Pomp and Circumstance

June is Graduation Season, and odds are good that you've spent some time seated on a cheap folding chair or arena bleacher watching someone proceed down an aisle in an expensive cap and gown. Commencement speakers will thank the faculty, staff, and parents who made it all possible. But how many of them thank the folks in Washington who drafted Internal Revenue Code Section 170(c) back in 1917?

John Paulson is a hedge fund manager who owns a 28,500 square foot Manhattan townhouse, a $41.3 million Southampton estate with twopools and two guest houses (because one of each wouldn't be enough), and a $49 million Aspen ranch. Back in 2007, he bet against the housing bubble and made close to $4 billion when everyone else was losing their shirt. Forbes magazine ranks him #113th-richest billionaire in the world, with a net worth of $11.2 billion.

So, a couple of weeks ago, John Paulson reached into his couch cushions and found $400 million he didn't need. He gave that money to his alma mater, Harvard University. (Harvard has a $32.7 billion endowment, which means they don't need it either, but that's a different story.) Harvard will use the money to expand their engineering school and rename it in Paulson's honor. And here's where that tax code section 170(c) comes in — it lets Paulson deduct the gift from his 2015 tax return and save $100 million or so.

Paulson isn't the only rich guy to donate millions to see his name on the wall of a building. Last month, another Wall Streeter named Steven Schwartzman ($12 billion net worth), found $150 million in the spare change jar on his bedroom dresser that he wasn't using. He gave it to hisalma mater, Yale University ($23.9 billion endowment), which will use the money to transform the Commons building into a performing arts center. If you guessed that Yale is renaming it "the Schwartzman Center," give yourself 10 points. And if you said "Wow, Schwartzman's gift will save him $40 million or so in taxes," give yourself another 10.

Wall Streeters aren't the only guys getting in on the action. Back in March, a California venture capitalist named Mark Stevens ($1.6 billion net worth), found $50 million in the console between the front seats of his car. He gave it to his alma mater, the University of Southern California ($4.6 billion endowment), to build a biology lab. If you guessed it'll be called the "Mark and Mary Steven Neuroimaging and Informatics Institute," you know a lot more about biology than we do. And while we can't know exactly how much the gift will amputate from the Stevens's taxes, we can be sure it's a lot.

We're having fun here with the amounts these guys can give. But we're not making fun of their tax breaks. That's what lets a John Paulson say to himself, "Hmmmm, I've got $400 million I'm willing to part with," and give it all to the school of his choice, rather than a smaller after-tax amount. It's what lets your neighbor say "I've got 500 bucks I'm willing to part with," and give it all to his alma mater. Americans as a group give nearly $40 billion per year to educational causes. And the tax breaks that encourage that generosity really do help make it possible for you to enjoy those graduation speeches you sat through earlier this month.

You know what else guys like John Paulson, Steven Schwartman, and Mark Stevens all have? Tax plans. They know they can't just wait until April 15 to figure out how much they owe — not if they want to give buildings to universities. Shouldn't you take a page from their success and get a plan of your own? Call us now and see how much more you might be able to give! 

Who Won Most at Roland Garros?

For two weeks every spring, the tennis world focuses its attention on Roland Garros, the Parisian center that hosts the French Open. This year, fans yawned as the dominant Serena Williams cruised to her 20th career major title in the 2015 French Open, defeating the 13th-ranked Czech Lucie Safarova. On the men's side, fans saw an actual contest, as the Swiss Stan Wawrinka used his devastating backhand to take his second major in four sets, upsetting top-ranked Novak Djokovic and denying him a career Grand Slam.

Both winners claimed €1.8 million, or about $2 million, in prize money. But does that mean they actually take home that much? Certainly not. You may have heard about this thing called "taxes" that eat into our bounty. So let's take a look at what happens to those purses to see who really comes out ahead.

Playing professional tennis isn't like signing a contract with a baseball or football team and collecting a guaranteed salary. It's more like running a small business whose "product" is winning tournaments. James Ward, currently ranked #101 in the world, put it well last year when he told International Business Times, "It's difficult . . . You're paying your own expenses, your coach's, you're paying for your food, your hotel, your travel — for two people. And if you lose in the first round you're getting $300, minus tax. It's embarrassing. You've just got to win matches."

James is exaggerating a little bit — first round losers at the French Open get €27,000 in addition to their walk of shame. And in Williams's case, her coach is also her boyfriend, which brings down the cost of her entourage a bit. But still, if you want to get rich playing tennis, you've got to be very, very good. The real money, as with so many sports, is in the endorsements.

France takes the first slice at French Open winnings, and it's a big one. France's top tax rate is 45%, which is actually down, from 75% just two years ago. It's high enough that international athletes grumble about it publicly. In fact, last year Serena told Rolling Stone magazine, "Seventy-five percent doesn't seem legal. Nobody does anything because the government pays you to be broke. So why work?"

Then Williams comes home, and the IRS serves up a maximum rate of 39.6%, plus a Medicare tax of 3.8% on top of that. At least her home state of Florida doesn't impose an income tax.

As for Wawrinka, who ranks fourth in the world after this week's win, he wins the Tax Bracket Open. He pays a maximum federal income tax of just 11.5% on income over SFr700,000. (That's Swiss francs, for those of you keeping score at home — 700,000 Swiss francs equals about $658,000.) His home canton of Vaud (similar to a state government in Switzerland) and his home town of St. Barthélemy lob more taxes at him. Total tax burdens in Switzerland can reach 40% depending on where you live. Even so, Wawrinka squeaks out ahead of Williams. (He may not "love" paying them, but at least he gets to pay a bit less.)

When it comes to tennis, how hard you hit the ball is important. But it also matters where you hit it, too. It works the same way with taxes. Howmuch you make is key. But how you make it and even where you make it are important, too. Serena Williams and Stan Wawrinka both have tennis coaches to help them win more tournaments. And they have tax coaches to help keep as much of what they win as possible. So don't risk double-faulting against the IRS. Call us for the plan you need! 

Red Card!

Picture a greedy cabal of shameless officials lording over a famously corrupt international cartel. Add suitcases full of cash bribes, and multimillion-dollar payoffs coursing through a shadowy network of shell companies and offshore accounts. Throw in a loud, colorful "mole" celebrating a life of private jets, Michelin-starred restaurants, and vintage wines. Now stir in an ongoing investigation, secret indictments, and a pre-dawn stakeout leading to a series of arrests at a luxury hotel in Zurich, Switzerland.

It sounds like the plot from the latest Jason Bourne movie, right? The only thing missing is the car chase. But it's no big-screen thriller. It's the real-life tale of 20 years of bribery and corruption inside FIFA, international soccer's governing body. Last week, the Justice Department indicted 14 targets on 47 charges of racketeering, wire fraud, and money laundering. And would it surprise you to hear that the goalkeepers at the IRS helped blow the whistle on the fouls?

Chuck Blazer — the "mole" at the heart of the story — began his unlikely journey as a suburban "soccer dad" coaching his 6-year-old son outside New York city. He worked his way up through the soccer hierarchy to general secretary of the Confederation of North, Central American and Caribbean Association Football (CONCACAF), becoming the only American ever to serve on FIFA's executive committee. Blazer used his position to extract bribes from countries hoping to host tournaments and broadcasters hoping to cover the proceedings.

Blazer and his FIFA henchmen used the proceeds from those bribes to live like kings. He charged $29 million on his expense account credit cards and pocketed another $20 million more. He grew, literally, to 450 pounds — he got so big he needed a collection of motorized scooters to navigate his homes in Miami, the Bahamas, and New York's Trump Tower, where he kept not one but two apartments: an $18,000/month three-bedroom unit for himself, and a $6,000/month one-bedroom unit, right next door, for his cats. (Apparently, crime really does pay. Until it doesn't.)

Blazer even kept a blog bragging about his travels and his life. Apparently, however, he was too busy partying to pay taxes on the profit he made from selling his organization's integrity. In 2011, agents from the IRS and FBI stopped him while he was riding his scooter on Fifth Avenue. And right there, they presented him with a stark choice: "We can take you away in handcuffs now — or you can cooperate." Turns out they wanted more than just a few million in back taxes. They wanted to "flip" him, to secretly record conversations with crooked soccer officials from across the world. Those tapes, which he recorded using a specially-modified key chain, helped lead to last week's arrests.

IRS Criminal Investigation head Richard Weber made the obvious pun after the arrests, announcing "This is the World Cup of fraud, and today we are issuing FIFA a red card," he said. But really, the headlines just write themselves. How about "Corrupt soccer officials just couldn't keep their hands off the cash"? Maybe "Co-conspirators headed to jail for terms up to 20 years"? How about "Prosecutors score a GOOOOOOOAAAAAAALLLLLLLL against corruption"? (Sometimes we crack ourselves up.)

Most Americans don't get fired up about soccer. But they do get excited about tax savings. If you need extra help guarding the net against IRS strikers, call us for a plan. Who knows . . . you might even save enough to afford an apartment for your cats, too!

Blockbuster Taxes

Memorial Day came early this year, and that means we get more time with our summer whites! (Of course, summer doesn't "officially" start until June 21, but who's counting?) For millions of Americans, cooling off at the movies with a bucket of popcorn and gallon of soda is a favorite part of the season. So we wondered . . . what would all that carnage look like from a tax perspective?

• San Andreas: "The Big One" finally hits California, and helicopter rescue pilot Dwayne "The Rock" Johnson melodramatically sets off to save his estranged daughter. Meanwhile, up and down the California coast, accountants stay busy rescuing clients with casualty loss deductions.
  
• Hot Pursuit: Reese Witherspoon plays an uptight policewoman protecting a druglord's widow as the pair flees crooked cops and murderous gunmen in Texas. (When are the gunmen in movies ever not murderous?) Proceeds from drug trafficking are taxable, of course — we all know who finally got Al Capone. Sadly for our widow, Section 280E of the tax code prohibits deductions for any trade or business that "consists of trafficking in controlled substances." Guess she should have thought of that before she became a druglord's widow!  
• Inside Out: Pixar's newest computer-animated sure-to-be-hit is set inside the head of 11-year-old Riley, as five emotions guide her life: Joy (Amy Poehler), Disgust (Mindy Kaling), Fear (Bill Hader), Sadness (Phyllis Smith), and Anger (Lewis Black). Well, someday, Riley is going to earn her first paycheck, come home, and ask Mom, "What's FICA?" Which one of the five do you think is going to take over her mind then? It might just be all of them!
• Mad Max: Fury Road: Max and his fellow rebel Furiosa race a cross a post-apocalyptic Australian "Wasteland" in search of gasoline, explosions, random violence and other essentials of life. Tax collectors weep as not a dime of tax gets paid into the Highway Trust Fund. Of course, there may not even be a Highway Trust Fund in Australia . . . . hey, wait a minute, there won't even be any tax collectors after the apocalypse!
• The Avengers: Age of Ultron An all-star team of superheroes including Iron Man, Captain America, Thor, the Hulk, Hawkeye, and the Black Widow team up to save the world from the creepy Ultron. No tax "hook" here in the movie, but if star Robert Downey Jr. cashes another $50 million paycheck like he did after Iron Man 3, he'll be Man of the Year at the IRS.
• Terminator: Genesys: Arnold Schwarzenegger returns for a fourth go-round since his time-traveling robot debuted back in 1984. The new movie alters events from the first set of films in an alternate timeline, whatever that means. Shouldn't the Terminator be paying estate tax by now? And if he goes back in time, does he get a refund of whatever estate tax he already paid?

We realize that smart tax planning isn't as exciting as defeating Ultron. It won't save as much as one of Robert Downey's paychecks. (At least it's easier to understand than the mind of an 11-year-old girl!) But smart tax planning is the key to paying less. And it takes less time to call us than it does to sit through the previews at your local multiplex. So what are you waiting for?

Top 10 Taxing Words That (Sort Of) Rhyme With "Tax"

Late-night talk-show host David Letterman has delighted audiences with his wry, subversive sense of humor for an impressive 33 years. But this week he bids us farewell. We'll remember him for his Stump the Band bits, his Stupid Pet Tricks, and — most of all — his Top 10 lists. So here, in Dave's honor (from the Home Office in Wahoo, Nebraska), we present The Top 10 Taxing Words That (Sort Of) Rhyme With "Tax." Drumroll, please!

10. Cadillacs: Americans love to drive. Why else would we invent interstate highways, suburbs, and traffic jams? (So many traffic jams.) Good thing our friends at the IRS are happy to help you roll in style, with a choice of deducting "actual expenses" or 57.5 cents/per mile.

9. Cracks: Our bridges and highways are riddled with cracks.
So the Highway Trust Fund collects a tax.
But the cracks are spreading too fast for that tax.
And Congress refuses to face those facts.
(Some folks think Congress is stuffed full of hacks.
Maybe it's time to give them the ax?)

8. Anthrax: If you find life-threatening poison powder in your mail, you'll want to call 911, pronto. But don't worry about that pesky hospital bill. You can use a Section 105 Medical Expense Reimbursement Plan to write off all your medical costs as a business expense!

7. Goldman Sachs: America's most hated company has paid literally billions in fines since 2008. But they still managed to squeak out $8.48 billion in profit last year. And they paid 31.4% of that haul in taxes. So we're guessing at least the folks at the IRS still love them.

6. Craps: Not technically a rhyme, but close enough. While gambling winnings are taxable as "other income" on Form 1040, you can deduct gambling losses up to your total winnings, on Schedule A. Beyond that point, however, the tax still acts on your fat stacks.

5. Cracker Jacks: Candy-covered popcorn and peanut treats with a prize in every box. Bonus fun fact — some historians consider them America's first junk food! But whether that's true or not, you can't buy them in most states without paying sales tax.

4. Whacks: Tony Soprano and his colleagues hire professional killers to resolve business disputes "out of court" — because it's faster than filing a lawsuit and generally cheaper than hiring a lawyer. Good news: code section 162(a) lets business owners deduct "ordinary and necessary" professional fees. Bad news: the Supreme Court says no deductions are allowed for expenses that violate public policy. Sorry, Tony — looks like if you wanna whack Paulie Walnuts, it's gotta be on your own dime.

3. Saks: Saks Fifth Avenue stores have been outfitting fashionable men and women since Horace Saks and Andrew Gimbel opened their first location in 1924. Looking good can definitely help advance your career, of course. But does that mean you can write off the dress you wear to impress? Sorry, but no . . . Uniforms and work clothes are deductible only if they're not suitable for ordinary street wear. Maybe if we got a deduction, it wouldn't hurt so much to pay retail!

2. Yaks: Foodies are constantly foraging for the newest food fads. (You don't think anyone really likes quinoa or kale, do you?) Maybe it's time for our ranchers to look towards the Himalayas. Tibetans have used yaks for centuries for meat, milk, fiber, and fuel (don't ask). In parts of the region, they even race the poor beasts. Best of all, yaks domesticated over here should qualify for generous dairy subsidies!

And the number one taxing word that sort of rhymes with tax: "Relax!" We're here for you. There's nothing funny about paying more than you have to — that's why we give you a plan to pay less. So give us a call, and see how many words you can think of that rhyme with "savings"!

The Original Tax "Shelter"

New York City is the indisputable hub of American capitalism. Its glittering streets are home to the worlds of finance, advertising, fashion, publishing, and even organized crime. The island of Manhattan is home to some of the richest people on the planet, and they own some of its priciest real estate in the world.

You would think all those rich people living in all those expensive apartments would keep the tax collectors satisfied. But in fact, the oceans of money sloshing ashore are managing to bypass some of the most obvious tax tollbooths.

A generation ago, New York's bold-faced names dreamed of living in what Tom Wolfe called the "Good Buildings" — a triangle of 42 limestone coops centered on Manhattan's Upper East Side. Today, plenty of plutocrats have more than enough cash to afford those buildings. But what if their blood isn't blue enough for the famously snooty boards of directors? Well, if you're an internationally ambitious Russian car dealer, a Super Bowl-winning quarterback with a penchant for underinflated balls, or the son of a deposed African dictator, you turn your gaze south and west to "Billionaire's Row," a stretch of super-tall, super-expensive condominiums mostly lying along 57th Street.

In January, a mystery buyer made real estate history when he bought a shiny new apartment in a shiny new building for $100,471,452. And 77 cents. (Not a typo.) Sure, he gets 11,000 square feet overlooking Central Park from the 89th and 90th floors. There's even room service from the Michelin-starred chef at the Park Hyatt hotel occupying the building's first 25 floors. But it's not like the place is special or anything. Just down the street, the developers of 111 57th Street are asking the same $100 million for their top units. And right around the corner, the developers of 520 Park Avenue are asking $130 million for their three-story penthouse. (Can you imagine how unbearably proletarian it must feel to live 1,000 feet above the street on the 84th floor, but know there's someone even richer living right upstairs?)

Why are the tax collectors so unhappy? It mainly comes down to a dense provision of New York State law. It's called Section 421-a, and it slashes property taxes for new construction by up to 95% for up to 25 years, if developers agree to also build homes for low-income tenants. (Of course, that doesn't mean the "poorsies" get to overlook Central Park with the billionaires — the developers of the record-breaking condo underwrote 66 units way out in the Bronx.) So, just how much can that break be worth? In the case of that $100 million sale, it's $360,000 per year, with Section 421-a costing over $1 billion in annual tax overall.

Why would New York pass such a boondoggle in the first place? The goal is to lure rich residents to "make it rain" in local stores and restaurants. But it turns out the average billionaire owns 10 residences — and if you've got 10 places to live, how much time do you spend at any one of them? Foreign buyers, especially, are using their New York City pads as glass-and-concrete Swiss bank accounts rather than homes. One study found that 30% of all apartments bounded by 49th Street, Park Avenue, 70th Street, and Fifth Avenue are vacant at least 10 months out of the year. Oh, well. At least if it all hits the fan back home, owners will have part of their fortune safely beyond the new regime's reach.

Lawmakers have naturally reacted with plans to make up the taxes they're leaving on the table. Some have proposed eliminating Section 421-a entirely; others call for nonresident taxes on empty apartments. Unfortunately, the heads of New York's State Assembly and Senate are both under indictment right now, which has pretty much ground the legislature to a halt. In fact, part of the case against Senate leader Dean Skelos involves accusations that he voted to give 421-a breaks to a developer who employed his son. It looks like we shouldn't expect the law to change anytime soon.

The new breed of high-end Manhattan condo buyers may not be seeking the same "shelter" that you or I get from our homes. But who can blame them for looking at the tax laws and planning to pay less? That part is the same. And at our firm, planning isn't something we just do on April 15. It's a year-round commitment to exploring every way we can to help you save.

Accountants Behaving Badly

Every year, "true crime" fans look forward to the IRS Criminal Investigation Unit's annual report detailing their efforts to combat the cheats who don't pay their share. This year's edition is no exception, with dozens of entertaining stories about clever scammers who just . . . weren't . . . clever . . . enough.

You would think accountants would be the last group of people to try and game the system. That guy with the green bow tie in the H&R Block commercials? He wouldn't even bend the rules, let alone break them. But the Criminal Investigation report reveals that accountants are actually some of the worst scofflaws. In fact, there's an entire criminal program targeting crooked tax preparers, and it launched 1,063 investigations last year! Here are four outrageous stories you might enjoy:

• Haydee Guerra Neff operated a tax-prep business out of her home in Casa Grande, Arizona, a sleepy desert town about halfway between Phoenix and Tucson. She prepared perfectly legitimate returns for her clients to sign. But then she slipped in fake education credits, mortgage interest deductions, and residential energy credits before she filed them. Then she used Form 8888 to send the legitimate part of the refunds to her clients and the keep the rest to herself. (She must have missed class the day her criminal mastermind program covered "paper trails.") Now she owes the IRS $435,280 in restitution. But it's gonna be tough finding new clients among the "cellies" at her California prison camp.
• Steven Boitano was a partner in a CPA firm in San Jose, where he prepared tax returns for his clients and even his own firm. He did well for himself, earning $275,000 per year. But for a guy who made so much money preparing taxes, he sure didn't like paying them. In fact, he never even filed. When he finally showed up at the IRS office, returns in hand, he claimed he had made $121,000 in estimated payments. (Then his pants literally burst into flames, right there in the office!) His lies cost him $181,910 in restitution and 41 months in jail.
• John Hoang is a CPA and attorney convicted felon who operated a tax-prep business in Woodbridge, Virginia. His "eureka" idea was to make up fake losses from fake technology licensing businesses for his clients, which defrauded the government out of $1.5 million. He earned $6 million for himself while running his scam. (Apparently, the wages of sin aren't bad.) Of course, he didn't bother sharing any of it with the IRS. Now he's enjoying government hospitality in a federal prison camp, where he'll be lucky to license dial-up internet technology for 20 minutes every other Thursday.
• Paul Daugerdas was another attorney/CPA with big ambitions. Meek high-school chemistry teachers like Breaking Bad's Walter White may dream about putting on a rubber apron and goggles and opening a meth lab. But true ballers like Daugerdas put on a worsted wool suit and open tax shelter labs. Daugerdas cooked up schemes to create false tax losses with names like SOS (for "short options strategy"), HOMER ("hedge option monetization of economic remainder") and COBRA ("currency options bring alternative rewards"). When clients screwed up the details implementing his ridiculously complex schemes, he helpfully backdated documents and authored false opinion letters describing when transactions had supposedly occurred. He shaved $7 billion off his clients' tax bills. He made $95 million for himself along the way — but naturally used his own scheme to pay less than $8,000 on that income. It took awhile for the IRS to shut Daugerdas down — but when they did, he wound up with 15 years in prison and $536 million in fines and restitution.

Some guys have all the fun. Steal from the government and party like a boss, at least until you get caught. Then it's time for jailhouse nicknames and prison tattoos. Sign us up. Seriously, what are these people thinking?

You know better than that. You know the best way to pay less is to plan to take advantage of all the legal deductions, credits, and strategies available. So if you think you paid too much on April 15, call us. We'll give you the plan you need to share less with Uncle Sam — and avoid having to take advantage of his hospitality, too!