing 'Mr. Lonely.' I want to look gorgeous, better dead than I do alive. I want to be buried in a Valentino gown and I want Harry Winston to make me a toe tag. And I want a wind machine so that even in the casket my hair is blowing just like Beyoncé’s."

She may not have gotten the funeral she joked about. But she did get a pack of celebrities, a troupe of bagpipes, and a celebration of a life well lived.

Joan Rivers entertained millions over the course of her career. But there's nothing entertaining about wasting money on taxes you don't have to pay. And you'll get the last laugh if you know you've done everything you can to keep what you make. So call us for a plan to pay less, before the comics at the IRS throw out the punch line for you!

No Such Thing As a Tax-Free Lunch

Silicon Valley's high-tech employers are famous for feeding their employees at work. It's not entirely selfless — feeding people helps attract talented workers and keep them chained to their desks. At this point, it's no longer a novelty — it's an expected part of Silicon Valley culture. Companies routinely make headlines for luring away each others' executives and programmers. But back in 2008, Facebook made headlines for poaching Google's chef!

Employers know that if they're going to use lunch to compete for talent, it oughta be good. The average computer nerd may be perfectly happy scarfing down Cheetos in his parents' basement. But six-figure software engineers demand more. So, for example, Google offers employees 30 different "cafes" at their Mountain View campus, serving delicacies like squash-corn-pecan dumplings, and daal saagwala from Northern India: "a mix of soft kale, spinach, and mustard greens, tossed with three types of beans and lentils in a broth singing with distinct cumin notes and a pleasant cilantro flourish." (We suspect that if they had served anything in honor of last month's International Bacon Day, it would have been so insanely good that you could never look a pig in the eye again.)

The best part? It's all free! But that may not be true much longer, if the food critics at the IRS have their way. Last month, they released their 2014-2015 Priority Guidance Plan, which reveals their 317 priority "projects we intend to work on actively during the plan year." And there on Page 7, sandwiched between "Regulations under §86 regarding rules for lump-sum elections" and "Regulations on cafeteria plans under §125," you'll find "Guidance under §§119 and 132 regarding employer-provided meals."

Ironically, free lunches have nothing to do with "cafeteria plans." The relevant regulations at 26 CFR 1.119-1 provide that "The value of meals furnished to an employee by his employer shall be excluded from the employee’s gross income if two tests are met: (i) The meals are furnished on the business premises of the employer, and (ii) the meals are furnished for the convenience of the employer."

Sounds pretty straightforward, right? Marketing software maker Moz.com gives employees a never-ending cereal bar. They serve it at their business headquarters, and they do it to keep employees from running to the In-N-Out Burger down the street. So what's the problem? Well, the IRS thinks that all that Cap'n Crunch may be more than just a convenient employee perk. They're worried that it's actually disguised compensation. And they're licking their chops at the thought of all the tasty revenue they can raise if they're right. (Don't even get them started on that 24-7 on-tap keg at apartmentrental.com!)

If the IRS concludes that meals are part of compensation, they'll be included in employees' W2s and taxed just like the rest of their paychecks. And while the occasional daal saagwala might not sound like much, those meals can add up fast. Let's see here . . . 1,000 employees eating $8 meals, five times per week, adds up to $2 million in new taxable income per year from just this one example — plus more for Social Security and Medicare. No wonder the carnivores at the IRS are sharpening their knives! (Of course, they'll have to issue even more new regulations telling us how to value all those meals. But bureaucrats love writing regulations even more than they love Cap'n Crunch!)

You may not be worried about all this if you're not getting a free lunch at work. But remember, the IRS has 316 other "priority projects" on its plate. And it's our job to keep an eye out for the ones that hit your wallet. So call us when you're ready for the plan you need to protect yourself from them all!

People Who Live in Glass Houses

Takisha McGee works (at least for now) as a Section Manager for the IRS Office of Professional Responsibility, where their mission is to "interpret and apply the standards of practice for tax professionals in a fair and equitable manner." Among her other duties, she travels around the country teaching IRS officials and tax preparers how to behave themselves. She gives lectures with titles like "When Your License To Practice Before the IRS Is On The Line." You would think someone like that would watch her own back pretty carefully. But sadly, that's not the case, at least as far as McGee herself is concerned.

This week's story starts back in 2007, when McGee helped her future husband's Aunt Rue collect $8,900 after an auto accident. At the time, McGee was two years out of law school, working on employee benefit issues at the Department of Labor, and had never handled a personal injury case before.

On July 21, 2008, the insurance company sent McGee a settlement check for $8,900. McGee kept $1,000 for herself and deposited the remaining $7,900 in her little "firm's" trust account. Two weeks later, McGee gave her client $4,500, $4,700, or $4,900 (depending on whose affidavit you believe). McGee understood that she was also supposed to pay her client's medical bills, which totaled $2,682.46. She withdrew $1,800 more in cash from the trust account, but none of it found its way to the doctors.

Apparently, that was when McGee decided she wasn't cut out for a life of chasing ambulances, because that's when she started her job helping supervise the IRS ethics cops. She also started not answering her email, and even disconnected her cell phone and fax machine "to reduce stress." (Don't you wish you could do that?)

With all that stress reduction going on, Aunt Rue eventually filed a complaint with the District of Columbia Bar Association. McGee defended herself with several inconsistent stories about paying the medical bills, but the Bar Association wasn't buying it. They recommended disbarring her, based on "clear and convincing evidence of intentional misappropriation," among other offenses. McGee apparently feels the heat, although she dismisses her shenanigans as a "one-time mistake." Last week, she confessed to the Washington Times that it keeps her awake at night. "As it relates to my job, may I possibly lose it? Yes, I face that each and every day." She says that she notified the IRS about the pending disbarment when she started working there, but an IRS spokesman said the Service was unlikely to comment. (Privacy issues . . . .)

The 18th-century Frenchman Jean Baptiste Colbert, who worked as King Louis XIV's Minister of Finance, once said that "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing." The IRS employs almost 90,000 people in that pursuit. Most of them work hard at a thankless job. They don't get a lot of love, and they don't make a lot of money. So it's probably fair to cut them at least a little slack for honest mistakes, even as we hiss at being plucked. But some people just don't belong where they are, and McGee sure sounds like one of them.

Meanwhile, the other 89,000 people who work at the IRS are still on the job — and so are we. Which is why we're reminding you that since it's after Labor Day, tax planning season has officially begun! You've got less than four months until December 31, when the most valuable planning opportunities turn into pumpkins just like Cinderella's carriage. So call us when you're ready for a plan to pay the least tax possible!