The Endangered Species List

On September 1, 1914, "Martha," the last remaining passenger pigeon (ectopistes migratorius), died at the Cincinnati Zoo. On September 7, 1936, "Benjamin," the last Tasmanian tiger (thylacinus cynocephalus), died at Australia's Hobart Zoo. And on June 24, 2012, "Lonesome George," the last living Pinta Island tortoise (chelonoidis nigra abingdoni), died in Ecuador's Galapagos National Park.

When you think of endangered species, you naturally think of plants and animals. But the IRS has its own endangered species list (called "listed transactions"), and that means sometimes even tax strategies go extinct. So, for example, in October, 2006, the last grandfathered private annuity trust was formed. On April 10, 2007, most so-called "Section 419(e)" plans were shot down. Now, could the venerable Swiss bank account (bankum secretus strongius) be next?

Switzerland's banking laws have long made it a crime to reveal an account holder's name. At the same time, Swiss authorities have historically refused to cooperate with foreign countries where failure to report taxable income is concerned. Together, these policies made Switzerland the banker of choice for Colombian druglords, Sub-Saharan kleptocrats, Russian oligarchs, and even the so-called "Wolf of Wall Street," Jordan Belfort.

But recently those protections have melted away like so much Swiss chocolate sitting in the bright alpine sun. It started back in 2008 when Bradley Birkenfeld, a mid-level banker, blew the whistle on helping American taxpayers "forget" to report millions of dollars of interest income. Birkenfeld's bombshell landed him a 40-month prison sentence and a $104 million reward from the IRS. A year later, the Department of Justice fined the biggest Swiss bank $790 million and cut a deal with the Swiss government, giving them power to force their banks to disgorge information on American depositors almost on demand. In 2012, an even stronger settlement required 300 Swiss banks to identify their American account holders or face their own penalties. Most recently, "Beanie Babies" creator Ty Warner pled guilty to evading $5 million in tax and agreed to a $53 million fine — and still faces four years in jail.

And now? Well, some observers say that Swiss banks are actually doing the IRS's job for them. Better to rat out clients than pay IRS fines! Banks are pressuring Americans to report their accounts, and even freezing accounts unless clients can prove they're playing by the new rules. U.S. attorneys are generally advising clients with secret accounts to 'fess up now before the IRS finds them and penalizes them 50% of their balances. At this point, attorneys say, discovery is a matter of "when," not "if." That message appears to be hitting home. Since 2009, over 38,000 Americans have come forth and paid over $5 billion in taxes, penalties, and interest. The once-celebrated Swiss bank account appears headed the way of the dodo, as far as U.S. tax cheats are concerned.

Look, we understand that everybody wants to pay less tax. But there's a right way to do it and there's a wrong way to do it. The right way is to take advantage of hundreds of legitimate deductions, credits, and strategies contained in the tax code and treasury regulations. And it all starts with a plan. We can give you that plan, and it doesn't involve a trip to Zurich or Geneva to visit your money. So call us now to see how much you might be overpaying. And if you really like cuckoo clocks, fine watches, and yodeling, you can take a legitimate trip with the savings!

Test Your Tax Knowledge

They say that knowledge is power, and that's especially true with taxes. So here's a quick quiz to test your tax knowledge in 2014. But look out — the questions (and the answers) might not be what you expect!:

We'll start with an easy one. Last year's "fiscal cliff" legislation raised the top marginal tax rate to 39.6%. What's the top effective rate?

A. 39.6%
B. 43.4% (39.6% plus 3.8% Medicare tax)
C. >43.4% (depending on "PEP" and "Pease" phaseouts)

Give up? It's a trick question — all three answers can be correct, depending on your own circumstances!

Alright, let's shift gears a bit. The tabloids love running stories about celebrities who run into tax trouble. After all, if they make so much money, shouldn't they be able to afford their taxes? So here's our next question — which of the following sets of celebrities ran into tax trouble in 2013?

A. Boxer Manny Pacquiao, rapper MC Hammer, and racecar driver Juan Pablo Montoya
B. Actor Stephen Baldwin, singer Lauryn Hill, and "Beanie Babies" creator Ty Warner
C. Actor Al Pacino, rapper Fat Joe, and "Real Housewife of New Jersey" Teresa Giudice

Well, which did you pick? The answer is, another trick question — every single one ran into tax problems last year!

Okay, final question. We know that tax laws can be impenetrably dense and hard to understand. So maybe "context" will give you a hint. Which of these passages is taken from the 2013 fiscal cliff act, and which is taken from California's workers' comp regulations?

A. "Notwithstanding any other provision of law, any refund (or advance payment with respect to a refundable credit) made to any individual under this title shall not be taken into account as income, and shall not be taken into account as resources for a period of 12 months from receipt, for purposes of determining the eligibility of such individual (or any other individual) for benefits or assistance (or the amount or extent of benefits or assistance) under any Federal program or under any State or local program financed in whole or in part with Federal funds."

B. "In the case of covered OPD services furnished on or after April 1, 2013, in a hospital described in clause (ii), if— (I) the payment rate that would otherwise apply under this subsection for stereotactic radiosurgery, complete course of treatment of cranial lesion(s) consisting of 1 session that is multisource Cobalt 60 based (identified as of January 1, 2013, by HCPCS code 77371 (and any succeeding code) and reimbursed as of such date under APC 0127 (and any succeeding classification group)); exceeds (II) the payment rate that would otherwise apply under this subsection for linear accelerator based stereotactic radiosurgery, complete course of therapy in one session (identified as of January 1, 2013, by HCPCS code G0173 (and any succeeding code) and reimbursed as of such date under APC 0067 (and any succeeding classification group)), the payment rate for the service described in subclause (I) shall be reduced to an amount equal to the payment rate for the service de scribed in subclause (II)."

Drumroll, please . . . the answer is, it's another trick question — both examples of sterling prose appeared in the fiscal cliff law! (Quit complaining about the trick questions — it's a tax quiz, after all!)

Don't be upset if you didn't get all three questions right. (Nobody else did, either!) Fortunately, there isn't any real money at stake. But that won't be true come April 15. So call us now for the plan you need to come up with the right answers in 2014!

Resolutions We'd Like to See

2014 is here, and it's time for New Years' resolutions. Americans across the country are pledging to lose weight, quit smoking, exercise, and find new jobs. Some of them will succeed, others will lose faith before the first snow melt. (Want to make a fortune? Open a gym that turns into a sports bar on February 1!) So we thought we would take this opportunity to suggest some resolutions to the folks who determine how much tax we pay.

• Congress: Put the Tax Code on a diet. According to one count, our tax code runs nearly 4 million words. That's four times the words in all the Harry Potter books put together, with none of the magic and wizardry. (You may think we work a version of the "obliteration charm" when we save you thousands in tax, but we assure you there's nothing supernatural involved.) We say it's high time to put the Tax Code on a diet — and if that doesn't work, try bypass surgery. We can raise just as much money for the government without dragging down the economy the way the tax code does.
  
  The problem, of course, is that there's no agreement in Washington to accomplish anything so ambitious. Our current Congress is widely considered to be the least productive in history, at least if you consider "bills passed" to be the right measure of productivity. House Speaker John Boehner has said that Congress should be measured by how many bills they repeal — if he's serious, maybe he can start with nightmares like the Alternative Minimum Tax, the Earned Income Tax Credit, and the passive activity loss rules.

  Back in 1986, Ronald Reagan cited the following language from the tax code (defining private foundations, if you're curious), to help make his case for comprehensive tax reform: "For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501(c)(3)." Congress has passed a dozen "tax simplification" laws since then, and the language Reagan cited still remains. (Congress must have spent their time working on the really confusing stuff!)
• IRS: Focus on customer service. Fighting IRS red tape makes a trip to the DMV look like a stay at a five-star hotel. The average hold time to speak to someone at the agency rose to 17 minutes in 2012, but the percentage of callers who actually get help fell to 68%. Mail is even slower — nearly half their correspondence takes more than 6½ weeks to answer. No private-sector business would accept those kinds of results.
  
  The problem here is that the IRS simply has an impossible job. They don't make the tax laws, but get blamed for them just the same. They don't get the budget they need to do their job, but get blamed for falling down on it just the same. (For Fiscal 2011, the IRS collected $2.52 trillion in tax with a budget of just $11.8 billion, which makes a pretty phenomenal return on investment of 214:1.) Few members of Congress want to be known for giving the IRS more money. But funding for basic technology and customer service shouldn't be nearly as hard a case to make as funding for more aggressive enforcement.

As for us, we're resolving to bring you even better, more proactive tax advice. That process starts with a comprehensive plan to take advantage of every deduction credit, and strategy you legally deserve. If you don't already have one, maybe you should make getting one your resolution for 2014!

Thoughts on Taxes for 2014

2013 has been a big year for taxes. The "fiscal cliff" deal boosted the top federal income tax rate to 39.6%; "Obamacare" added new taxes on top earners; and dozens of state and local governments raised their taxes, too. Congress will finish 2013 even more divided than it began, which will probably protect us from new taxes next year. But here are some quotes to ease the sting of this year's higher bills:

"[A tax loophole is] something that benefits the other guy. If it benefits you, it is tax reform."
Sen. Russell B. Long (D-LA)

"The Eiffel Tower is the Empire State Building after taxes."
Anonymous

"Our party has been accused of fooling the public by calling tax increases 'revenue enhancement.' Not so. No one was fooled."
Dan Quayle

"When we played, World Series checks meant something. Now all they do is screw up your taxes."
Hall of Fame pitcher Don Drysdale

"When it comes to finances, remember that there are no withholding taxes on the wages of sin."
Mae West

"The question is: What can we, as citizens, do to reform our tax system? As you know, under our three-branch system of government, the tax laws are created by: Satan. But he works through the Congress, so that’s where we must focus our efforts."
Dave Barry

"Late one night, just blocks from the Capitol, a mugger jumped into the path of a well-dressed fellow and stuck a gun in his ribs. 'Give me your money,' the thief demanded. 'Are you kidding?' the man said. 'I’m a U.S. congressman.' 'In that case,' the mugger growled, cocking his weapon, 'give me my money.'"
Playboy Magazine

"A government which robs Peter to pay Paul can always depend on the support of Paul."
George Bernard Shaw

On a more serious note, we wish you all the best this holiday season, and we look forward to serving all your tax-planning needs in 2014!

The Naughty List

Christmas is almost here, and that means millions of parents across America are telling their kids to behave themselves or risk winding up on the "Naughty List." (Admit it — if you've got kids, and you celebrate Christmas, you've done it yourself.) But while kids may be on their best behavior, grownups sometimes fail to make the connection between their own behavior and what Santa leaves under the tree. This is especially true when it comes to taxes! Misbehave there, and you risk a lot more than a lump of coal. So here are four cautionary tales to consider as the holiday approaches.

• Joel Grasman worked as an electrician for the Metropolitan Transit Authority in Long Island. He and his wife owed the IRS $10,000 in tax for failing to report a loan from her pension. So, late one night, Grasman snuck into the yard where he works to steal some welding machines to pay off that debt. He loaded the machines onto his truck just fine, but forgot to lower the long boom on the truck before driving off to store the machines at his brother's garage. Uh oh. “I wanted to get out of there before I attracted any attention and I forgot to put the boom down,” he told the New York Post. “I started driving and then I started to see sparks of light in the sky.” Turns out he had taken down a bunch of power lines, causing an estimated $2-3 million in damages, and leaving 6,100 people without power for their Christmas lights and blinking yard Santas.
  
• Yetunde Oseni was a 37-year-old secretary working for the IRS in Maryland. Like many of us, Oseni loved shopping online, especially on Amazon.com. From 2009-2013, she stuffed her stockings with $8,515 worth of treats, including a chocolate fondue fountain, Bollywood movies, Pampers, Harlequin romance novels, Omaha Steaks, Apple Bottoms skinny jeans, mango body wash, and even a Ginsu knife set. She might still be enjoying her presents now if she had used her own credit card to pay for them. But the IRS gave her a CitiBank MasterCard to pay for office supplies, and it must have been just too tempting. Now she's looking at ten years in a cheerless gray room with no space for any of those goodies. Treasury scrooges say she may have even used her IRS computer to fake the receipts she submitted to cover up her purchases!
• Walter Trizila is a more loyal employee than Joel Grasman or Yetunde Oseni — but can he make the "Nice List"? Last November, IRS officers showed up to seize a dump truck from his employer. Trizila climbed into a front-end loader, scooped up a load of dirt, drove it towards the officers, and dumped the dirt at their feet. After pleading guilty to a misdemeanor charge of assault, he accepted three years probation — and promised to attend anger management class.
• Robert Fernandes got a great deal on a foreclosed house in Forks Township, Pennsylvania. But his wife homeschools their three kids, so he's not a fan of the school district tax. Now, you or I might just concede the value in having good public schools, even if we don't have kids using them. But not Fernandes! No, rather than just grumble privately and write the check, he marched to his local tax collectors with a stack of 7,144 dollar bills. He even brought a friend with a camera to document his stunt on YouTube (Preview) . Fernandes may not have actually broken the law here, but he's still probably going to find himself on the naughty list. (He may have realized it, too, since he brought doughnuts for the county clerk's office!)

Here's the saddest part about all these stories. You don't have to risk finding a lump of coal in your stocking to pay less tax. You just need a plan. And yes, Virginia, there is still time to treat yourself to savings before 2013 runs out. So call us before Santa loads up his sleigh to stuff your stockings with savings to last a year.

"Ardente!" is Portuguese for "Hot!"

Tax collectors generally don't choose their line of work for the pay. Glassdoor.com, a gossipy website covering salaries and careers, reports the average Revenue Agent earns $73,967. Careerbliss.com tells us the average criminal investigator earns $99,000 — which makes sense considering there's at least a chance they get shot at while working. That's not bad coin . . . but it's hardly enough to party with the rich and famous.

But what's true here in the United States may not be true in the rest of the world. Our neighbors to the south in Brazil have been transfixed lately by a sordid scandal of glitz and bling featuring — you guessed it — a gang of tax collectors, accused of helping construction companies evade over $200 million in taxes.

Our story starts, as so many tawdry stories do, with a woman scorned. Luis Alexandre Cardoso de Magalhaes met his former girlfriend, Vanessa Alcantara, at a sleazy nightclub. (She says they met when she tried to sell him a cellphone plan.) Magalhaes worked as a tax inspector for the city of Sao Paolo, earning $82,000 to oversee the city's "Imposto sobre Servicos," or service tax. He was also, it turns out, working with three other officials to help developers evade the tax. The builders delivered bags of cash with up to $30,000 every week to his office. Magalhaes would spirit the cash out of the building, and he and Alcantara would count it and divvy it up together in her living room.

And what did our young lovers do with their ill-gotten gains? Secure their retirement with a portfolio of carefully diversified mutual funds and prudently-laddered municipal bonds? (That wouldn't make much of a story, would it?) No — they blew the loot on $500 boxes of Cuban cigars, $2,260 bottles of wine, a Porsche Cayenne, and private plane rides to resorts on Angra dos Reis, an island off the coast. The couple dropped $50,000 to decorate Alcantara's apartment and splurged on $2,200 hotel suites. Magalhaes also showered up to $4,500 a night on a cavalcade of young women who valued their cash flow more than their virtue.

The party came to an end, as all parties must, when Magalhaes and Alcantara separated after giving birth to a son, and Alcantara became enraged at what she saw as a meager monthly child support offer. She sold him out to city prosecutors, and the story went straight to the tabloids. The case has even produced two brand-new celebrities — Magalhaes's new girlfriend, Nagila Coelho, a personal trainer who plans to start her own line of bikinis, and Alcantara herself, who plans to run for office. Her proposed slogan? "Being a thief is easy; I'll be honest among the thieves."

We understand that you want to pay less tax, too. But we know you're not willing to risk scandal to do it. So we give you a plan to pay less, legally. Everything we do is court-tested and IRS-approved. The best part is, there's still time to act before 2013 draws to a close. So call us now for the plan you need!

Coach's Challenge

December is here, and for millions of college football fans, that means following their favorite coach to a New Year's bowl game. In Tuscaloosa, Alabama's Nick Saban is reeling from the Crimson Tide's last-second loss to arch rival Auburn in this year's "Iron Bowl." In Columbus, Ohio State's Urban Meyer is celebrating 24 straight victories after his Buckeyes beat Michigan by just one point in "The Game." And further west, Washington's Steve Sarkisian is celebrating his Huskies win over the Washington State Cougars in the 106th "Apple Cup."

As always, these coaches and dozens more will be paying attention to the latest Bowl Championship Series standings. But this year, they'll also be paying attention to the IRS. That's because a new strategy might help them block taxes when they switch jobs.

College football coaches can make a lot of money. Alabama's Saban will make at least $5.65 million this year, and 51 coaches make more than the average pro player ($1.9 million). In 27 states, the highest-paid public employee is a football coach. Naturally, that means they pay a lot of tax. So this is more than just an academic discussion — there's a lot of money at stake.

Let's take a closer look here. Butch Jones led the University of Cincinnati Bearcats to a 23-14 record before the University of Tennessee hired him away to coach the Volunteers. As part of Jones' new deal, Tennessee paid $1.4 million to buy out his contract with Cincinnati. The Bearcats, in turned, poached Tommy Tuberville away from Texas Tech — and as part of that deal, paid $943,000 to buy out Tuberville's old contract with the Red Raiders. (Why not? They can take it from the $1.4 million they're getting from Tennessee, and still have enough left over to pay an assistant or two!)

Now, traditionally, those payments Tennessee and Cincinnati made to buy out their new coaches' obligations under their old contracts have been considered additional income to the coaches, and thus taxable to them. "What's the big deal?" you might ask. "So Tuberville recognizes $943,000 in extra income. Can't he just deduct that same amount as an employee business expense and zero out the income?" Well, yes . . . but. First, employee business expenses are a miscellaneous itemized deduction, subject to a 2% floor. (That means Tuberville gets no deduction for the amount equal to the first 2% of his adjusted gross income.) That alone would make over $60,000 of Tuberville's payment nondeductible. Second, and even worse, employee business expenses are a preference item for the dreaded Alternative Minimum Tax, which could wipe out the deduction entirely!

Back in 2007, two law school professors argued that the buyout should be treated as a nontaxable business obligation. They reached that conclusion on two grounds: 1) the school's reimbursement actually converts the coach's payment into a nonitemized deduction, which avoids the 2% floor and AMT; and 2) the payment is made for the school's benefit and not as compensation for the coach. Schools have taken notice, and both Tennessee and Cincinnati worded their new coaches' contracts to take advantage of this interpretation. As coaches' salaries and their corresponding buyout obligations go up, we should see more and more of these changes.

We realize most of you won't ever tackle these sorts of seven-figure challenges. But you still need a strong defensive line when you suit up against the IRS. That's where we come in. We give you the plan you need to keep the tax man out of your endzone. But time really is running out to save tax this season. So call us, now, before the IRS runs out the clock!