Putting for Dough

August is almost here, and golf season is in full swing. Duffers are filling the air with curses as colorful as their outfits. Tiger Woods is taking a break from romancing pancake-house waitresses to work on his game. And Phil Mickelson is the latest man of the hour. Earlier this month, he took a one-hole playoff to win the Scottish Open at Inverness. Just one week later, he posted a 3-under 281 to take the British Open at Muirfield. Mickelson's £1,445,000 in winnings translates into almost 2.2 million in U.S. dollars.  

So, he's got that going for him, which is nice. But how much will he actually get to keep?

Mickelson has already told the world how he feels about paying taxes. Back in January, he said he might leave his home state of California because of recent hikes in federal and state taxes. These include 39.6% for Uncle Sam (up from 36%), 3.8% for Medicare (up from 2.9%), and 12.3% for the Golden State (up from 9.3%). "If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63 percent," he was quoted as saying in Yahoo Sports. "So I've got to make some decisions on what I'm going to do." Mickelson's remarks landed him some deep rough, and he wound up comparing them to a botched drive that cost him the 2006 U.S. Open.  

But Phil's U.S. taxes may look pretty reasonable when you consider what he'll pay on his recent Scottish winnings:

• For starters, he'll pay the United Kingdom a wee bit over 44% on his tournament purses.
  
• The U.K. will take a divot out of any bonuses he receives for winning those tournaments. Plus they'll take a chip of the bonuses he gets at the end of the year for his overall tour ranking.
• It gets even better from there. The U.K. won't just tax Mickelson on his tournament winnings. It also taxes him on part of his endorsement income for the two weeks he spent in-country. Forbes estimates he earned $44 million from Callaway, Barclay's, KPMG, Exxon Mobil, Rolex, and others last year, so that extra endorsement tax may leave him wanting a mulligan.
• He'll get a credit against his U.S. tax for everything he pays abroad. But there's no credit for the extra Medicare tax he'll pay. And don't forget, California takes a penalty stroke, too.

All in all, Mickelson will pay about 61% tax on his British earnings. That's after his considerable expenses, including travel, meals, agent fees on endorsement income, and 10% to his caddy.

We realize that keeping $800,000 or so for a couple of week's work isn't bad — especially when that "work" involves playing two of the most storied courses in all of golf. Still, Mickelson's story emphasizes that it really is what you keep that counts.  

If you're a golfer, you've certainly heard the saying "drive for show, putt for dough." Well, our proactive planning service is the tax equivalent of putting for dough. That's because top-line revenue is impressive — but if your short game isn't up to par, those big drives may not actually matter. If you don't have a plan, call us for help sinking that long putt across the IRS green. And remember, we're here for the rest of your foursome, too!

What's Not to "Like"?

Let's imagine, just for a minute, that you decided on a new line of work: ripping off the IRS. How do you think you would launch your new business? Maybe you'd open a secret bank account in one of those "sunny places for shady people" like the Cayman Islands or Bahamas. You might rent a secret flop house where you could hide evidence of your crimes. And you'd probably look for someone who could make you a fake passport, just in case the heat comes down and you have to flee the country under a secret identity.  

You probably wouldn't post anything about your new career online, would you? Right? But if you're Rashia Wilson — the self-appointed "first lady of tax fraud" — you'd brag about it all on Facebook!  Why play it safe and discreet when you can pose for pics with stacks of cash in your hands to mock the authorities? What would your friends say if you posted something like this in your feed?

"I'm Rashia, the queen of IRS tax fraud. . . . I'm a millionaire for the record,
so if U think indicting me will B easy it won't, I promise you!

Wilson is a 27-year-old mother of three in Tampa, a seventh-grade dropout with 40 previous arrests under her belt. She recruited friends and family to steal Social Security numbers and file false tax returns, directing the very real refunds to reloadable debit cards. She stole so much that authorities dubbed their investigation "Operation Rain Maker" because of all the cash raining down on the suspects' mailboxes. Even more incredibly, they first caught wind of her scam in 2010 when they noticed a drop in illegal drug dealing in the area. Their theory, which proved correct, was that Wilson's henchmen had abandoned their previous careers trading agricultural commodities and switched to an easier and more lucrative enterprise. (And really, who wouldn't want to trade standing on a hot Tampa street corner for a cushy, air-conditioned indoor gig?)  

Wilson treated herself to just the sort of lavish lifestyle you'd expect from the queen of tax fraud. She spent $30,000 on a party to celebrate her son's first birthday (including carnival rides for guests to play on). She spent $90,000 for an Audi A8L sedan. And she filled her house with pricey purses, shoes, and flat-screen TVs.  

But the party came to an end at the hands of a joint task force involving the Tampa Police Department, IRS Criminal Investigations unit, the U.S. Secret Service, the U.S. Postal Inspectors, and the Hillsborough County Sheriff's Office. In April, Wilson plead guilty to wire fraud and aggravated identity theft. Last week, a federal judge sentenced her to 21 years in prison and ordered her to pay $3.1 million in restitution. But authorities believe she and her gang actually stole more than $20 million in all.  

We can all assume that since Wilson made her money stealing from the IRS (and, by extension, from you and me), she wasn't reporting her income to the IRS. Fortunately, our proactive planning service lets you beat the IRS without risking 21 years behind bars. And we're so proud of the work we do, we love when you brag about it on Facebook. So if we've done a plan for you, why not go and tell your friends about it now? And if not, what are you waiting for — call us now and let's set it up!

Hotties and Notties

Junior high school is a difficult time for parents as well as students. It's a time when boys start to discover girls, and girls start to discover boys. (Reports differ on exactly which group discovers the other first, but it's equally terrifying for most parents.) One of the very first things junior high boys and girls start doing when they discover each other is rating each other — usually on a scale of 1-10. The 9s and 10s form cliques to congratulate each other on their good fortune, while the 3s and 4s learn to tell jokes, plan on making money, or learn to get by with a "great personality." (In case you've forgotten, junior high school can be really cruel.)  

It turns out, though, that junior high kids aren't the only ones rating the world around them. Now comes news that two German economics professors have rated the attractiveness of 100 different countries' corporate tax systems. Their paper, "Measuring Tax Attractiveness Across Countries", develops a new measure, which they call the Tax Attractiveness Index, "reflecting the attractiveness of a country's tax environment and the tax planning opportunities that are offered." And the results aren't nearly as obvious as that cutie you spotted across the locker hall that first day of eighth grade. 

The professors identified 16 relevant components of corporate tax systems. They started with obvious factors like statutory tax rates, taxation of dividends and capital gains, and withholding taxes. Then they added more esoteric factors like group taxation regime, loss offset provisions, double tax treaty networks, thin capitalization rules, and controlled foreign company rules. (That's the stuff you pay us to worry about.) Next, they developed methods to quantify each factor from zero (signifying the least favorable conditions, such as high statutory tax rates) to one (signifying the most favorable conditions, such as tax-free capital gains). Finally, they added the values for each condition and divided each country's total score by 16 to yield the final rankings.  

Whew! So, what do the results show? Which countries are the hotties and which countries are the notties? Well, generally, Caribbean tax havens like Bermuda and the Bahamas (tied for #1), the Cayman Islands (#3), and British Virgin islands (#4), ranked highest. European nations also fared well, especially European Union nations benefiting from the Parent-Subsidiary Directive and Interest and Royalty Directive abolishing intra-EU withholding taxes.  

And what about Uncle Sam? Is he flirting with the "mean girls," or is he waiting to get picked last for kickball? Well, the United States scored 0.2342 out of a possible 1.000. That placed Uncle Sam 94th out of 100 countries. We're trailing Egypt, Japan, and Zimbabwe. But we're still beating the Philippines, Indonesia, Peru, South Korea, Venezuela, and last-place Argentina!  

So now you know — tax-wise, at least, Uncle Sam's a dud, averting his eyes from hotties like Bermuda. We confess we don't know the first thing about Cayman Island group taxation regimes or Zimbabwean thin capitalization rules. But we do know the most expensive tax mistake you can make, in this or any country, and that's failing to plan. So call us if you're ready to start saving, whether you want more dollars, euros, shekels, pesos, or yen. And remember, we're here for your family, friends, and colleagues, too!

Bada-Ching!

The acting world lost one of its brightest lights when Sopranos star James Gandolfini died of a sudden heart attack while touring Italy with his family last month. Gandolfini was the iconic face of HBO's acclaimed drama, which made cable television, rather than the movies, the place for serious actors to "make their bones." Gandolfini himself became the model for a new breed of anti-heroes like Breaking Bad's Walter White and Mad Men's Don Draper. Few critics would dispute The Sopranos place as one of the greatest dramas in TV history.

Hollywood stars have always been famous for bringing home the big bucks, and Gandolfini was no exception. He fought as hard as a real mobster to maximize his pay. But he was legendarily generous, too. Co-star Steve Schirripa, who played Bobby Baccalieri on The Sopranos, recalled that in Season Four, Gandolfini gave each of his co-stars $33,000 for "sticking by him." And after holding up filming on Season Five over a pay dispute — which reportedly doubled his own salary to more than $800,000 per episode — Gandolfini included a clause in his deal making sure everyone else who worked on the show got paid retroactively for what they missed during the standoff. Not just a "goodfella" — a good guy.

Apparently, though, Gandolfini never had that all-important sit-down with his consiglieres about estate taxes. That means the capos at the IRS are about to give his heirs a shakedown that would make Salvatore "Big Pussy" Bonpensiero gulp in disbelief.

If you know nothing about estate taxes, remember this. You can bequeath as many millions as you like to your spouse, completely tax-free. Anything else above a "unified credit exemption amount" (currently $5.25 million per person) is subject to a 40% tax. That's a cut approaching mob-level "protection."

So, early reports suggest that Gandolfini's estate was worth in the neighborhood of $70 million. (That's a lot of gabagool for the son of a bricklayer and high-school lunch lady!) He left 80% to his sisters, his 13-year-old son, and his nine-month-old daughter. Tax on those bequests could reach up to $30 million. He left the remaining 20%, after taxes, to his wife Deborah Lin. That means she could wind up with 20% of just $40 million, rather than 20% of $70 million she could have enjoyed with better planning. In case you're like Paulie Walnuts and math ain't your strong suit, that's a six million dollar mistake. No wonder New York estate-planning attorney William Zabel (author of The Rich Die Richer and You Can Too), called Gandolfini's will a "disaster" and a "catastrophe"!

What's worse, the tax itself is due nine months from Gandolfini's June 16th death. And, in another eerie similarity to the Mob, the kneebusters at the IRS want "cash." (They'll take a payment plan if they have to, but they won't be very happy about it.) That means Gandolfini's heirs may be forced to sell assets, perhaps at fire-sale prices, to come up with the money, making the loss even worse.

We realize you may not have to worry about the IRS pinching $30 million from your estate. But James Gandolfini's untimely passing reminds us just how important proactive planning can be to your family's future. So here's an offer you can't refuse: call us now for the plan you need before the IRS takes a whacks at you. And if you already have the plan you need, is there someone just like you who could use the same savings? We're here for them, too!

You Think You Got Audited?

Getting an audit notice from the IRS isn't any one's idea of a party. But it's not the end of the world. Usually the auditor just wants to make sure you're entitled to the breaks you've claimed. Did you really spend as much as you reported on meals & entertainment? Did you really spend enough hours managing your rental properties to qualify as a "real estate professional"? If the IRS finds a mistake, they issue a "deficiency notice" and bill you for what you owe. How bad can it really be?

Well, just ask Raymond J. Lane.

Ray Lane is a longtime tech industry veteran. He started his career at IBM, then moved to Electronic Data Systems and Booz Allen Hamilton before becoming Chairman and CEO of Oracle Corporation. More recently, he's been a partner at the venture capital firm of Kleiner Perkins Caufield & Byers, a board member at Fisker Automotive, and non-executive Chairman of Hewlett-Packard.

In 2000, Lane invested $25 million into a partnership, Vanadium Partners Fund LLC, to invest in technology start ups. The fund used a strategy called "Partnership Option Portfolio Securities," or POPS, to generate paper losses far in excess of his actual investment. Then he claimed $251 million in losses to offset income he recognized from exercising Oracle stock options.

Since then, the government has taken direct aim at POPS and similar "abusive" strategies, arguing that they lack economic substance. Lane reports that the IRS originally audited him in 2004, then asked him to sign extensions on a statute of limitations every 18 months while they reviewed his file. Last December, they found the partnership to be a sham, with no "legitimate business purpose." In fact, they argued, Lane's $25 million "investment" — which he claimed was for warrants in the LLC — was designed merely to disguise fees paid to tax-shelter promoters and tax professionals. Lane filed an appeal with the Tax Court. Then, on May 6, he announced he had signed an agreement to pay the IRS $100 million!.

For his part, Lane says "the thing is unfortunate." (Really?) He adds that "the amount of taxes I pay are staggering, and this is the only transaction I've been audited on." He claims to have paid between 32% and 38% of his income in net taxes in the past 15 years. Now, while paying the $100 million to the IRS will certainly hurt, it won't put him in the poorhouse. He still owns two homes across the street from each other in pricey Atherton, California, worth a total of $30 million, along with a home in Manhattan Beach worth $20 million, a farm in Oregon worth $4 million, and two properties in Palm Desert, California, worth another $10 million.

But still . . . a $100 million tax bill! Can you imagine signing that check? Or even authorizing that wire transfer?

Here at our firm, we understand that if you ever get an audit notice, you're not going to be happy — even if there's not a hundred million bucks at stake! That's why we stick with tried-and-true strategies to help you pay less. Everything we recommend is court-tested and IRS-approved. So call us to see how you can put some of these strategies to work for yourself!