Linsanity!

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!

Latest Government FAD

Latest Government FAD

If you don't take care of your taxes, you risk some pretty expensive fines and penalties. Some of those amounts are fixed, like $195 per partner per month for failing to file your partnership return. Others are based on the actual tax due, like the 10% penalty for failing to file employment taxes. If the IRS has to come after you, they can slap liens on your home or other property. They can impose levies to pluck back taxes from your paycheck, your bank account, or your retirement plan. They can even seize your assets and auction them to collect their pound of flesh.

Having said all that, would it surprise you to learn that there's someone with a "Get Out of Jail Free" card for not paying his taxes? Would it surprise you even more to learn that it's Uncle Sam himself?

The Treasury Inspector General for Tax Administration ("TIGTA") is an independent board that oversees the IRS. Their job is to audit, investigate, and inspect the tax system itself, as well as to prevent and detect fraud, waste, and abuse within the IRS and related entities. Last month, the TIGTA issued a report with a bland and vague title: A Concerted Effort Should Be Taken to Improve Federal Government Agency Tax Compliance. But that deceptively bureaucratic name masks a pretty outrageous conclusion:

"Federal agencies are exempt from paying Federal income taxes; however, they are not exempt from meeting their employment tax deposits and related reporting requirements. As of December 31, 2011, 70 Federal agencies with 126 delinquent tax accounts owed approximately $14 million in unpaid taxes. In addition, 18 Federal agencies had not filed or were delinquent in filing 39 employment tax returns. Federal agencies should be held to the same filing and paying standards as all American taxpayers."

Fourteen million bucks might not seem like a lot compared to our sixteen trillion dollar debt. But believe it or not, the problem is bad enough that the IRS has an entire unit, called the Federal Agency Delinquency ("FAD") Program, just to collect delinquent taxes from other federal agencies! How well do they do? Last month's report took a look at the December 2008 "FAD list" of 132 delinquent accounts to see what had happened through December, 2011. The TIGTA found that just 33% of those agencies had paid their employment taxes. 30% of those accounts were still open and unresolved, three years later. Even worse, 36% of those accounts had actually expired; meaning the IRS won't ever collect those balances.

That "FAD" unit sounds like a real pit bull, right? Well, they might be, if they had any leash. IRS Policy Statement 2-4 says the IRS can't assess interest or penalties against delinquent federal agencies. And even if they could, Comptroller General Opinion B-161457 says that the agencies aren't authorized to pay them!

You might ask yourself why it even matters whether the government pays taxes to itself. We've all heard that people who live in glass houses shouldn't throw stones. That age-old advice seems especially appropriate here. We're in the home stretch of an election centered largely on the role we want entitlements to play in our society. And every time a federal agency short-changes its payroll tax obligation, it cheats the Social Security and Medicare trust funds of much-needed dollars. It hardly seems controversial to ask Uncle Sam to set the best example possible!

Tax Code Runs Deep

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 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!

Players Behaving Badly

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 ExxonMobil 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, 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.

Hot Thoughts

Hot Thoughts

What do Margaret Mitchell, Mark Twain, and Shaquille O'Neill all have in common? None of them like paying taxes, that's what! Here's a collection of tax quotes to start your day.

"Death and taxes and childbirth. There's never any convenient time for any of them."
Margaret Mitchell

"Blessed are the young, for they shall inherit the national debt."
Herbert Hoover

"You know we all hate paying taxes, but the truth of the matter is without our tax money, many politicians wouldn't be able to afford prostitutes."
Jimmy Kimmel

"The government deficit is the difference between the amount of money the government spends and the amount it has the nerve to collect."
Sam Ewing

"Basic tax, as everyone knows, is the only genuinely funny subject in law school."
Martin Ginsburg (Professor, Georgetown University Law Center)

"You'd be surprised at the frivolous things people spend their money on. Taxes, for example."
Nuveen Investments (Advertisement)

"If you sell your soul to the Devil, do you need a receipt for tax purposes?"
Mark Russell

"I shall never use profanity except in discussing house rent and taxes."
Mark Twain

"Last time I looked at a check, I said to myself, 'Who the hell is FICA? And when I meet him, I'm going to punch him in the face. Oh my God, FICA is killing me.'"
Shaquille O'Neill

"The invention of the teenager was a mistake. Once you identify a period of life in which people get to stay out late but don't have to pay taxes -- naturally, no one wants to live any other way."
Judith Martin ("Miss Manners")

We hope you enjoyed these quotes. But please remember this: there's nothing funny about paying more tax than you legally have to. If this summer's heat has your blood boiling about taxes and you're looking for a plan to pay less, call us today!

Bringing Home the Gold

Bringing Home the Gold

Friday marked the Opening Ceremonies of the Games of the XXX Olympiad. Britain's Queen Elizabeth, along with her Corgis, made their film debut parachuting into the stadium with superspy James Bond. The world's eyes are waiting to see who takes home the gold -- and whenever someone takes home "the gold," you know the IRS will be there to help them count it!

How excited do our friends at the IRS get when the Olympics roll around? Well, believe it or not, there's an argument to be made that the medals themselves are taxable. Way back in 1969, the Ninth Circuit Court of Appeals ruled that shortstop Maury Wills owed tax on the $10,000 value of the Hickock Belt he received for being named Athlete of the Year. But the IRS isn't taxing Olympiads on their medals -- at least, not yet. (Would that mean a Gold medal is just a Silver, after taxes?)

The United States Olympic Committee -- the nonprofit organization that coordinates U.S. Olympic efforts -- awards its own cash prizes to U.S. medalists. Those prizes are $25,000 for each Gold medal, $15,000 for each Silver, and $10,000 for each Bronze. That income is obviously taxable.

But the IRS knows the real payoff doesn't come from the medal itself. The real payoff comes from endorsement deals the stars make. Take swimmer Ryan Lochte, for example. On Saturday, he dethroned Michael Phelps as king of the mens' 400 meter individual medley. Lochte had already appeared in commercials for Nissan, AT&T, Gatorade, and Gillette, before the games had even begun. Fortune magazine estimates he'll make $2.3 million this year, before any bonuses for, you know, actually bringing home an Olympic medal. Forbes estimates that if Lochte picks up more gold in London, his endorsements might actually top those of Phelps. And Bloomberg BusinessWeek guesses that Phelps made $6 million in 2010. With possibilities like that, you can be sure the IRS will have their fingers crossed for Thursday's 200 meter individual medley!

Some athletes do well in competition and do well in endorsements, but still manage to disappoint the IRS. In 2010, skiier Lyndsey Vonn took home the gold in womens' downhill, which led to endorsement deals with Under Armour, Red Bull, Rolex, and Kohl's. Earlier this year, the IRS slapped her with a lien for $1.7 million in tax. (Lyndsey promptly settled her debt, blamed it on a nasty divorce from her husband and trainer, and apologized on her Facebook page.)

Olympic fame and fortune can pay financial dividends for decades to come. Thirty-six years ago, a determined American athlete named Bruce Jenner became a national hero, setting a new Olympic record while winning the gold in the decathlon. Three decades later, he's making headlines again as stepfather to those krazy Kardashian sisters. Is it paranoid to start wondering now which of today's Olympic champions will preside over a reality-TV trainwreck in 2042?

We realize that few of you are reading these words from Olympic Village in London's East End. But it's important to plan ahead for any sort of special prizes or windfalls you enjoy. Whether you're bringing home a medal, or you just want to keep more of the gold you've already got, we're here for you, and for your family, friends, and colleagues, too.

You're Fired!

You're Fired!

Nobody really likes paying taxes. Sometimes, even the folks who work for the IRS resent paying the taxes that go towards funding their own salaries. Usually they just grumble about it and then go on with their day. But sometimes they try a little "self help." So now let's look at what one auditor did when she wanted to minimize her taxes.

Jacynthia Quinn spent 20 years as an IRS auditor in El Monte, California. The IRS audited her and her husband for 2006 (when she claimed $23,549 in charitable deductions and $22,217 in medical expenses) and 2007 (when she claimed $24,567 in charitable deductions and $25,325 in medical expenses). The Service disallowed those charitable and medical deductions, among other writeoffs, and the case wound up in Tax Court.

You'd think an IRS auditor would be the first to know how to avoid an audit! So, how did Quinn do on the other end of the hot seat? Well, let's look at those charitable contributions first:

"Petitioner proffered 'receipts' purportedly confirming charitable contributions. They were inconsistent and unreliable. Representatives from seven different charitable organizations credibly testified that the receipts were altered or fabricated. For example, petitioner offered a receipt purportedly substantiating $12,500 of charitable contributions to a religious organization. The purported receipt, however, identified individuals other than the couple as the donors. The organization's records did not reflect any contributions made by the couple and confirmed that the other identified individuals had contributed $12,500."

Uh oh. That doesn't sound good. Bad enough if one donor testifies your receipts are faked. But seven? How about those medical deductions? Any better luck there?

"Petitioner similarly failed to substantiate the claimed medical and dental expenses. Some of her documentation also suffered from authenticity problems and appeared to have been 'doctored.' Petitioner offered three documents purportedly issued by Dr. Christopher Ajigbotafe or his staff confirming more than $9,000 in medical expenses for Mr. Quinn. Each document, however, spelled the doctor's last name differently ('Ajigohotafe,' 'Ajibotafe' and 'Ajigbotafe'). One 'statement' was dated in January 2006 and estimated expenses for the upcoming year. The amount of expenses for 2007 contained in another 'statement' was contradicted by a letter purportedly from the doctor's staff."

Keep in mind here that Quinn is an IRS auditor, with 20 years of training and experience auditing exactly these sorts of deductions! Naturally, the Tax Court didn't show her a lot of sympathy -- they sided with the IRS on every issue and even smacked her with a civil fraud penalty. In fact, the IRS Restructuring and Reform Act of 1998 requires the IRS to fire any employee who willfully understates their federal tax liability (unless they can show the understatement is due to "reasonable cause" and not "willful neglect"). Since Quinn's own "excuse" is on a par with the dog eating her homework, she's likely to lose her job as well.

It's certainly entertaining to read about cases like Jacynthia Quinn's. It's satisfying to see a cheater get her comeuppance. And it's great to see the IRS enforcing the same rules for its own employees as it does for us. But there's a valuable lesson here, even for the majority of us who don't cheat. Dotting the "i's" and crossing the "t's" is important for everyone. That's why we don't just outline strategies and concepts to help you pay less tax. We work with you to implement those strategies and document them to survive scrutiny. And remember, we're here for your family, friends, and colleagues too!

Show Me the Money!

Show Me the Money!

The week before last, while most of America was still digesting news of the Supreme Court's decision on healthcare reform, more news hit the wires. That's right, Hollywood A-listers Tom Cruise and Katie Holmes, better known as "TomKat," are calling it quits after nearly six years of marriage. Of course, Tom has been down this road twice before. But this split has already spawned far and away the biggest headlines, and tinseltown gossips are working overtime. How long has Katie planned her escape? What role does Cruise's association with the controversial Church of Scientology really play? Were Tom's lawyers really letting Katie "play the media" while they readied his reply?

News of the split came at nearly the same time as Forbes naming Cruise the world's top-earning actor. His latest blockbuster, #4 in the Mission: Impossible franchise, pulled in a whopping $700 million, powering Cruise to a $75 million year. So naturally, we want to know what the divorce means for the IRS!

Divorce is usually pretty straightforward, at least from the taxman's perspective. Property settlements between divorcing spouses are generally tax-free. Alimony or spousal support is usually deductible by the payor and taxable to the payee -- which lets the divorcing couple shift the tax burden on that income from the higher-taxed "ex" to the lower-taxed ex. Child support is both nondeductible and nontaxable -- it's strictly an after-tax obligation. And legal fees are a nondeductible personal expense, except for amounts allocated to figuring alimony payments.

But celebrity divorces can be risky business. Sometimes it's hard for outsiders to understand the stakes, which can be as different from ordinary splits as night and day. Katie hired a top gun New York attorney to represent her, one who knows all the right moves where celebrity divorce is concerned. You can be sure the tabloids were rooting for a war of the worlds -- but we were just hoping daughter Suri, age 6, wouldn't end up as collateral damage!

The Cruises had a prenup, of course. It reportedly gave Katie $3 million for each year of marriage, plus a 5,878 square foot house in Montecito, CA, where Oprah Winfrey, Kevin Costner, and Rob Lowe also have homes. And last year, Cruise deeded Holmes an apartment in Manhattan. We're sure the firm that drafted TomKat's prenup did a fine job. Of course, golfer Tiger Woods also had a prenup limiting wife Elin Nordegrin to $20 million -- but she wound up walking away with five times that amount.

What sort of romantic prospects will the couple enjoy after the divorce? Well, Cruise should be fine. He's already a legend -- he can sit back with a cocktail and audition new starlets for the role of Wife #4. And as for Holmes, she's still young, so we're sure she can still attract at least a few good men who want to show her the color of their money.

So Hollywood is playing "Taps" for Tom and Katie's storytale romance. It wasn't endless love after all. Though the media had already shifted into over-drive, anticipating a public PR battle, the quick and confidential resolution makes it possible that the story may actually just fade into oblivion.

Now, if you look carefully at this email, you'll find references to seventeen Tom Cruise movies. Can't find 'em all? Give us a call. We're experts at finding hidden opportunities, especially where it comes to taxes!

The Cost of Reform

The Cost of Reform

By now, of course, you've heard the news that the U.S. Supreme Court upheld the Affordable Care Act, also known as "Obamacare." Ironically, the Court ruled that the controversial individual mandate is constitutional under the government’s power to tax, rather than its power to regulate commerce.

We're not here to debate the merits of the Court's decision. If that's what you want, turn on any cable news network and you'll find various assorted bloviators from both sides, bloviating right now. (Try it. It's fun!)

What we are here to discuss is how the Court's decision affects your tax bill. That's because the original legislation that the Court upheld makes care affordable in part by imposing several new taxes — in addition to the "tax" or "penalty" imposed by the individual mandate — that will now go into effect as already scheduled:

• On January 1, 2013, the Medicare tax on earned income, currently set at 2.9%, jumps to 3.8% for individuals earning over $200,000 ($250,000 for joint filers, $125,000 for married individuals filing separately).

• Also on January 1, there’s a new “Unearned Income Medicare Contribution” of 3.8% on investment income of those earning more than $200,000 for individuals or joint filers earning more than $250,000. (Doesn't that sound better than "tax"?)

• Beginning January 1, 2014, there's a $2,500 cap on tax-free contributions to flexible spending accounts.

• Also beginning January 1, 2014, employers with more than 50 employees face a penalty of $2,000 per employee for not offering health insurance to full-time employees.

• Finally, the threshold for deducting medical and dental expenses rises from 7.5% of your adjusted gross income to 10%. You probably don't get to deduct your out-of-pocket medical expenses anyway — but the new, higher threshold will just make it that much harder.

These new taxes raise new planning questions. How can we structure your investment portfolio to avoid the new "Unearned Income Medicare Contribution"? (Doesn't that sound better than "tax"?) What role should flexible spending accounts play in your finances? Should we look at a Health Savings Account or Medical Expense Reimbursement Plan to write off newly-disallowed medical expenses?

And the new healthcare taxes aren't the only challenge we face this Independence Day. We're six months away from what some wags are calling "Taxmageddon." On January 1, the Bush tax cuts are scheduled to expire. And the 2% payroll tax "holiday" expires as well. These mean higher taxes for everyone, not just "the 1%." But with Washington geared up for elections, there's little hope for quick or easy resolution.

Together, these new developments make for some real planning challenges. But when the going gets tough . . . the tough get going. So count on us to get going on today's most pressing planning questions. And remember, we're here for everyone at your July 4th barbecue!

New Taxes Go Into Effect Due To Supreme Court Decision

•  On January 1, 2013, the Medicare tax will go up by 0.9% for individuals earning over $200,000 ($250,000 for joint filers, $125,000 for married individuals filing separately).

•  Also on January 1, there will be a new "Unearned Income Medicare Contribution" of 3.8% on investment income, for those earning more than $200,000 ($250,000 for joint filers).

•  Beginning on January 1, 2014, there will be a new $2,500 limit on tax-free contributions to flexible spending accounts, and employers with more than 50 employees will face a penalty of $2,000 per employee for not offering health insurance to full-time employees.

•  Finally, the threshold for deducting medical and dental expenses rises from 7.5% of adjusted gross income to 10%.  This will make these expenses even harder to deduct without help from advanced strategies like Health Savings Accounts or Medical Expense Reimbursement Plans.

Tax Returns of the Rich and Famous

America's first billionaire, John D. Rockefeller, once said that "if your only goal is to become rich, you'll never achieve it." But some of us still manage to achieve it, and the rest of us want to know how. Since 1992, the IRS Statistics of Income Division has issued an annual report examining The 400 Individual Tax Returns Reporting the Largest Adjusted Gross Incomes. I know what you're thinking — the IRS "Statistics of Income" division is where fun goes to die. But read on — there's some pretty interesting stuff buried in this year's 13-page report.

• What does it take to join the club? Well, for 2009, you had to report $77.4 million in adjusted gross income. Now, that may sound like a lot. But it's actually down from $109.7 million in 2008, and down even further from the $138.8 record high in 2007. Of course, $77.4 million just gets you in. The 400 earners averaged $202.4 million. (If that sounds like a lot, it's actually down from a staggering high of $334.8 million in 2007.)

• How do the top 400 make their money? Probably not how you imagine. Just 8.6% of it came from salaries and wages. 6.6% came from taxable interest; 13.0% came from taxable dividends; and 19.9% came from partnerships and S corporations. Once again, capital gains made up the biggest share of the top 400's income. For 2009, it was 45.8%, or $92.6 million each. In fact, the top 400 individuals reported 16% of the entire country's capital gains! However, that amount was significantly down from 2008, when the top 400 averaged $153.7 million in gains. Clearly, the 2008 economy and stock market crash took a toll on the super-rich as well as the rest of us.

• What do they actually pay? 2009's top 400 averaged $170.3 million in taxable income and paid $40.9 million in tax. That makes their average tax rate 19.9% — up from the 18.1% they paid in 2008. Why the higher rate? Remember, most of their income consists of capital gains, taxed at a maximum of 15%. When the percentage of their income consisting of capital gains goes down, their average rate goes up.

On average, the top 400 are a generous group. 387 of them reported charitable contributions, with the average deduction weighing in at $16.4 million. The top 400 as a whole claimed 4.0% of the nation's total charitable deductions, down from 5.2% in 2008. (You've got to wonder what goes wrong in 13 people's lives that let them earn tens or hundreds of millions of dollars without deducting a dime for charitable gifts. Maybe they just want to "give" more to Uncle Sam!)

3,869 taxpayers have appeared in the top 400 list since the IRS started tracking them in 1992. But just 27% have appeared more than once. And only 2% have appeared 10 or more times. It's worth noting that some of today's highest-profile earners fall short of this group. Billionaire Warren Buffett, who inspired the "Buffett Rule" that would tax million-dollar incomes at a minimum 30%, reported earning "just" $62.9 million in 2011. He probably won't make the cutoff. Republican presidential candidate Mitt Romney reported earning $20.7 million in 2010 and $20.9 million in 2011. As rich as that sounds, he's nowhere near the top 400.

We realize you may find these numbers comical. Who makes $200 million in a single year? But someday when your business catches fire and lands you in the top 400, you'll get pretty heated at the thought of paying $40 million in tax. That's when you'll be glad we gave you a proactive plan for paying less tax. Don't forget us when you make the big time!

A Big Ouch

A Big Ouch

The English novelist and playwright Henry Fielding once wrote that "a rich man without charity is a rogue; and perhaps it would be no difficult matter to prove that he is also a fool." But sometimes you can be rich, charitable, and foolish, all at the same time. And that can make for some really expensive mistakes. 

Joseph Mohamed is a California real estate broker and appraiser who's made a fortune buying, selling, and developing real estate. In 1998, he and his wife Shirley set up a charitable remainder trust for the benefit of the Shriners Hospitals for Children, the Sacramento Food Bank & Family Services, and the Pacific Legal Foundation. Then, in 2003 and 2004, he donated six California properties to the trust: four adjacent street corners in Rio Linda, a 40-acre subdivided parcel south of Sacramento, and a shopping center in Elk Grove. 

Mohamed prepared his own taxes for those two years -- definitely not standard operating procedure for someone in his shoes. When it came time to fill out Form 8283, "Noncash Charitable Contributions", he skipped the instructions because "it seemed so clear that he didn't think he needed to." The form said the description of the donated property could be "completed by the taxpayer and/or appraiser." And Mohamed was an appraiser, right? Of course he knew what his own properties were worth. How hard could it really be? He attached statements to his returns explaining how he valued the two biggest parcels. Then he deducted $18.5 million for the gift, satisfied that he had done all he needed to substantiate his writeoff. 

It turns out, though, that the IRS wants a teensy bit more than just your say-so before handing out eighteen million in benefits. In fact, they have some pretty specific rules for deducting any gift of property worth more than $5,000. You need a "qualified" appraisal, made no sooner than 60 days before the gift and no later than the due date of the return reporting the gift itself. It has to be signed by a certified appraiser -- not the donor or the taxpayer claiming the deduction. And the appraisal has to include specific information about the property itself, your basis in the property, and how you acquired it in the first place. 

The IRS started auditing Mohamed's 2003 return in April, 2005. You can probably imagine how charitably inclined they were toward his self-appraisal. So Mohamed went out and got independent appraisals showing the properties were worth over $20 million -- two million more than he deducted. And the trust actually sold the 40 acres south of Sacramento for $23 million. You would think that would be enough. But you would be wrong. The IRS held firm, and the case wound up in Tax Court.

 Last month, the Court issued their 26-page opinion in Mohamed v. Commissioner. They ruled that none of Mohamed's appraisals were "qualified" under Section 1.170A-13(c)(3)(i) and shot down his entire deduction. The Court confessed that "We recognize that this result is harsh -- complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions -- all reported on forms that even to the Court's eyes seemed likely to mislead someone who didn't read the instructions." But, the Court continued, "the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules." 

So, ouch. Big, big ouch. (Insert expletive here.) Eighteen million bucks worth of deductions, lost because someone didn't dot the i's and cross the t's. Six million in actual tax savings, down the proverbial drain. We realize it sounds self-serving to tell you to come to us before you make a big financial move. But Joseph Mohamed's case emphasizes how important this really is. You may not have millions riding on doing it right. But are you really willing to risk tax benefits you truly deserve by doing it yourself?

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Something to Scream About

Something to Scream About

It's one of the most recognizable images in all of art. It's Norwegian artist Edvard Munch's iconic vision The Scream: an agonized figure --little more than a garbed skull and hands -- set against a background of blood-colored sky. And last month, it sold for a record-setting price. But could it have been inspired, at least in part, by his tax return?

Munch grew up in Oslo, son of a dour priest. At 16, he enrolled in college to become an engineer. He did well, but he quickly dropped out, disappointing his father, to study painting, which he saw as an attempt "to explain life and its meaning" to himself. At 18, he enrolled at the Royal School of Art and Design of Christiana, where he began painting portraits. His personal style addressed psychological themes and incorporated elements of naturalism, impressionism, and symbolism. He wound up studying in Paris and exhibiting in Berlin before painting the first of four versions of The Scream in 1893.

In 1908, Munch suffered a brief breakdown, followed by a recovery. That recovery brightened Munch's art as well as his life, as his later work becoming more colorful and less pessimistic. He finally gained the public approval he had sought for so long; he was made a Knight of the Royal Order of St. Olav; and he hosted his first American exhibit. Munch spent the last years of his life painting quietly and alone on a farm just outside Oslo. Today, he appears on Norway's 1,000 kroner note, set against a background inspired by his work.

We remember Munch now for his art, not his life. But that life included some frustrating run-ins with the tax man. Apparently, Munch wasn't any happier keeping timely and accurate records than the rest of us. Here's part of a letter that his biographer, Sue Prideaux, quotes him as writing, in her book Edvard Munch: Behind the Scream:

"This tax problem has made a bookkeeper of me too. I'm really not supposed to paint, I guess. Instead, I'm supposed to sit here and scribble figures in a book. If the figures don't balance I'll be put in prison. I don't care about money. All I want to do with the limited time I have left is to use it to paint a few pictures in peace and quiet. By now, I've learned a good deal about painting and ought to be able to contribute my best. The country might benefit from giving me time to paint. But does anyone care?"

Even without that tortured face in The Scream, most of us can still probably relate to his frustration!

Last month, Sotheby's auction house in New York sold a pastel-on-board version of The Scream that Munch painted in 1895 for $119.9 million -- a new record for art sold at auction. The seller was Norwegian billionaire Petter Olsen; the buyer remains unknown. If the seller had been American, there could have been quite a tax to pay. "Capital gains" from the sale of appreciated property held more than 12 months are ordinarily capped at 15%. (Republican presidential candidate Mitt Romney has proposed eliminating tax on capital gains for taxpayers earning under $200,000; while President Obama has proposed raising them to 20% for taxpayers earning over $250,000.) But paintings like The Scream are classed as "collectibles" and subject to a top tax of 28%. (You would be disappointed if we didn't say that's enough to make a collector scream!)

Are you holding precious artwork or antiques that are just taking up space in your house? Call us before you call the auctioneer. We'll make sure you keep as much of your record-setting price as possible. And remember, we're here for your family, friends, and colleagues, too!

Report Card Time

Memorial Day has come and gone, and the school year is quickly winding down, if it isn't already over. Kids are getting excited for summer vacay, and there's just one hurdle left — the dreaded report card. (If your kids are getting nervous and antsy around mail time, you might want to pay attention!)

And how do you think our friends at the IRS are doing? Well, this year's Annual Report listed twenty-two problems, not 20. Their biggest conclusion is that the IRS is simply "not adequately funded to serve taxpayers and collect taxes." It identifies "the combination of the IRS’s expanding workload and declining resources as the most serious problem facing taxpayers."

And there were more specific problems, too. The IRS has to rely on computers to do most of their work, and computers don't always get things right. The IRS adjusts about 15 million returns per year — but treats only 10% of those as "audits," so taxpayers don't always get traditional audit protections. And sometimes the IRS is just too busy to respond: they answer just 70% of taxpayer phone calls, and just 53% of written correspondence gets answered in 45 days. It's hard to ace your report card when you're missing that much of your homework!

Fortunately, the news isn't all bad — the IRS has joined the social media revolution! There's a smartphone app to help track your refund, a channel with helpful videos in English, American Sign Language, and various foreign languages, and podcasts you can download from the iTunes store. You can even on Facebook and Twitter!

Our "Plan A," of course, is to give you the concepts and strategies to help you pay the least amount of tax legally possible — then help prepare returns that avoid IRS scrutiny. But just in case that scrutiny finds you, we're always ready with "Plan B" — to help deal with the IRS on your behalf, and make sure you don't become another Annual Report statistic!

De-Friending Uncle Sam

De-Friending Uncle Sam

Last week, Facebook's initial public offering hit the market like tickets to the season's hottest concert. Shares opened at $38, unlocking billions in new wealth for founders and early investors. While shares have actually fallen below that IPO level, investors will probably "like" Facebook for quite some time!

Taxes played a lead role in Facebook's IPO. The company went public largely so founder Mark Zuckerberg could pay $2 billion in taxes to exercise options on 120 million shares. And six insiders, including Zuckerberg, have set up annuity trusts most likely intended to minimize gift and estate taxes on transfers to future heirs. (In Zuckerberg's case, those future heirs haven't even been born -- how's that for advance planning!) But one Facebook founder has taken an even more drastic step to avoid tax -- he's actually renounced his American citizenship!

Eduardo Saverin was born in Brazil in 1982. His wealthy father moved the family to Miami in 1993 to avoid kidnapping threats, and Saverin became a U.S. citizen in 1998. He met Zuckerberg while the two were students at Harvard and, using his family's wealth, became Facebook's first investor. But Saverin was squeezed out shortly thereafter, reportedly at the urging of more experienced backers. He sued Zuckerberg, and settled out of court for what appears to be something between 2% and 4% of the company -- worth as much as $4 billion at last week's market close.

Now, Americans like Saverin who give up their citizenship do pay an "exit tax" on the value of appreciated assets as of the time they leave. That means, essentially, you're taxed as if you sold everything the day before you surrender your U.S. passport. You'll file Form 8854 to calculate and report your tax. If you can't afford to pay on the spot, you can even "finance" it as long as you post adequate security.

In Saverin's case, that means he pays based on the pre-IPO value when he left in September -- but he avoids tax on any appreciation after that date. This could spell hundreds of millions in savings. And where has Saverin settled? Singapore, where he has lived since 2009, and where the tax on capital gains is zero. Zip. Zilch. Nada. The Wall Street Journal reports that Saverin has become a Kardashian-like figure in his new home: "Mr. Saverin is regularly spotted lounging with models and wealthy friends at local night clubs, racking up tens of thousands of dollars in bar tabs by ordering bottles of Cristal Champagne and Belvedere vodka, according to people present on these occasions. He drives a Bentley, his friends say, wears expensive jackets and lives in one of Singapore's priciest penthouse apartments."

Saverin is hardly the first American to to de-friend Uncle Sam. The IRS publishes a quarterly list of Americans who leave, one that totaled 1,781 in 2011. And, while Saverin denies he left to avoid taxes, outrage has grown over his move. Senators Chuck Schumer (D-NY) and Bob Casey (D-PA) have even introduced legislation that would punish future Saverins -- their so-called "Ex-Patriot Act" ("Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy") would impose a 30% tax on future expatriates' gains after they leave our shores.

Are you working to create the next Facebook? There are lots of ways to pay less tax when you eventually sell, and they don't require you to give up your citizenship! So call us when you're ready for your IPO -- and remember, we're here for the rest of your social network, too!

Green Apples

Green Apple

For 20 years now, Apple has blazed a reputation for stylish design and innovative products, creating a near-cult following among fans. Apple's computers appeal to the artists and designers who set so many of today's trends. Their iPod has helped change how the world listens to music. Their iPad has made online content available nearly anywhere. And their iPhone is helping change the way we communicate with friends, family, and colleagues. (Just a few years ago, your mother-in-law didn't have a cell phone. Now she sends text messages and "checks in" on Facebook.)

Apple may be the most successful company on earth. At one point last year, they had more cash on hand ($76.2 billion) than the United States government ($73.8 billion). And Apple is currently the most valuable company on the planet, with a "market cap" (total value of tradeable shares) that topped $590 billion dollars on April 10. (That's right . . . those iTunes you casually download for a buck each have created a company worth over half a trillion dollars.) In fact, Apple's current market cap is more than the gross domestic products of Iraq, North Korea, Vietnam, Puerto Rico, and New Zealand -- combined.

But Apple's most recent annual report reveals the company's genius for creating successful marketing strategies also extends to successful tax strategies. How else would you describe a strategy that lets Apple earn billions and pays less than 10% of their taxable income in tax?

How do they do it? Largely by keeping the money they earn outside the United States, outside the United States. Apple owns subsidiaries in tax havens like Ireland, the Netherlands, Luxembourg, and the British Virgin islands. They helped pioneer the "Double Irish with a Dutch Sandwich" strategy that hundreds of other multinational companies have imitated. Apple even maintains a subsidiary in tax-free Nevada -- the blandly-named "Braeburn Capital" -- to manage that enormous cash haul without paying tax in its home state of California. For 2011, the company paid a worldwide tax of $3.3 billion on $34.2 billion of profit. But one study concludes that Apple would have paid $2.4 billion more without these rules.

Now Apple has become part of the political debate. At the risk of grossly oversimplifying a pretty complicated discussion, Democrats in Washington scoff that taking an extra $2.4 billion in tax last year would have squelched Apple's creativity. Republicans reply that using the cash to grow the business or distribute more dividends to shareholders will grow the economy faster than if it goes to the IRS. Both President Obama and presumed Republican nominee Mitt Romney have called for eliminating corporate tax loopholes in order to pay for lower rates (28% in President Obama's plan, 25% in Governor Romney's). Either way, Apple is likely to become one of the stories -- like Warren Buffett paying a higher tax rate than his secretary -- that come to define this year's campaign.

Taxes always play a part in Presidential races. But this time, with the economy still struggling and the Bush tax cuts scheduled to expire in a few short months, taxes will be even more important than usual. Our job, as November approaches, includes helping you understand just what the candidates' proposals mean for your bottom line. So keep up with these emails -- and if you're curious how any of the proposals you hear about would affect your plan, call us!

1099s From the Inside Out: Strategies to Make Filing Quick and Painless

1099s From the Inside Out:

Strategies to Make Filing Quick and Painless

Special Offer!

Bring a Colleague - Save $200

Casper, WY * May 15, 2012 * ID# 374936

Independent contractors save your business money, but increasing IRS scrutiny can put you at risk. Fail to meet all the 1099 filing requirements, and you may land in a hotbed of penalties. With a maze of 1099 forms, and confusing and ever-changing IRS reporting guidelines, mastering the 1099 can be a daunting task for any business.

* Learn what is reportable and what's not

* Audit proof your records ... take away five easy steps to ensure compliance and be prepared for an audit

* Utilize proven tools in filing forms - we will supply the "cheat sheets" you need for foolproof filing - quick and easy!

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Larry Stone

For more information about our speaker, go to www.lorman.com/ID374936

* CPP/FPC 6.50 * CAC 1.0 * CFP 8.0 * Enrolled Agents 8.0 * CPE 8.0

or contact us at 866-352-9540.

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8:30 am - 10:30 am Knowledge Is Power in 1099 Reporting

* How and When to File

* Alphabet Soup - How to Identify Which of the 14 Forms You Must Use (1099-MISC, INT, DIV, C and A)

* New IRS Forms - Are You in Compliance? Identify the New 1099 Forms and Reporting Requirements

* Should You Be Filing Electronically?

10:40 am - 12:00 pm Reduce Your Tax! Make Smart Use of the Independent Contractor Rules

* Review the IRS 20-Factor Test to Determine Employment

* Form SS-8, When to Use This Safety Net Without Exposure to the IRS

1:00 pm - 2:00 pm Five Steps to Fast and Easy Compliance

* Step-By-Step Process for Delivering Your 1099s Online

* The 1099-R: Erase Your Mistakes!

* How to Use the CTC Vendor "Cheat Sheet" to Save Time and Money

* Simple and Easy Technology Tools Available Now!

* When and How to Prepare Forms in Least Amount of Time

3:00 pm - 3:10 pm Break

* Attorney/Settlement Payments

* Accountable Plans/Expense Reports

4:00 pm - 4:30 pm Questions and Answers

Lorman Education ServicesDept. 5382, P.O. Box 2933 Milwaukee, WI 53201-2933

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* Certified public accountant practicing in Summit County, CO

* Provides tax preparation and planning services to clients with an emphasis in real estate and construction issues to individuals and businesses

* More than 10 years of work experience performing financial management activities, analyzing accounting systems and documentation in support of both civil and criminal financial investigations

* Member of the American Institute of Certified Public Accountants, National Association of Certified Fraud Examiners, Forensic CPA Society and the Colorado and Arizona Society of Certified Public Accountants

* Co-wrote, "The Secrets to a Tax Free Life"

* M.B.A. degree in finance and accounting, Arizona State University; B.S. degree in political science, University of Central Missouri

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* If you need special accommodations, please contact us two weeks in advance of the program.

CANCELLATIONS: Substitute registrants can be named at any time. A full refund, less a $20 service charge, will be given if notification is given six or more business days in advance. Notification of less than six business days will result in a credit that can be applied to any Lorman products or services. If you do not cancel or attend, you are responsible for the entire payment.

Chimpanzees and Charity

Chimpanzees and Charity

Disneynature's newest movie, Chimpanzee, is a documentary masterpiece for all ages. It's a truly original film that stands out in a multiplex of lookalikes, copies, remakes, and sequels. And Chimpanzee's cinematography is amazing -- the simple beauty of the jungles and the animals stands in contrast to so many of today's movies all tricked out with 3D gimmicks and computer-generated special effects.

Filmmakers spent four years "embedded" in the lush rainforest of Ivory Coast's Tai National Park to make the movie, which follows the life of "Oscar," a predictably adorable young chimp. Oscar learns how to use rocks to open nuts (apparently harder than it looks) and use sticks to go "fishing" for army ants (apparently a real delicacy to chimpanzee foodies). There's a turf war with a rival community for control over a valuable nut grove. And, this being a Disney movie, Oscar loses his mother to a leopard around the beginning of the third reel. (It's handled sensitively -- there's nothing to terrify children or grandchildren in the audience.) Losing his mother poses a real threat to Oscar's life, until, remarkably, he's "adopted" by Freddy, the community's alpha male. The film is narrated by Tim Allen, whom even the youngest viewers will recognize as the voice of "Buzz Lightyear" from Disney/Pixar's mega-successful Toy Story series.

Primatologists have suspected that chimpanzees like Freddy might altruistically adopt orphaned young in their group. But this is the first example of such behavior actually caught on film. (There's no word on whether Freddy "taxed" the rest of the community for the expenses of caring for Oscar, or whether "tax avoidance" is part of their natural behavior!)

Disney has announced that they are donating a portion of Chimpanzee's opening-weekend ticket sales to the Jane Goodall Institute for the "See Chimpanzee, Save Chimpanzee" program to protect habitats. Disney will donate 20 cents for every ticket sold, with a minimum donation of $100,000. (The movie grossed $10.2 million over its opening weekend, the highest opening gross in history for any nature documentary.) So -- and here at last we come to the tax question of the day -- does that mean that if you were one of the first to see it, you can deduct part of your ticket?

Unfortunately, no, that's not how it works. You got your "money's worth" from the movie itself, although Disneynature can certainly deduct the contribution on its return. It's like buying a ticket to a college football game. The college itself may be a not-for-profit organization -- but buying a ticket isn't a "donation" because you get something of value in exchange. (Some colleges let you make donations in exchange for the right to buy season tickets -- in those cases, the IRS treats that "right" as being worth 20% of the donation amount and lets you deduct the remaining 80%.)

Deductions for charitable contributions are a mainstay of the tax code. Charitable contributions let you do well for society while you do well for yourself -- which of course is something we want to help with, too! We can help you maximize deductions for gifts of used clothing and household accessories. We can help you plan for bigger gifts of cash, cars or boats, art or antiques, appreciated securities, real estate, and even life insurance. And don't forget, we're here for the rest of your "community," too!

Do Skinny Cows Make Lowfat Cheese?

Do Skinny Cows Make Lowfat Cheese?

The California Milk Advisory Board is an agency of the California Department of Food and Agriculture dedicated to promoting California dairy products. You've probably never heard of the Board. But we'll bet you've seen their television spots, with their catchy slogan: "Great cheese comes from happy cows. Happy cows come from California."

Now, The Atlantic magazine reports that landowners on the other side of the country are saving millions in tax by taking advantage of "America's Dumbest Tax Loophole: The Florida Rent-a-Cow Scam." But are those Florida cows as happy as their cousins in California?

Here's how it works. Florida's "greenbelt law" aims to help preserve farmland by taxing it according to its agricultural-use value, rather than its (higher) potential development value. To qualify, you just have to file a four-page application and convince your county tax appraiser that you're using the land for "bona fide" agricultural purposes. You don't even have to make an actual income from your "farming" in order to lower the valuation on your property. Pretty sweet so far, right?

But what if you're not even really a farmer? What if you're a rich developer, with land just sitting idle that you're getting ready to build on, and you want to get in on the party? No problem! Lease your land to a nearby cattle rancher, plop a few cows in what's left of the grass, and start saving big! Some landowners let ranchers graze their cattle for free. But the tax breaks are so rich and creamy that some landowners actually pay the ranchers to graze their cows, justifying the "rent-a-cow" nickname.

At this point, you're probably scoffing this is . . . well, udderly ridiculous. Au contraire, my naive friend, au contraire!

The Miami Herald reported back in 2005 that over two-thirds of the greenbelt law's biggest beneficiaries aren't true farmers. Developer Armando Codina saved $250,273 in 2004 by grazing cattle on land he owned in northwest Miami-Dade County while he built industrial warehouses on it. Then he asked the county to declare his "ranch" to be an environmentally contaminated "brownfield," while he still had cows on the land! (That had to make the cows happy.) Developer Richard Bell saved $140,168 that same year by grazing 16 cows on a 49-acre tract where he planned to build million-dollar McMansions. Even U.S. Senator Bill Nelson got in on the act -- he keeps "about six cows" on 55 acres of property near the Indian River and saves $43,000 per year. The Herald found "skinny" and "underfed" cows eating garbage and grazing on bare, rocky land throughout the state.

Developers confess that this may not have been exactly what the Florida Legislature intended when they passed the greenbelt law back in 1959. But they argue that vacant land shouldn't be taxed at full value if it's just aging till ripeness. And they point out that once the land is developed, new homes and offices generate plenty of tax revenue.

We have no clue if the Florida cows are as happy as the California cows. Nor can we tell you if their cheese is any good. But we can tell you that you don't have to go to such ridiculous lengths to save big on your income taxes. The tax code is full of legitimate deductions, credits, and opportunities that serve legitimate public goals. And it's our job to help put all those opportunities to work for you.