Turns Out Crime DOES Pay

Back when you were a little kid, Mom and Dad warned you that crime doesn't pay. (They also told you it was the tooth fairy leaving that money under your pillow.) But it turns out that crime does pay — at least for one felon-turned-whistleblower.

Bradley Birkenfeld grew up in suburban Boston before moving to Switzerland to pursue a career in banking. In 2001, he started work at Switzerland's biggest bank, UBS. His job was to solicit American depositors, 90% of whom he said were trying to evade taxes. His main duties included schmoozing clients at UBS-sponsored events like yacht races in Newport or the Art Basel festival in Miami Beach. But he also helped clients create shell companies to hide ownership of their accounts, shredded documents recording transactions in their accounts, and once even smuggled a pair of diamonds through U.S. Customs in a tube of toothpaste. (Doesn't everyone carry their diamonds in their toothpaste?)

By 2005, Birkenfeld reports, he suffered a crippling attack of conscience. He approached his superiors at the bank to complain about "unfair and deceptive" business practices. When those complaints went nowhere, he took his story to the U.S. government. He originally sought immunity for his own role in any crimes, but wound up pleading guilty to a single count of conspiracy to defraud the United States. He spent 2½ years in prison before moving to a halfway house, and he's scheduled to be released for good on November 29.

Now Birkenfeld is getting ready to "re-enter society." But he leaves the Big House with parting gifts that most felons don't enjoy. He'll have $104 million dollars waiting for him, courtesy of none other than — you guessed it — the IRS! That works out to $4,600 for every hour he spent behind bars. Of course, Birkenfeld doesn't get to keep all those millions. His lawyers get a cut, and the rest is fully taxable. But some of you reading these words might consider taking the same deal for yourself!

Birkenfeld wasn't the first guy to tell the IRS that rich Americans were using Swiss banks to cheat on their taxes. But he was the first to document it so devastatingly, and he was the first to offer evidence that the bank itself encouraged illegal behavior. The IRS said, "While the IRS was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions against UBS.”

How much was Birkenfeld's help worth? Well, UBS itself paid $780 million in fines and ratted out their 4,700 biggest American clients. But that's just the tip of the iceberg. Nearly 35,000 Americans have taken advantage of special IRS amnesty programs and have collectively paid more than $5 billion in back taxes. And Birkenfeld's bars-to-riches story, which included an appearance on 60 Minutes, has spurred a gold rush of whistleblower claims. In some cases, enterprising hedge funds have actually "invested" in those claims, paying whistleblowers up front in exchange for a share of any future awards.

The irony here is that none of the cheaters who sent their money on an alpine vacation had to cheat to pay less tax. They just needed to plan to take advantage of perfectly legal concepts and strategies. We give you the plan you need to pay less tax, legally, so you can spend your time in Switzerland visiting chocolate factories and cuckoo clocks — not your hidden bank accounts!

Gentlemen Prefer Tax-Free

Fifty years after her mysterious death, Marilyn Monroe's image remains as profitable as ever. In 1999, the dress she wore to sing "Happy Birthday, Mr. President" to John F. Kennedy sold at auction for $1.26 million. Forbes magazine lists her as #3 on their "Top-Earning Dead Celebrities" list (topped only by Michael Jackson and Elvis Presley). And In 2009, a Japanese man paid $4.6 million for the crypt directly above hers at Westwood Village Memorial Park Cemetery in Los Angeles. (Some people really do have too much money.) Now Marilyn is in the news again, this time for the financial consequences of her tax planning. If Hollywood made the story into a movie, nobody would believe it.

When Marilyn died in 1962, she left $40,000 to her secretary, 25% of her estate to her psychiatrist, and the remaining 75% of her estate, including the "residuary," to her friend and acting coach, Lee Strasberg. The estate sat in probate for 41 years before finally settling, with the bulk of the assets eventually passing to an entity called Monroe, LLC, a Delaware limited liability company managed by Strasberg's widow. (It might be worth mentioning here that Alexander the Great took just ten years to conquer the entire civilized world.) Marilyn died at her home in California. However, she executed her Last Will and Testament in New York — where she owned an apartment at 444 E. 57th Street — and named a New York attorney, Aaron Frosch, as her executor. Frosch consistently treated Marilyn as a New York resident in order to avoid California estate taxes. And it worked — her estate paid just $777.63 in inheritance taxes there. Fast forward to 2005. That year, the new LLC set up to manage the estate's assets sued the heirs of several photographers who had taken pictures of Marilyn while she was still alive, heirs who were licensing those images for commercial use. Marilyn's estate argued that this violated her "right of publicity," which included their rights to control the commercial use of Marilyn's name, her image, her likeness, and other aspects of her identity. The heirs, in turn, countersued, arguing that Monroe, LLC didn't own the star's right to publicity. A district court in California declared that at the time of her death, the state didn't recognize any such right of publicity, and ruled in favor of the photographers' heirs. Just one month after that decision, California passed a law creating a posthumous right to publicity that would be transferable to Marilyn's estate. Armed with the new law, the estate's attorneys went back to court to overturn their previous decision. Not so fast, the Court said. Yes, the California law would let Marilyn's estate inherit her right to publicity, if she had been a California resident at her death. But she didn't die a California resident, she died a New York resident — and New York doesn't recognize a right to publicity. Last month, the U.S. Circuit Court for the Ninth District issued what should hopefully be the last word, just over 50 years after her death. "We conclude that because Monroe’s executors consistently represented during the probate proceedings and elsewhere that she was domiciled in New York at her death to avoid payment of California estate taxes, among other things, appellants are judicially estopped from asserting California’s posthumous right of publicity." In other words, go pound sand. Here's the lesson. Sometimes, avoiding tax shouldn't be our most important goal. Sometimes, focusing on taxes means letting the tail wag the dog. And sometimes, our job is to help you put taxes in the right perspective. In Marilyn Monroe's case, her executor made a smart decision to treat her as a New York resident, and succeeded in avoiding California tax. He certainly couldn't have foreseen the development of any right to publicity, and he can't be said to have done anything wrong. But focusing solely on taxes did cost Marilyn's estate big in the end. So call us when you've got big decisions to make — we'll help you avoid making similar mistakes!

Players Behaving Badly

Football season is back! College teams have started already, and the pros kick off this weekend. So welcome back to the energy and excitement of game day. Enjoy the pageantry and the tailgating as the days get shorter and the air gets crisp. And don't forget the tax liens! What?!? Don't forget the tax liens . . . ? That's right, sometimes the surest hands in the game drop the ball on their taxes. We'll start our tour of NFL tax offenders with Plaxico Burress. The free-agent wide receiver, who once signed a $25 million contract with the New York Giants, owes New York state a cool $59,241 in tax. Of course, Burress is no stranger to the law — he spent nearly two years scrimmaging behind bars after accidentally shooting himself in the leg at Manhattan's glitzy Latin Quarter nightclub.

Running back Jamal Anderson played eight seasons for the Atlanta Falcons, where he earned the nickname "Dirty Bird" for his touchdown celebration dance. But the IRS will be dancing in the end zone when they collect $478,247.57 in unpaid taxes for 2007 (when he appeared on MTV's "Celebrity Rap Superstar") and $627,015.94 for 2008 (when he appeared as an analyst for ESPN). Like Burress, Anderson has also had brushes with the law — in 2012, he was arrested for drunk driving, and in 2009, he was arrested after Atlanta police reported him snorting cocaine off a toilet bowl in the Peachtree Tavern's restroom. Quarterback Ken Stabler led the Oakland Raiders to a 32-14 win over the Minneapolis Vikings in Super Bowl XI. (That was so long ago, people paid more attention to the game than the commercials!) Now it looks like he'll be playing for the IRS. Earlier this summer, a federal judge sacked Stabler for $259,851 in unpaid business and personal taxes. (Oh, and the IRS piled on for another $5,509 in penalties.) Stabler's attorney says the former passer has sold his house to help pay the debt, and will also make monthly payments out of income he earns appearing at NFL events. At least Burress, Anderson, and Stabler actually filed their returns, even though they didn't pay. Cornerback William James played for the New York Giants, Philadelphia Eagles, Buffalo Bills, Jacksonville Jaguars, Detroit Lions, and San Francisco 49ers. Apparently he lost his W2 in one of those moves. Federal prosecutors say he earned over $9 million during his career — but failed to file returns for 2005-2009. Now he faces up to a year in prison and $100,000 in fines when he's sentenced later this month. Oops! And what about everyone's favorite former All-Pro felon, O.J. Simpson? Would you be shocked to learn that "the Juice" is fumbling his taxes, too? That's right, the IRS announced just last week that they had tackled him with liens for $15,927.89 for 2007, $105,119.71 for 2008, $49,490.27 for 2009, and $8,897.20 for 2010. Of course, taxes are probably the least of O.J.'s worries right now, considering he's got 29 years left to serve on armed robbery and kidnapping charges. And he still owes murder victim Ron Goldman's family $33 million in civil damages! There's not really a specific tax-planning lesson here — we just hope you're paying more attention to the game than these guys are! Either way, you can trust us to keep an eye downfield for you, and help you stay out of those IRS tackles!

Trillion-Dollar Taxpayer

When America's biggest corporations make news for their taxes, it's usually for how little they pay. One recent study, for example, argues that 26 big corporations, including AT&T, Boeing, and Citigroup, paid their CEOs more than they paid Uncle Sam in federal income tax. (Comparisons like that might bring to mind an old Babe Ruth quote. In 1930, a reporter pointed out that Ruth's $80,000 salary was more than the President's — to which the Babe replied "I know, but I had a better year . . .") Now, another corporate giant is making headlines for its taxes. And for once, the surprising news involves how much it paid, not how little.

Exxon and Mobil are iconic corporate names. Both began life as parts of John D. Rockefeller's original Standard Oil Company. Both were spun off in 1911 when the U.S. Supreme Court found Standard Oil guilty of illegally monopolizing the oil refining industry. ("Standard Oil Company of New Jersey" eventually grew into Exxon, while "Standard Oil Company of New York" morphed into Mobil.) When the two giants re-joined to create ExxonMobile in 1999, they instantly became the biggest publicly-traded corporation on earth. And since then, they've only gotten bigger, with a "market capitalization" (total value of outstanding publicly-traded shares) topped only by tech giants Apple and Microsoft, and the largest company on earth by revenue.You would expect a corporation this size to pay a lot in taxes, right? And for once, you would be right. In fact, a recent study by economist Mark Perry reveals that ExxonMobil has paid over one trillion dollars in taxes since that merger. That's a full three times the profit the company earned for its actual shareholders.Take 2008, for example. ExxonMobil's profit reached a staggering $46.87 billion, the highest annual profit since the Romans invented the corporation. But they also paid $36.53 billion in income taxes, $34.51 billion in excise taxes, and $41.72 billion in other taxes, including sales taxes. Do the math and you'll see that totals $112.76 billion — $9.4 billion per month, $2.17 billion per week, $309 million per day, and $214,535 per minute.Skeptics might reply that ExxonMobil doesn't actually "pay" all those taxes out of its own pocket. They argue that the corporation just passes the cost of excise taxes on to customers and merely collects sales taxes imposed by state and local governments on buyers. But there's no arguing that the economic activity generated by this particular actor ultimately led to that trillion dollars in worldwide tax revenue.We're not here to champion "Big Oil" in general, or ExxonMobil in particular. We realize ExxonMobil has been criticized for inadequately responding to various oil spills, funding research disputing "global warming" claims, and even violating workers' human rights in Indonesia. We're here to champion the value of surprising information — especially when we can use that information to your benefit. You'd probably be surprised, for example, to learn that some business owners deduct their family's medical bills as a business expense. But that's exactly what a medical expense reimbursement plan allows. You'd probably be surprised to learn that you can deduct the cost of crashing your car if it happens while you're driving for work. But that's what the law allows. We constantly go to the well for smart tax strategies, so you don't have to. Call us if you want to put this sort of information to work for you! And remember, we're here for your friends, family, and colleagues, too.

Linsanity!

The clock is ticking down on "summer." July 4th barbecues are a distant memory, and Labor Day is looming near. Forget about baseball's pennant races starting to heat up. Forget about the upcoming NFL season. It's time to talk basketball!

Taiwanese-American point guard Jeremy Lin played college ball at Harvard, where he notched an Ivy League-record 1,483 points, 487 rebounds, 406 assists, and 225 steals. That might have been enough to get drafted if "Ivy League" earned any respect with NBA scouts. Instead, he walked on to the Dallas Mavericks and warmed various benches for the Golden State Warriors, Houston Rockets, and (Chinese Basketball Association) Dongguan Leopards before catching fire with the New York Knicks. He averaged 18.5 points and 7.6 assists over 26 games before leaving because of a torn meniscus. But those 26 games were enough to ignite "Linsanity," with New York bars and restaurants introducing "Lintinis," asian-spiced chicken "Lings," and asian-inspired "lin-burgers" for beleaguered Knicks fans who finally had a reason to cheer.At the end of the season, Lin became a restricted free agent. This meant he could sign an offer with another team — but the Knicks could match it and keep him. Last month, the Houston Rockets re-signed him to a three-year, $25.1 million deal, which New York declined to match, and now, Linsanity moves south to Houston. So naturally, we want to know what it means for Lin's tax bill!

Let's start with Lin's rooting section at the IRS. Regardless of where he plays, he'll pay federal income tax at the top marginal rate of 35%. He'll also pay Medicare tax of 2.9%. If the Bush tax cuts expire at the end of the year, as they're already scheduled to do, that top rate will rise to 39.6%. And the Medicare tax jumps to 3.8% on January 1 as tax hikes included in the Affordable Care Act take effect.Now let's look at his old tax bill for the Knicks. In "New York, New York", Frank Sinatra sings "If I can make it there, I'll make it anywhere." What ol' Blue Eyes probably meant is that if he could afford the taxes there, he can afford them anywhere. So, Lin starts out owing Uncle Sam anywhere from 37.9 to 43.4%. New York State shakes him down for 8.82%. Then New York City runs up the score for another 3.876% more. If Lin counted baskets like he paid taxes, he would have scored 481 points for the Knicks — but kept just 239 after taxes!Now let's look at his new tax bill for the Rockets. Lin will be glad that basketball is an indoor sport when he gets a taste of Houston humidity. But he'll find the tax climate a lot cooler. He'll pay the same amount to Uncle Sam, of course. But neither Texas nor Houston impose any tax on his income at all. None! So this difference could mean as much as a million dollars more per year in Lin's oversized pockets. Smart planning for a guy who graduated with an economics degree and a 3.1 GPA!Of course, as is usually the case with taxes, things aren't quite so simple. Professional athletes pay state and local taxes wherever they play. That means that when Lin travels back to Gotham to play the Knicks, he'll renew his friendship with New York tax collectors — but when he plays the Orlando Magic or Miami Heat, he'll enjoy the same zero percent tax rate in Florida that he gets in Texas. And of course he can deduct state and local taxes he pays from his federal taxable income. Are you expecting an outstanding season in 2012? Maybe wondering where it makes the most sense to play ball? We're here to prevent the IRS from "calling a technical" on your finances. And remember, we're here for your teammates, too!

Living the Tax-Free Life

As the 2012 election draws near, and taxes take center stage in that election, politicians and pundits are weighing in on Republican nominee Mitt Romney's personal taxes. Will he release any of his returns for years before 2010? Did he really not pay any tax at all in some of those years? Is there something in those returns that he fears might jeopardize his campaign?But Mitt Romney isn't the only candidate enjoying tax-advantaged income. President Barack Obama, like Presidents before him, enjoys tax-free benefits that would make most corporate CEOs drool with envy. And it's not a scandal — it's all out in the open for any voter to see.Let's start with the basics. The President earns a $400,000 annual salary — barely enough, by itself, to put him in the much-vaunted "1%." He also gets a $50,000 annual entertainment allowance, which helps support those State Dinners.But salary and allowance are just the tip of the President's compensation iceberg. For starters, there's a 55,000 square-foot house on 18 prime acres of Washington real estate that Zillow.com estimates would rent for $1,752,296 per month. (The tax alone on the value of that rent is $7.36 million per year.) There's also a rustic cottage just outside DC, staffed by the U.S. Navy and Marine Corps, that he uses as a vacation retreat.Next, there's security. Plenty of CEOs and celebrities hire bodyguards to ward off real or imagined threats. And that security may be tax-deductible. (Hard for the IRS to collect tax on your income if you're not alive to earn it.) But the President's Secret Service protection is tax-free, and his guards are the best of the best. While the exact value of the President's protection is a closely-guarded secret, the House of Representatives voted $113 million in funding for the 2012 campaign.

Those of you travel often will probably agree that the President's most valuable perk is the privilege to fly without the usual TSA "perp walk." CEOs typically fly Gulfstreams, Bombardiers, and similar aircraft, with barely enough headroom to stand up straight. The President, on the other hand, enjoys not one, but two fully-loaded 747-200Bs, both equipped with executive stateroom, office, conference room, and state-of-the-art navigation and communications systems that let him conduct business in the air, even if the country is under attack. (The term "Air Force One" doesn't refer to a specific plane — it's the official air traffic control signal for any aircraft carrying the President.) Corporate jets typically carry a dozen passengers and cost $3,000 to $6,000 per hour to operate, while Air Force One carries 102 passengers and crew and costs a whopping $181,000 per hour.Then there are the "little" perks that ease the stress of leading the free world. The fawning staff. The private chefs. The first-run movies, delivered straight to your own "media room." Fully tax-free, of course . . . who can even figure out how to tax them?The perks won't stop when the President leaves office. As with all former Presidents, he'll enjoy a pension equal to a Cabinet-level salary (currently $199,700). He'll enjoy continued Secret Service protection, for himself and his family, for 10 years from the date he leaves office. He'll get reimbursed for staff, travel, and office expenses. And he'll be able to earn a small fortune writing memoirs and giving speeches — although that fortune will be fully taxable.Most of us would agree that any President earns every dime we pay him, whether that income takes the form of salary or benefits. But you don't have to be President of the United States to profit from tax-free perks and benefits. Helping you make the most of those opportunities for your business is a big part of our business. Call us for a plan that makes the most of your opportunities!

Tax Code Runs Deep

American capitalism has produced generations of great brand names, and Chevrolet is one of the most iconic. Swiss race car driver Louis Chevrolet founded his car company in 1911, then sold it to his partner just four years later. General Motors acquired the company in 1918, and positioned Chevrolet as an everyman's car to compete with Ford's Model T. The company prospered through the 1950s and 60s, producing the legendary Corvette among other models. More recently, Chevy was caught in the economic downturn of 2007-2010, leading to General Motors bankruptcy reorganization. But GM and Chevy rebounded quickly, and now actually are in one of the strongest periods in their history.
Right now, Chevrolet is running a truly bold marketing campaign for our era of skeptical consumers. Their "Love It or Return It" campaign lets you buy any new Chevy through September 4 — and, as the name implies, if you don't love it, you can actually return it. There's fine print, of course. You have just 60 days to decide, and you can't drive it more than 4,000 miles. Oh, and — you knew the tax angle was coming, right — "you may be subject to federal, state, or local tax on any benefit paid."
Huh? Tax on a benefit? What "benefit" is there in returning a car you decide you don't like?
Well, as so often happens with a question like this, the answer is, "it depends." Let's say you take delivery of a new Corvette. (Red, of course.) The manufacturer's suggested retail price on a base coupe is $49,600. You drive it off the lot, confident you're behind the wheel of your dreams. But soon you get tired of the 430-horsepower V-8, the 4.2-second 0-60 acceleration, or the standard leather 6-way power seats. So after 60 days and 3,999 miles, you take it back.

You've always heard that cars lose half their value the minute you drive them off the lot, right? Well, that's an exaggeration — but "your" Corvette is still probably worth $8,000 less than than what you paid for it. So if you get a full refund, have you just realized $8,000 in income? And if you used the car for business, do you have to recapture anything you depreciated?

Let's take another example. You're an environmentally responsible driver, but you can't afford the sexy new Tesla Model S. So you settle for a $40,000 Chevy Volt. You gleefully claim the $7,500 plug-in motor vehicle credit. And again, after 60 days and 3,999 miles (but only a couple of tankfuls of gas), you return it and get your $40,000 back. Now what? First off, have you even kept the car long enough to claim the credit? And as with the 'Vette, if you owe tax on the "benefit"... what is that benefit? That credit reduces your "basis" in the car to $32,500, so how much tax you owe on the difference depends both on what the car is worth and whether you get to keep the credit! (Oy!)
Washington knows how important the auto industry is to our economy, so the tax code is full of incentives to drive sales. This credit is just one example. Business owners have long known of another one — which is that buying a truck in December can make for some nice year-end planning. Then there was 2009, when we saw a limited-time above-the-line deduction for state and local sales and excise taxes on new car sales. And in that same year, the much-mocked "Cash for Clunkers" program generated $2.877 billion in rebates on 690,114 vehicles, too. So don't be surprised if the IRS really does pay attention to these sorts of questions!

We want you to enjoy the freedom of the open road — especially if it means a sweet convertible with the wind in your hair. But — especially if you use your vehicle for business — we want you to make smart choices. So call us before you trade in your old ride, and let us help you get the most out of your wheels!