Always in Fashion

She's a long-haired European exotic beauty. She lives a life of glamour and luxury that most of us can only dream of. She has 300,000 followers on Instagram. She's earned $3 million in royalties and endorsements. She's launched fashion lines, and been the subject of two books. Oh, and she has absolutely no idea how much she pays in taxes, and she wouldn't care if she did.

Who is this gorgeous creature? Is she latest supermodel sensation, posing for the Sports Illustrated swimsuit cover on a deserted Croatian beach? Is she Kim Kardashian's newest best friend? Perhaps she's about to star in the next James Bond movie? No, no, and no. Her name is Choupette, and until fashion icon Karl Lagerfeld died last week at age 85, she was his . . . cat. She's also Lagerfeld's heiress, which may make her the richest cat in the history of her species.

Lagerfeld cut an instantly recognizable figure with his trademark white hair, black sunglasses, fingerless gloves, and starched collars. He's credited with breathing life back into France's House of Chanel by revamping their ready-to-wear line after the death of founder Coco Chanel. His efforts earned him a fortune estimated at $200 million. But he died childless, with no partner and no obvious heir. Enter Choupette . . . who gets enough money to pay for all the Little Friskies she can eat for the rest of her life!

Leaving money to pets is more common than you think. It's not a great tax-planning move because bequests to pets — unlike those to spouses or charities — are subject to estate tax, which starts at 40% on amounts over $11.4 million. But plenty of people love their animals more than their families. Michael Jackson left $2 million for his pet chimp Bubbles. And hotel heiress Leona Helmsley, who served 19 months in prison for tax evasion, left $12 million for her dog Trouble. (That's more than some of her grandchildren got!)

Obviously, the money doesn't go to the animals. (Can you imagine standing in line behind a cat trying to use an ATM, or writing a check to pay for groceries?) It goes to a trust, with an actual person controlling the money for the benefit of the animal. In 2016, Minnesota became the last state in the country to authorize pet trusts. Many of those statutes even dispense with the usual "rule against perpetuities" limiting them to 21-year terms, making them appropriate for longer-lived animals like horses or parrots.

Sadly, there's one complication standing in the way of Choupette getting her paws on her inheritance. She lives in France, where pets are property, and can't legally inherit anything themselves. (Has PETA been notified?) They can't even benefit from a trust. So Lagerfeld would have to leave Choupette's money to a nonprofit organization or a trusted friend to take care of her.

And that, in turn, brings up one final question: who inherits Choupette's fortune when she dies? France has the highest inheritance tax in Europe, with rates running up to 60%. And while cats may always land on their feet, they can't hire estate-planning attorneys. (While we're on that topic, does having nine lives mean Choupette gets to pay the tax nine times?)

We realize you haven't earned millions in royalties from licensing your image. But if you had, you'd probably want to keep as much of them as you can. So call us, and discover just how stylish tax planning can be!

And the Oscar Goes To . . . the IRS!

Oscar night is the biggest night in Hollywood. The stars shine just a little bit brighter. The red carpets stretch just a little bit farther. And the bloated egos get just a little bit bloatier, if that's possible. (Here's looking at you, Bradley Cooper.) Ironically, fewer and fewer of us tune in to the actual ceremony. Why give up hours of your life watching celebrities congratulate each other when you could fit a couple of full-length movies in the same length of time?

Nominees for the top five prizes — Best Actor, Best Actress, Best Supporting Actor, Best Supporting Actress, and Best Director — bring an extra guest to the party, in the form of the IRS. It's not because they take home any actual cash. It's because they leave with an "Everyone Wins" swag bag assembled by Distinctive Assets, a product-placement company that's not affiliated with the Academy of Motion Picture Arts & Sciences, but also not afraid to hitch their wagon to Oscar's relentless publicity machine.

Distinctive Assets has never been shy about promoting the value of their bag. In 2016, the collection, which included a 10-day trip to Israel, a 15-day "Walk Japan" tour, a year's worth of Audi rentals, and a 10,000-meal donation to the animal shelter of the donor's choice, crossed the $230,000 line. That sounds like a lot to the average fan. But it may not mean that much to the stars who can make north of $20 million per picture.

Of course, calling the bag a "gift" doesn't actually make it a gift. That's where the IRS comes in. The tax code defines a gift as something you get out of affection or respect. And while the Avaton Luxury Villas Resort in Greece may have really liked watching Christian Bale retreat to an undisclosed location in Vice, the real reason they're comping him a week at the beach is to attract new guests. So . . . the swag bag is taxable income. In fact, Distinctive Assets even sends the nominee a Form 1099 reminding them to report it!

This year's bag includes the usual collection of glamour vacations, including a small-ship cruise to Iceland, the Galapagos, the Amazon, or Costa Rica & Panama. You'll also find the sort of only-in-Hollywood treats you would expect: Coda Signature gift boxes with cannabis-infused hand-painted truffles and chocolate bars, private phobia-relief sessions with the world's #1 phobia expert, a CloSYS "spa kit for your mouth," and a PETA spy pen to help blow the whistle on animal abuse.

But this year, there's no price tag. "A great gift has nothing to do with the retail value," Distinctive Assets founder Lash Fary said in a statement. "For years we have been breaking one of the cardinal rules of gift giving by disclosing the price tag. Instead, we are trying to start a new tradition by simply celebrating the fun and festive nature of this legendary gift bag." (Of course, they'll still be declaring an amount on those 1099s they send next January.)

What if Best Supporting Actor Mahershala Ali doesn't want the tax headaches that come with his goodies? He can always give some to charity. (Does he really need the Blush & Whimsy limited-edition rose gold lipstick?) But he still has to report the value of anything he re-gifts in his income before deducting it as a charitable gift.

Last year, the Academy proposed a new award for Outstanding Achievement in Popular Film. It would be the first new category since Best Animated Feature in 2001. And it gives us hope that, someday, they'll add an Oscar for Best Performance in Tax Planning. Wouldn't that be great? We'll keep you posted and let you know when to look for us on the red carpet!

Don't Worry, No One Will Notice

Would anyone in their right mind sit down from scratch and develop the tax withholding system we have today? The IRS publishes tables telling employers how much to take out of everyone's paycheck, depending on their income, their filing status, and the amount they guesstimate they'll be claiming in deductions and credits. Then, at the end of the year, employees file their actual returns and hope it's the IRS coming out on the short end.

Lots of Americans use the tax withholding system as a piggy bank. Yes, letting the IRS hold your money for a year amounts to giving them an interest-free loan. And no, they won't do the same for you. But with savings accounts paying just a hair over 1% right now, plenty of taxpayers decide the forced discipline is worth more than the interest they give up.

In 2018, the average refund amounted to $2,782, which is enough to cover some bills, take a nice weekend trip, or maybe redo your family room for big-screen TV nirvana. But one enterprising 29-year-old named Christopher Blanchett found himself in a position to snag a refund worth writing home about. And when you hear his story, you'll realize that sometimes these stories of ours just write themselves.

Two years ago, Blanchett sat down to file his return. He had a W2 from a Sizzling Platter restaurant where he worked in Utah reporting $1,399 in income and zero withholding. And somehow, he had a W2 from a Tampa nursing home showing $17,098 in wages and a million dollars in withholding. But where you or I might have thought, "hmmmm, something looks off," Blanchett smelled opportunity — and he chose not to look his gift horse in the mouth.

So Blanchett chose to file his return with a straight face, based on those W2s. In due time, the IRS sent him a check for $980,000. He took that check and deposited in Sun Trust Bank. Sun Trust suspected fraud (ya think?), froze the funds, and eventually sent the money back to him. So Blanchett took that check and deposited it into a credit union, as one does, "falsely representing that the funds were from the estate of his deceased father."

And what did Blanchett actually do with his new-found wealth? He bought himself a used Lexus RC 350 sport coupe. Now that's not a car to sneeze at. The Wall Street Journal calls it "a capering boulevardier with a soundtrack of cute, kitteny growls." You can get one with all-wheel drive, heated leather seats, and Apple Carplay® integration. But really . . . a Lexus? That seems like an awfully mild play for a seven figure score. (Seriously, you'd think at least part of that windfall would find its way to a Ferrari dealer.)

By that time, the IRS had realized maybe there was a problem with a guy getting back 53 times his income in a refund. Last month, they seized $919,251 that was left in his bank accounts, along with the Lexus. And they're looking to take $809.94 that Blanchett's insurance company refunded him when he canceled the coverage on the Lexus. (Kinda like the Grinch taking the last can of Who Hash, right?) Prosecutors haven't filed charges against Blanchett, at least not yet. But it's a fair bet this story won't end well for him.

There's no real lesson in today's story, other than don't be a bonehead. But there's a great way to give yourself a nice refund, and you won't risk the IRS showing up with a tow truck and making off with your wheels. That answer, of course, is planning. So call us when you're ready to save, and enjoy the ride!

No Business Like Shvo Business

The lights of Broadway have long shone bright as the show business capital of the United States. (Hollywood may have the movies, but it's just not the same. And Vegas? Puh-leaze.) New York theatres attract millions of visitors and billions of dollars every year. Naturally, sharp New Yorkers have co-opted show business tactics to promote all sorts of unrelated businesses. So now, we have fashion-as-theatre, restaurants-as-theatre, and even real-estate-as-theatre.

Michael Shvo may be the most theatrical real estate guy of all. He started out as a brash Manhattan broker, squiring buyers in a chauffeur-driven limo and trademarking the slogan, "Let's Shvo." He enlisted celebrity designers like Giorgio Armani and musicians like John Legend to help sell showy condos to showy buyers. Now he's reinvented himself as a developer, with current projects designed to make everyone else's projects look like college dormitories, or maybe Soviet-bloc worker collectives.

Shvo is also a noted art collector who favors paintings by Andy Warhol and sculptures by Francoise-Xavier and Claude Lalanne. He paid $14 million to combine two 68th floor condos overlooking Central Park, then stuffed the resulting 4100 square feet full of treasures. (The living room rug is beaver fur.) He dropped another $6 million on an all-white Hamptons house to stuff with more treasures that wouldn't fit in the Manhattan pad. And he's currently developing a 50-acre private island resort in the Bahamas.

So we know that Shvo likes buying showy stuff. It turns out, though, that he doesn't like paying tax on it. Back in 2016, Manhattan District Attorney Cyrus Vance, Jr. indicted Shvo on 28 counts of criminal sales tax fraud. And on April 26, he plead guilty to two of those counts. "Michael Shvo's brand of tax evasion was an art form unto itself," said Vance. "Through ornate ruses — like creating a sham Montana corporation to avoid taxes on a Ferrari — the defendant dodged more than a million dollars in state and local taxes."

Shvo's favorite ornate ruse involved a Cayman Islands company called Shvo Art, Ltd. He told the galleries and auctioneers who sold him art, furniture, and jewelry that he was shipping his purchases to the Caymans, where there would be no tax. Instead, he sent them instead to his Fifth Avenue office or one of his homes.

As for the Ferrari — a 458 Spider that stickers at $230,000 — Shvo set up a Montana LLC to buy it and register it. But he actually drove it in New York, which made it subject to the Empire State's use tax. (Montana has no sales tax and lets LLCs register vehicles, which makes the "Montana license plate scam" a favorite for high-end vehicle buyers. Of course, the rest of the states generally fail to see the humor in that move — California even has a special website for ratting out vehicles with out-of-state plates.)

The guilty plea calls for Shvo to pay $3.5 million in taxes, penalties, and interest. But something tells us he's not particularly worried about his sentencing, scheduled for June 7. After copping his plea, Shvo and his wife, a Turkish actress and model known for her vast collection of one-of-a-kind Barbie dolls (including one dressed by designer Christian Louboutin), left court in a $400,000 Rolls-Royce.

We tell quite a few stories here about celebrities who don't seem to understand the difference between a "tax plan" and a "felony." Sadly, the moral is always the same: you don't have to cheat to pay less. You just have to call us. So what are you waiting for? The curtain is ready to rise on real savings!

Where Does Cardi's Money Go?

The rapper Cardi B grew up in the South Bronx's Highbridge neighborhood, where the median family income barely tops $27,000. Cardi, born Belcalis Armanzar, couldn't wait to get out. She spent much of her time at her grandmother's home across the Harlem River in Washington Heights. By age 23 she released her debut video and album. Last year she joined the A-list with her hit "Bodak Yellow," where she raps about being rich and arriving at "the club" in a Rolls-Royce Silver Wraith.

Apparently, Cardi really is stacking some nice paper. On March 22, she recorded an angry rant demanding to know where her tax dollars go. "So you know the government is taking 40% of my taxes. And, Uncle Sam, I want to know whatchyou doing with my [gerund favored by rappers] tax money. Because, you know what I'm saying? When you donate, when you donate to a kid from a foreign country, they give you updates of what they're doing with your donation." She complained about rats infesting New York City's subway, and concluded, like any good auditor, "I want receipts."

Cardi does have a point here. If you give to a group like Save the Children, you'll get letters from the child you're helping. It's too bad Cabinet secretaries don't write taxpayers detailing where their dollars go. ("Dear Taxpayer: I write to tell you that I dropped $31,000 for a dining room table and millions more for private jet rides.")

Fortunately for Cardi, it's easy to find exactly where each federal spending dollar goes. (One caveat: it's not entirely accurate to talk about where "tax dollars" go because the government spends almost $1.20 for every dollar it takes in.)
•The biggest chunk — 23 cents out of every dollar — goes to Social Security. Now, Cardi is just 25, so she's probably not spending much time worrying about retirement, but she can take satisfaction knowing at least some of that will make its way back to her grandmother in Manhattan.

•Medicare and other healthcare services take 13 cents each. In fact, more than two-thirds of every tax dollar goes towards various social insurance programs, which also include unemployment compensation, veterans' benefits, and the like.

•National defense takes 15.3 cents out of every dollar. Interest on the national debt eats up six cents more. And education takes another three cents.

•That leaves just six cents out of every dollar to cover everything else. That total includes all the perennial punching bags that budget hawks love to attack, like foreign aid (one penny per tax dollar), the Corporation for Public Broadcasting (1.2 hundredths of a penny), and the much-maligned National Endowment for the Arts (four thousandths of a penny).


We're willing to bet that no matter where your tax dollars go, you'd like to see less of them going there. So don't just criticize like Cardi B. Call us for a plan, and we'll give you something to dance to!

Ooops!

Back in 1985, a group of ambitious lawmakers set out to reform the federal income tax code. House Ways & Means Chair Dan Rostenkowski introduced the legislation. (This was before he became inmate #25338-016 at the Oxford Federal Correctional Institution.) Congress held dozens of hearings, cast 29 roll call votes, and debated 111 amendments on philosophical questions like Dan Quayle's proposal "to provide that the period during which an individual is in the United States competing in a charitable sporting event shall not be taken into account in determining whether such individual is a resident alien."

Ten months and 18 days later, President Reagan signed the Tax Reform Act of 1986 into law. Two years after that, Congress passed a "technical corrections" bill to fix hundreds of drafting errors that made it into the final text.

Fast forward to 2017. Technology and the internet have made everything faster, right? That includes legislation, of course. On November 2nd, House Ways & Means Chair Kevin Brady introduced the Tax Cuts and Jobs Act. There were zero hearings, handwritten amendments in the middle of the night, and a quick "never mind" when Senators realized they had accidentally killed the Research & Development credit.

On December 22 — just 50 days later — the President signed the bill into law. That's less time than it usually takes to rename a post office after a local school board member. Now those lawmakers may be rediscovering something their grandmothers told them back when they were little: namely, "marry in haste, repent in leisure." It turns out Congress may have skipped ahead to the bottom of their homework a little too quick, and made a teensy-weensy boo-boo or two along the way.
•The cut in the top corporate tax rate, from 35% to 21%, happened to give big grain producers like Archer Daniels Midland a big advantage over smaller farmers. So a couple of agriculture-state senators tried to level the playing field by giving producers who sell to co-ops the same 20% "qualified business income" deduction as other pass-through businesses. Unfortunately, they let those farmers deduct 20% of their gross sales when they wanted to let them deduct 20% of their taxable income. Big difference. Can Congress pass a fix?
•Lawmakers wanted to give restaurant owners and retailers a tasty break for renovation expenses by letting them deduct so-called "leasehold improvements" over 15 years. Instead, they made it 39 years. Restaurant lobbyists understand this was an honest mistake, like overcooking a steak. But, same as you can't UN-cook an overdone slab of beef, there's no easy "do-over" to fix the problem short of amending the actual law.
•Even the giant multinational corporations you would expect to applaud the new lower rates are howling over "base erosion" rules, intended to stop them from playing games by shifting profits offshore to avoid taxes here. (Trust us, you don't want to know the details.) It's hyper-technical stuff, but there are big dollars at stake. Can you even imagine how many lawyers will buy new Jaguars with the money they bill for "taxsplaining" what Congress really meant in court?


Drafting errors and "technical" corrections certainly make tax planning harder. But they don't make it any less important. We can't let the perfect be the enemy of the good. So call us when you're tired of wasting money on taxes you don't have to pay, and let's see if we can show Congress how to do it right.

IRS Investigates Pot of Gold at End of Rainbow

St. Patrick's Day is here, and every "Irish for a day" tippler in your social circle will take advantage of this convenient excuse to haul grandma out of the house for a little day-drinking. (It seems unnecessary on a Saturday, but whatever.) Faux-Irish saloons across America are tapping kegs of Guinness, pouring shots of Jameson, and covering their walls and ceilings in every Celtic cliche they can find: the shamrocks, the hats, the green beads, and of course, the leprechaun jealously guarding his pot of gold at the end of the rainbow.

Now, leprechauns are usually pretty happy little fellas. Wouldn't you be happy if you found a pot of gold in some misty bog? But this isn't always true, as you'll see if you look at the University of Notre Dame "Fighting Irish" mascot. Have you ever wondered why that little guy is so hostile? Maybe it's because he just discovered the IRS wants a share of his stash!

Unfortunately for our diminutive Hibernian friend, the tax code has all sorts of special rules to help the IRS dig their hands deeper into his treasure:
•Code Section 61 defines gross income as "all income from whatever source derived." The code does go on to carve out all sorts of exclusions from this broad definition. For example, Section 101 excludes life insurance death benefits and Section 105(b) excludes employer-provided health benefits. Unfortunately, there's no exclusion for pots of gold at the end of the rainbow. (Sounds like the National Organization of Leprechauns needs to hire some better lobbyists!)

•Income received in the form of property is taxed under the rules of Code Section 83(b). Generally, the finder owes tax on the fair market value of property as of the date it's found. In the case of gold, where there's a public market to establish value, our leprechaun takes the average of the highest and lowest quoted trading prices for the yellow metal on the day he finds his treasure. If he finds it on a weekend, he'll need to take the average price for the Friday and Monday bookending the day he finds it.
•Gold is considered a capital asset. This might seem like good news, as gains are generally taxed at preferential rates capped at 20%. However, precious metals are classified as "collectibles," making them subject to special higher rates of up to 28%. Gains on gold are also subject to the 3.8% "net investment income tax" for leprechauns with adjusted gross income above $200,000 (single filers) or $250,000 (if filing jointly with Mrs. Leprechaun).
•Finally, there's a special prohibition against holding gold coins in IRAs or other retirement accounts. This may not sound like a big deal at first. However, Irish folklore holds that leprechauns live for 300 years, which makes saving for retirement especially crucial.
Now, don't go feeling too sorry for your pint-sized prospector. After-tax gold isn't as much fun as pre-tax gold. But it's still better than no gold at all. And with gold currently trading at $1,300 per ounce, there's plenty in the pot to pay for good tax-planning help. Conveniently, that's where we come in. So call us when you're ready to pay less. Don't count on finding a four-leaf clover when you can follow the rainbow to a plan!