Psychologists agree that the ability to concentrate is key to achieving our goals. But today’s high-tech world is full of distractions, from thousands of cable TV channels to millions of internet sites, with smart phones constantly within reach. Some experts say our attention span is actually shrinking. So should it be any surprise that Americans have fallen in love with Twitter, the online social networking and “microblogging” site that lets users send and read “tweets” limited to no more than 140 characters?
Twitter attracted confusion (and no small amount of scorn) when it debuted in 2006 — co-founder Jack Dorsey admitted that the service is “a short burst of inconsequential information.” But there are now more than 200 million “monthly active users” posting more than 500 million tweets per day. Singer Katy Perry currently has the most followers, at 46.8 million. She’s trailed by Justin Bieber (46.7 million), Lady Gaga (40.4 million), and Barack Obama (39.5 million). Twitter’s ubiquitous “hashtag,” the pound sign (#) that denotes keywords, appears everywhere, including at the Oscars, the Super Bowl, and the floor of the U.S. Senate.
Twitter still doesn’t make any money. But that didn’t stop them from going public last week. On Thursday, Twitter issued 70 million shares at $26 each. The price nearly doubled in early trading before closing at $41.65 on Friday. And it made a lot of people rich. Co-founders Evan Williams and Jack Dorsey are billionaires. CEO Dick Costello, whose 2012 cash salary was just $200,000, is worth $300 million. All told, about 1,600 investors and employees became millionaires last week. (If you planned on buying a house or a Porsche in Silicon Valley, plan on standing in line and paying more!)
What does that all mean for our friends at the IRS? It means a #windfall, that’s what!
Twitter has granted non-executive employees over 92 million “restricted stock units” which will essentially convert to stock over the next several years. Employees will owe regular income tax of up to 39.6% plus Medicare tax of up to 3.8% on the value of those shares. They’ll owe an average of $420,000 each in federal tax!
Uncle Sam won’t be the only taxman with his hand out. The state of California can conservatively expect to collect another $300 million or more. (California is no stranger to big IPOs — Golden State officials calculated they would collect $2.5 billion over four years from Facebook’s debut.)
Not everyone is quite so happy. Two years ago, the city of San Francisco waived part of its payroll tax to keep Twitter headquartered downtown. City officials predicted the waiver would cost them $22 million over six years. Last week’s windfall could mean leaving another $34 million on the table. Of course, the City by the Bay still collects millions more than if Twitter had bugged out for the suburbs.
Who’s not paying a dime in tax? That would be Twitter itself. Of course, that’s because they haven’t made a dime in profit. In fact, Twitter has over $100 million in “net operating loss carryforwards” it can use to offset tax on future profits.
Twitter’s investors and employees have some big tax planning challenges ahead. They’re going to need more than just 140 characters to take advantage of all the legal strategies available to pay less. It works the same for you, even if you’re not America’s newest billionaire. If you want to #keepwhatyoumake, you need a plan. So call us now before December 31, when you can still do something about it!
Law reviews are scholarly journals focusing on legal issues, usually edited by students at a particular school. America’s law schools currently crank out hundreds of different reviews, which means there aren’t a lot of topics that haven’t already been covered. (Chief Justice John Roberts once said “Pick up a copy of any law review that you see, and the first article is likely to be, you know, the influence of Immanuel Kant on evidentiary approaches in 18th Century Bulgaria, or something.”) But the Iowa Law Review has just published a new article on a crucial tax topic — and it’s especially appropriate to discuss this week after Halloween. We’re referring, of course, to Arizona State professor Adam Chodorow’s groundbreaking new work, Death and Taxes and Zombies.
“The United States stands on the precipice of a financial disaster, and Congress has done nothing but bicker. Of course, I refer to the coming day when the undead walk the earth, feasting upon the living. A zombie apocalypse will create an urgent need for significant government revenues to protect the living, while at the same time rendering a large portion of the taxpaying public dead or undead. The government’s failure to anticipate or plan for this eventuality could cripple its ability to respond effectively, putting us all at risk. This essay fills a glaring gap in the academic literature by examining how the estate and income tax laws apply to the undead.”
Don’t laugh. This is 25 pages of lively prose, with 124 scholarly footnotes citing authoritative sources like Harry Potter and the Sorceror’s Stone, the noted gourmand Hannibal Lecter, and even “Slimer” from Ghostbusters. Chodorow isn’t afraid to ask the scary questions that the rest of us shy away from:
At what point does a zombie become a “decedent” for estate tax purposes? Currently, the legal definition of “death” varies from state to state, with some basing it on heart function and others on brain function. This means that zombies may not actually be “dead” in some states. Does someone who dies stay legally dead after being reanimated as a zombie?
Could it ever make sense to die for tax reasons, then come back when income or assets will be taxed at a lower rate? If so, would the IRS attack those deaths as sham arrangements?
Does someone remain married for tax purposes if they or their spouse become zombified?
What about vampires? They’re typically wealthy and sophisticated, which makes estate planning a must. And they live for centuries, which makes tax-deferred vehicles like IRAs and cash-value life insurance even more valuable.
Finally, what about ghosts? Do phantoms owe tax on phantom income?
As you can see, there’s a lot more to taxes and zombies than meets the eye. Chodorow urges Congress to create tax laws for them now, before members become zombies themselves.
Fortunately, the secret to navigating taxes in a land of walking dead is the same as navigating taxes now — it’s planning. And speaking of acting now, before it turns too late, 2013 is quickly coming to an end. December 31 may not bring a zombie apocalypse, but it will drive a stake in the heart of some of your best planning strategies. So call us for the plan you need, before it’s really too late!
It’s safe to say that people don’t like paying taxes. America was born out of a tax rebellion, and Americans have resisted every variety of tax ever since. Some of them even go as far as renouncing their American citizenship to avoid the tax man.
Expatriation sounds like an awfully big step just to pay less tax. But more and more Americans are doing it. In 1994, Campbell’s Soup heir John T. “Ippy” Dorrance III saw greener pastures in Ireland, trading what was then a 55% estate tax for Ireland’s 2%. And just last year, Facebook founder Eduardo Saverin “defriended” Uncle Sam and the IRS after moving to Singapore, potentially saving hundreds of millions in tax. Americans who give up their citizenship pony up an “exit tax” on the value of their assets when they leave, essentially paying as if they had sold everything the day before surrendering their passport. But that doesn’t stop the determined from leaving — in the second quarter of this year, 1,131 Americans bid bon voyage to their citizenship.
Americans aren’t the only ones who say “enough” to their home countries’ taxes. Sir Richard Branson, the British billionaire who founded of Virgin Group, revealed this month that he has sold his 200-acre Oxfordshire estate and moved full-time to Necker Island, his retreat in the British Virgin Islands. Now Britain’s Sunday Times has accused him of doing it to save taxes.
Branson responds that “I have not left Britain for tax reasons, but for my love of the beautiful British Virgin Islands and in particular Necker Island . . . . We feel it gives me and my wife Joan the best chance to live another productive few decades. We can also look after our health.” He adds that “I have been very fortunate to accumulate so much wealth in my career, more than I need in my lifetime, and would not live somewhere I don’t want to for tax reasons.”
Necker sounds like a pleasant-enough exile. The Balinese-inspired “Great House” boasts nine bedrooms, including a 1,500-square-foot master suite. There are six one-bedroom “Bali houses” for guests scattered about the grounds. And there are two swimming pools and two tennis courts. The island is even home to an endangered species, the Virgin Islands dwarf gecko. When Branson isn’t in residence kitesurfing or playing tennis, you can rent the whole 74 acres for the bargain rate of just £275,800, or roughly $450,000, per week. Famous guests have included Princess Diana and actress Kate Winslet, who was credited with saving Branson’s 90-year-old mother from a fire in 2011.
But Branson is clearly no dummy. (Forbes magazine ranks him the sixth-richest man in Britain, with an estimated $4.6 billion fortune.) It can’t have escaped his notice that the top income tax rate in the islands is 45 percentage points lower than it is in Britain. If you’re thinking “wait a minute, the top rate in Britain is 45%, so that means he’s paying nothing in the islands,” you’re right.
What do you think? Does Branson just prefer gentle Caribbean trade winds over dreary English winters? Or is the sunny tax climate the real lure?
Fortunately, there’s an easier way for you to pay less tax — even if you can’t afford Necker Island’s tropical paradise. Call us for a plan. We’ll show you if the new Obamacare and “fiscal cliff” taxes threaten your wallet, and show you how to protect yourself without standing in line for a new passport.
Back in grade school, you did all sorts of math problems. You started out with drills to learn your basic addition, subtraction, and multiplication. You learned long division (ugh). You moved on to fractions. And all along the way, as part of your teachers’ efforts to convince you that it all matters here in the “real world,” you did “story problems.” Remember those?
Well, now you’re all grown up, so here’s a grownup story problem to ponder:
You’re an IRS auditor, toiling away to protect the government’s revenue base. Then you decide to leave “the dark side” and start your own practice. Things start off great, but you want more. So you mock up some fake tax returns, tell some clients they owe $11 million, and have them make payments into a bogus “trust account.” Then you take the money for yourself, make some home improvements, buy a beach house in Mexico, pay to use a private plane, pay $2 million on your personal credit cards and loans, and make some investments. It’s good to be rich, isn’t it? But now there’s a teensy-weensy little problem. The IRS is on to you, your clients are hopping mad, and two of them are scheduled to testify against you! What do you do?
Well, if you’re Steven Martinez of Ramona, California, you send your limousine driver (!) to offer a hit man $100,000 to take out the clients. But you don’t just whisper some names in his ear and slink back home. Oh, no. Because you’re an accountant, you’re thorough. Right? So you surveil the victims and watch them to document their habits. You give the hit man packets with photos of the victims and their homes and detailed instructions and information about them. (How else do you think an accountant would go about whacking his clients?)
Unfortunately, Martinez should have followed his hit man, too. Then Martinez would have seen him scurrying straight to the FBI. (Oops.) It’s tough to deny the charges when the Feds have you on video, “cool and calculating,” telling your killer to buy two guns — and a silencer! (Try explaining that when it hits Youtube and goes viral!)
Last year, Martinez pled guilty to charges including murder-for-hire, witness tampering involving attempted murder, solicitation of a crime of violence, mail fraud, filing false returns, Social Security fraud, aggravated identity theft, and money laundering. (You’ve got to wonder, if he had jaywalked to meet with the hit man, would they have charged him with that, too?) On April 12, 2013, District Court Judge William Q. Hayes pretty much threw the book at him, sentencing him to 286 months in prison (plus five years supervised release if he ever makes it out) and ordering him to pay more than $14 million in restitution. Let’s see what sort of “home improvements” Martinez can make with the 11 cents/hour he makes stamping license plates!
As tax professionals ourselves, we’re appalled at how Steven Martinez betrayed his clients. We’re proud to affirm our commitment to helping you save tax within the bounds of the law — because we know just how many legitimate opportunities there are to save. We’re pleased to offer you the plan that helps you save taxes and sleep soundly at night. So call us for that plan!
People lose things all the time. Usually it’s no big deal. We misplace our phone, keys, or sunglasses — then they show up an hour or a day later, or we replace them. Sometimes it’s more serious. We lose money in a stock or a mutual fund — then we make it back over time. But every so often, someone loses big. We just hope it’s not our public officials doing the losing!
Last month, the Treasury Inspector General for Tax Administration (“TIGTA”), an IRS watchdog, released a report titled “Affordable Care Act: Tracking of Health Insurance Reform Implementation Fund Costs Could Be Improved.” That report reveals the the IRS can’t account for $67 million set aside to administer the law better known as Obamacare. Now, we’re not here to take sides in the ongoing debate over the new law. But we think even those who oppose the law would agree that the agency responsible for administering all the new taxes under that law should be able to track what it spends to do that job!
One of Obamacare’s lesser-known provisions established the Health Insurance Reform Implementation Fund (“HIRIF”) to pay administrative expenses to carry out the law. From 2010 through 2012, the IRS spent $488 million from the fund to implement the Affordable Care Act, hiring 1,272 full-time equivalent employees. TIGTA audited that spending “to determine whether the IRS has an adequate process to accurately account for and report selected ACA implementation costs charged to the HIRIF.” And what did they find?
Some costs were inaccurate or not tracked, and supporting documentation wasn’t always kept. “Specifically, the IRS did not account for or attempt to quantify approximately $67 million of indirect ACA costs incurred for FYs 2010 through 2012.”
Charges to the HIRIF were sometimes inaccurate and “not always substantiated by reliable supporting documentation.”
Finally, the IRS didn’t even bother tracking indirect costs, like rent, communications, and information technology support for employees involved in implementing the new law. “For example, while the IRS may have been able to place most new employees hired for the ACA in existing leased space, it still had to pay rent on this space, could not use the space for other purposes, and could not consider the space for inclusion in its ongoing space reduction efforts.”
TIGTA made several specific recommendations. Mind-blowing ideas, too, like cross-checking travel records against employee hours to make sure the travel is related to the purpose of the fund, keeping better records to substantiate direct labor costs, and including indirect expenses in the total cost. The IRS didn’t really have much of a defense, so they agreed with all of those recommendations. Unfortunately, the HIRIF money is all gone, so that promise doesn’t mean much!
If you’re fortunate enough to have $67 million in the first place, you’re going to want help keeping it. That’s where we come in. We give you the plan you need so you don’t lose anything to unnecessary taxes. But time is running out to get that plan before the end of the year — and if you wait too long, you’ll be losing money just like the IRS! So call us, now.
This is a big week for taxes and technology. State “insurance exchanges” are scheduled to open for business under the Affordable Care Act, which lets consumers sign up for tax-subsidized individual health insurance. The White House has already announced that technological glitches will delay online enrollment on the small business (“SHOP”) and Spanish-language sites. That’s a decidedly 21st-century, “first world” problem. So, why on earth is the IRS lassoing an 1884 law dealing with lost Civil War horses to regulate tax preparers?
Right now, there are no industry-wide rules governing tax preparers. So, back in 2011, the IRS announced their new “Return Preparer Initiative,” which required preparers to register with the IRS, pass a competency test, and take continuing education classes. The new rules apply to any tax preparer who isn’t already regulated as an attorney, Certified Public Accountant (CPA), or Enrolled Agent (EA).
In 2012, a group of preparers sued to stop the program, arguing that the IRS lacked congressional authority to enforce it. Earlier this year, Judge James Boasberg agreed, shutting down the program. Naturally, the IRS appealed. And that brings us to our horses.
After the Civil War, thousands of Americans who had lost horses in the conflict brought war loss claims against the government. A whole stable full of agents emerged to press claims for the victims, usually for a piece of the recovery. Would you be shocked to learn that some of those claims were bogus, with greedy agents representing broken-down old nags as “Sea Biscuit”-class steeds? So the government passed the “Enabling Act of 1884″ — also referred to as “the Horse Act of 1884″ — to grant the Treasury Department permission to regulate them. (You remember all of this from high-school history, right? OK, neither did we.)
Well, last week, the IRS took their appeal to court, and saddled their argument on the Horse Law. Gil Rothenberg, who argued the government’s case, said “I hate to beat a dead horse, especially one from the Civil War.” But he argued that tax preparers represent clients just like 19th-century “enrolled agents” represented theirs. Therefore, he says, the 1884 law gives the Treasury the same authority to regulate today’s tax preparers.
“Hold your horses,” say the tax preparers who filed the case! Today’s tax preparers merely provide a service to their clients. They don’t actually “represent” them before the government the same way attorneys, CPAs, and EAs all do. That makes the 19th-century law a horse of a different color, with no binding authority to today’s case.
Tax experts who observed the oral arguments report the judges sounded skeptical of the IRS’s argument. We should know sometime early next year what the final decision will be. Of course, if Congress doesn’t like the results, they can simply saddle up new legislation to hobble the Court.
We think the real question isn’t who regulates your tax professionals. We think the real question is what sort of attitude a tax professional brings to the table. Are they content to put the right numbers in the right boxes on the right forms, then call it a day? Or do they give you the plan you need to create the savings you really want? So call us for that plan. And remember, we’re here for your whole herd!
When you hear the word “tax,” you probably think of something the IRS takes out of your paycheck. Or you might think of something they take out of an inheritance. But taxes affect virtually every financial transaction you make. Take, for example, that simple jar of honey lurking on the shelf in your refrigerator.
Americans eat more honey than anyone else in the world — about 400 million pounds of it a year. Most of it goes towards sweetening foods like cereals, cookies, and breads. Even whiskey producers are adding honey to their blends to attract younger drinkers. (The Scotch Whiskey Association just stung Dewars for labeling their new “Highlander Honey” as “scotch” rather than “spirit drink.”)
Where does all that honey come from? Well, China is the world’s largest honey exporter. But Chinese beekeepers sometimes use pesticides banned here in the U.S. They sometimes dry their honey by machine, which lets the bees produce more, but leaves the honey with a foul taste similar to sauerkraut. Worst of all, Chinese producers sell their honey at prices as low as half of what our domestic producers charge.
Back in 2001, the U.S. government slapped Chinese honey with punitive tariffs, currently set at $2.63/kilogram, to protect American producers. Those taxes can triple the cost of Chinese honey. So today, about 40% of our honey comes from here in the U.S., with the rest coming from Argentina, Brazil, Canada, and other countries.
What’s a poor Chinese beekeeper to do? Enter the “honey launderers.” Chinese producers send their honey to nearby countries like Malaysia, Vietnam, India, or Korea, and re-label it as coming from those countries. They add rice sugar, molasses, or fructose syrup to hide any unpleasant tastes or smells. (Ick.) They filter the honey to remove the pollen, which palynologists, or pollen specialists, can use like a natural “fingerprint” to track down a honey’s origin. And they pocket the savings they create by evading the tax.
How much tax does the illicit honey avoid? A lot. Back in 2008, Immigration and Customs Enforcement officials charged 14 people with a globe-trotting scheme to evade $80 million in payments. And in February of this year, officials busted two of the nation’s biggest suppliers for evading $180 million more. In a scene reminiscent of Donnie Brasco, officials launched “Operation Honeygate” and planted an agent “on the inside” for a year. The agent served as one supplier’s director of procurement, and the investigation led to five individual guilty pleas, two deferred prosecutions, and $3 million in fines.
What’s the lesson? Taxes are baked into the price of everything you buy, whether they’re even paid or not!
There’s not much we can do to help you avoid hidden tariffs on baked goods. Fortunately, we can help with the taxes that really count — taxes on your income, your payroll, and even your estate. If you’re busy as a bee, you deserve to keep everything the law allows. So call us for the plan you need — and remember, we’re here for everyone else in your hive!
Every year, the IRS Criminal Investigation unit releases an annual report detailing how they pursue and prosecute tax-law violations. It’s full of the usual dry statistics you would expect from any IRS report: investigations launched, tax preparers indicted, identity thieves sent to prison, and even average sentences for different crimes (29 months for tax preparers, 64 months for money launderers). But it also includes some surprisingly entertaining stories about the people the Criminal Investigations unit targets — the kind of stories that make feel better about our own choices in life. Having a bad day? You’ll cheer up when you read about these geniuses!
Back in 2006, the IRS offered a special “Telephone Excise Tax Refund” program for certain calls incorrectly taxed according to time and not distance. Taxpayers could claim the actual tax paid, or take a simplified amount ranging from $30 for a single filer to $60 for a return with four or more exemptions. But where you and I might have seen a few extra bucks, or maybe a dinner out for the family, Ronald Wilkerson saw gold. Wilkerson, who owned a tax-prep service in Baton Rouge, filed 635 false returns claiming a total of $1,415,388 in telephone refunds. He collected $485,939 in fees for his efforts before the IRS caught on to him. Now Wilkerson is living in a gated community — unfortunately, it’s the kind where the gates are designed to keep people in, not out.
Chicago has always had a reputation for “voting the dead.” Well, if dead people can vote, why shouldn’t they get tax refunds, too? At least, that’s what Chicago tax preparer Katrina Pierce thought. Pierce used stolen identities of deceased individuals to file 180 fraudulent returns for tax years 2006 and 2007. She scammed $500,770 from the IRS, plus $146,433 from the Illinois Department of Human Services and even $25,000 in false food stamp benefits. Prosecutors wrote that “stealing was [her] full time occupation and she was good at it,” before giving her nine years to discover whether orange really is the new black.
Kim Jenkins Brandveen operated Healthcare Solutions Medical Supply in Richmond, Virginia. She withheld federal employment taxes from her employees’ paychecks, just like she was supposed to. But somehow, she forgot to send the money to the IRS. When collection agents stepped in to claim payment, Brandveen shut down the business and abandoned its bank accounts. Then she set up Healthcare Solutions Service Corporation, a virtually identical business serving the same customers with the same employees. And once again, she failed to pay over her employees’ withholding taxes to the IRS! Let’s see if 60 months in time-out jogs her memory for her next venture.
The IRS also investigates tax and money laundering violations involving false insurance claims. In Houston, City Nursing recruited Medicare and Medicaid beneficiaries to sign blank treatment forms, then completed the forms to bilk the government for more than $45 million in “physical therapy.” (It might have been more plausible if City Nursing actually had a physical therapist on staff!) U.S. District Court Judge Melinda Harmon sentenced the owners, along with two employees who managed the fraud, to a total of 55 years in a place where they’ll have plenty of time to work on their own weight-lifting and exercise programs.
If you’re feeling especially clever today, you might detect a pattern. None of these stories end well for the schemers who thought they found the easy way to riches. Look, we know you hate paying tax. But you don’t have to flirt with the IRS “Hall of Shame” to pay less. You just need the right plan. The Tax Code is so complicated that there are actually more ways to save legitimately than there are to cheat. So let us give you the plan you need to save tax and sleep well, too!
Labor Day has come and gone, and, while fall isn’t “officially” here, it’s time to put away those summer whites. Never mind that the mercury is still hitting 100 degrees in parts of the country; forget about those pennant races still heating up in the AL West and NL Central. This weekend, the National Football League kicks off regular season play! This week’s season opener is just the first step on the road to Super Bowl XLVII, to be played outdoors on February 2, 2014, at the Meadowlands in New Jersey. (If you look hard enough on ESPN, you can find pre-game coverage starting early next week.)
Earlier this year, Baltimore quarterback Joe Flacco won MVP honors in Super Bowl XLVII and signed a new six-year contract worth $120.6 million. It makes him the highest-paid player in the game, just ahead of New Orleans quarterback Drew Brees. But in a surprise twist that NFL statisticians would love, Brees will actually take home more money than Flacco.
How can that be? Taxes, of course — why else would we be talking about it?
Here’s how it all works. Flacco plays his home games at M&T Bank Stadium in Baltimore, with his new contract paying him $20.1 million per year. According to Americans for Tax Reform, the IRS will intercept $8.72 million of that paycheck. Maryland and Baltimore County will pick off $1.72 million more, for a total combined tax bill of $10.44 million, or 51.98%. Flacco will also pay a “jock tax” for several of his away games — for example, when he plays the Cincinnati Bengals on November 10, he’ll owe Cincinnati’s 2.1% earnings tax on his pay for that game. And he’ll pay even more tax on his bonuses, endorsements, and other income. It would be hard to blame Flacco for thinking the tax man roughs him up worse than any team’s defensive line!
Now, Flacco could take home far more by playing for a team in one of the nine states that don’t levy income taxes. The Jacksonville Jaguars (2-14 for 2012) would love a Super Bowl MVP at their helm. So would the 8-8 Dallas Cowboys. Neither Florida nor Texas tackle players with state or local income tax, which means Flacco would have taken home that $1.72 million sack.
Meanwhile, Drew Brees plays his home games at the New Orleans Superdome, with a contract paying him “only” $20 million per year. That’s $100,000 less than Flacco makes in Baltimore. Brees pays the same 39.6% income tax and 3.8% Medicare tax as Flacco. But Louisiana’s top tax rate is just 6% (on income over $50,000), compared to Maryland’s 6.25% (on income over $1 million). That difference might not seem like a lot. But bring out the chains, and it means Brees actually keeps $470,000 more per year than Flacco.
As for the rest of us, this week doesn’t just mark the start of football season. It also marks the start of tax-planning season! No NFL team would take the field without a game plan. So why would you think you can beat the IRS without a plan? If you don’t have one, the clock is counting down to December 31, with no overtime. And remember, we’re here for your teammates, too!