You Think You Got Audited?

Getting an audit notice from the IRS isn't anyone's idea of a party. But it's not the end of the world. Usually the auditor just wants to make sure you're entitled to the breaks you've claimed. Did you really spend as much as you reported on meals & entertainment? Did you really spend enough hours managing your rental properties to qualify as a "real estate professional"? If the IRS finds a mistake, they issue a "deficiency notice" and bill you for what you owe. How bad can it really be?

Well, just ask Raymond J. Lane.

Ray Lane is a longtime tech industry veteran. He started his career at IBM, then moved to Electronic Data Systems and Booz Allen Hamilton before becoming Chairman and CEO of Oracle Corporation. More recently, he's been a partner at the venture capital firm of Kleiner Perkins Caufield & Byers, a board member at Fisker Automotive, and non-executive Chairman of Hewlett-Packard.

In 2000, Lane invested $25 million into a partnership, Vanadium Partners Fund LLC, to invest in technology startups. The fund used a strategy called "Partnership Option Portfolio Securities," or POPS, to generate paper losses far in excess of his actual investment. Then he claimed $251 million in losses to offset income he recognized from exercising Oracle stock options.

Since then, the government has taken direct aim at POPS and similar "abusive" strategies, arguing that they lack economic substance. Lane reports that the IRS originally audited him in 2004, then asked him to sign extensions on a statute of limitations every 18 months while they reviewed his file. Last December, they found the partnership to be a sham, with no "legitimate business purpose." In fact, they argued, Lane's $25 million "investment" — which he claimed was for warrants in the LLC — was designed merely to disguise fees paid to tax-shelter promoters and tax professionals. Lane filed an appeal with the Tax Court. Then, on May 6, he announced he had signed an agreement to pay the IRS $100 million!.

For his part, Lane says "the thing is unfortunate." (Really?) He adds that "the amount of taxes I pay are staggering, and this is the only transaction I've been audited on." He claims to have paid between 32% and 38% of his income in net taxes in the past 15 years. Now, while paying the $100 million to the IRS will certainly hurt, it won't put him in the poorhouse. He still owns two homes across the street from each other in pricey Atherton, California, worth a total of $30 million, along with a home in Manhattan Beach worth $20 million, a farm in Oregon worth $4 million, and two properties in Palm Desert, California, worth another $10 million.

But still . . . a $100 million tax bill! Can you imagine signing that check? Or even authorizing that wire transfer?

Here at our firm, we understand that if you ever get an audit notice, you're not going to be happy — even if there's not a hundred million bucks at stake! That's why we stick with tried-and-true strategies to help you pay less. Everything we recommend is court-tested and IRS-approved. So call us to see how you can put some of these strategies to work for yourself!

Dad and Taxes

Sunday was Father's Day, and if your family is like most, you talked about golf, or fishing, or the latest happenings on Duck Dynasty. You probably didn't talk about taxes, just because Dad doesn't like paying them! So here are some "father and family" themed tax quotes to put a smile on your face today:

"Every year, the night before he paid his taxes, my father had a ritual of watching the news. We figured it made him feel better to know that others were suffering."
Narrator, The Wonder Years television series

"My father has a great expression: 'The capital-gains tax has created more millionaires than any other government policy.' The capital-gains tax tends to make investors hold longer. That is almost always the right decision."
Chris Davis

"Our forefathers made one mistake. What they should have fought for was representation without taxation."
Fletcher Knebel

"Throughout the first half of our history, Americans hated tax with passion, something they inherited from the founding fathers."
Charles Adams

"Giving money and power to government is like giving whiskey and car keys to teenage boys."
P.J. O'Rourke

"The trouble with being a breadwinner nowadays is that the government is in for such a big slice."
Mary McCoy

"A well-timed death is the acme of good tax planning, better even than a well-timed marriage."
Donald C. Alexander (former IRS Commissioner under Rixhard M. Nixon)

"If you are truly serious about preparing your child for the future, don't teach him to subtract — teach him to deduct."
Fran Lebowitz

If Dad wants to pay less tax, he needs the same thing you do — a proactive tax plan! Summer may not seem like the obvious time to do it, but now is when we have the most time available to help you pay less. So have Dad give us a call — he'll appreciate paying less tax a lot more than he'll appreciate another tie!

Party Time at the IRS

You probably don't think a conference for a bunch of IRS bureaucrats would be much fun. Apparently, though, the IRS knows how to throw a party. Back in 2010, they hosted an event dedicated to "Leading into the Future" for 2,609 executives and managers in the Small Business/Self-Employed division. (You're excited already, aren't you?) It turned into a $4.1 million boondoggle, complete with first-class air travel and Presidential Suites at three different hotels, that even Jay Gatsby might appreciate.

We'll never know how many of our friends at the party woke up hung over the next morning. But predictably, someone blew the whistle on "excessive spending," and now we have another IRS scandal on our hands. Last week, the party poopers at the Treasury Inspector General for Tax Administration released a 56-page report titled "Review of the August 2010 SmallBusiness/Self-Employed Division's Conference in Anaheim, California". Not surprisingly, they found several ways to "enhance controls over conference spending." How's this for genius advice?

• Don't spend $50,187 to produce parody videos like the one featuring IRS officials as characters from "Star Trek", boldly going where no government employee has gone before. (New York Representative Carolyn Maloney called the video "an insult to the memory of 'Star Trek'" and said "I could do a better Captain Kirk.")

• Don't forget to negotiate with hotels over "details" like room rates, continental breakfasts, wireless internet, or "free" cocktails at a welcome reception with salad, appetizers, fajitas, pasta, and dessert.

• Don't spend $17,000 for a keynote speaker to paint portraits of historic figures, including Bono and Michael Jordan, to illustrate lessons on "unlearning the rules, breaking the boundaries, and freeing the thought processes to find creative solutions to challenges."

• Don't spend $29,364 to let IRS employees living within 30 miles of the meeting stay at conference hotels "to reduce the demands on local travelers who would otherwise experience lengthy commutes daily during the conference and to foster employee morale and team spirit." (Oh, and while you're at it, would it kill you to issue a W-2 to those local employees so they can pay tax on the value of those stays?)

Does $4.1 million really sound like too much for that sort of fun? Unfortunately, IRS procedures in effect at the time of the conference didn't require management to track or report actual expenses, so the Inspector General can't verify how much the whole thing cost. Reassuring, right? The people who make us track receipts for a $4 coffee can't track their own expenses?

Just two days after the report came out, IRS officials trekked to Capitol Hill to commit hari kari. Faris Fink, who now heads the Small Business/Self-Employed division (and who played Mr. Spock in that infamous "Star Trek" video), apologized and confessed he didn't know his agency could have negotiated for lower hotel room rates. Acting Commissioner Danny Werfel called the whole thing "an unfortunate vestige from a prior era" and reported that spending on travel and training has fallen 80% since then.

We send these emails urging you to come in for tax planning week after week. And usually we just assume you know why our proactive tax-planning service is such an obvious no-brainer. But seriously — don't you think you can do a better job of spending your money than the IRS? If so, then call us today to get started with your plan!

An Apple a Day

Back when you were a kid, your mom probably told you "an apple a day keeps the doctor away." Well here's something Mom didn't know — apparently, an apple a day keeps the tax man away, too. At least, that's the conclusion we might draw from recent Congressional hearings focused on Apple Incorporated and its strategies for avoiding taxes!

 Last month, the Senate Permanent Committee on Investigations conducted a hearing compellingly titled "Offshore Profit Shifting and the U.S. Tax Code — Part 2 (Apple Inc.)." The Committee graciously invited Apple's CEO, Tim Cook, to share how Apple avoids U.S. tax. (We can only imagine how delighted Cook was to receive the Committee's "invitation" — no doubt delivered on the same sort of elegant stationery you might use to announce a spring cotillion or send a "thank you" note to Grandmother.)

Here's the issue in a nutshell. Apple earns tens of billions of dollars per year from their innovative desktop and laptop computers, iPods, iPads, and ubiquitous iPhones. And Apple pays billions in tax on its U.S. profits — in 2012 alone, the company paid $6 billion in federal income tax, $327 million in payroll tax, and $830 million in state income tax. But international operations account for about 61% of the company's gross revenue. So Apple's accountants and attorneys, who sound at least as clever as the engineers who design the company's products, find ways to leave that revenue outside the U.S., where it sidesteps our 35% corporate income tax. From 2009-2012, Apple shifted at least $74 billion away from the IRS's reach.

How do they do it? Mainly through use of subsidiaries in places as diverse and exotic as Ireland, Luxembourg, the British Virgin Islands, and Reno (yes, the one in Nevada). For example, Apple owns a holding company organized in Ireland called Apple Operations International. Because the company is domiciled in Ireland, the IRS doesn't consider it to be a U.S. corporation subject to the 35% U.S. tax. But because Apple manages and controls the company from the U.S., Irish law doesn't consider it to be subject to the 12.5% Irish tax, either. Apple Operations International earned $30 billion from 2009-2012 — and didn't even file tax returns for those years. Edward Kleinbard, a law professor at the University of Southern California and former staff director at the Congressional Joint Committee on Taxation says "There is a technical term economists like to use for behavior like this. Unbelievable chutzpah."

Apple's defenders point out that Apple doesn't make the rules — they're just doing their best on behalf of their shareholders with a tax code that "has not kept up with the digital age." CEO Cook points out that Apple has created or supported 600,000 U.S. jobs (including 50,000 for Apple's own employees and 550,000 at other companies) involved in engineering, manufacturing, logistics, and software development, including third-party "app" development. They claim that Apple is probably the biggest corporate income taxpayer in the country, accounting for $1 of every $40 in corporate tax the IRS collected last year. And they argue that they don't use "tax gimmicks" like moving intellectual property offshore to sell products back into the U.S., using revolving loans from foreign subsidiaries to fund U.S. operations, or holding money in Caribbean islands or Cayman Islands bank accounts.

We realize that some of you reading these words will be outraged, and others will be envious. We're not here to pass judgment on Apple's tax strategy. But we do want to point out that Apple pays less tax the same way we help you pay less — through proactive planning. You may not have quite the same opportunities to save as Apple. But you'll never know how much you can save if you don't sit down with us to try. So call us today!

You Think Your Taxes Are High?

The United States and France have been friends for centuries. The French navy provided much of the military might we needed to defeat the British in the Revolutionary War. The French Revolution inspired our own founders to the promise of republican government. And French territory, acquired in the Louisiana Purchase, provided land for 15 of today's 50 states. While the United States and France never shared the same sort of "special relationship" as the United States and England, the two countries have traditionally shared a warm bond.

Today, France doesn't stride quite so mightily across the world stage. But the land of liberte, egalite, and fraternite still sponsors the world's most prestigious bicycle race (now maybe best known for an American cheating). They still host the occasional Jerry Lewis film festival. And really, who does toast better than the French?

Now it turns out there's something else that France does well, and that's taxing its citizens. The French newspaper Les Echos reported last week that thousands of French households paid more than 100% of their 2012 income in tax. Sacre bleu! How can this be?

Last year, the Socialist candidate Francois Hollande ousted the conservative Nicolas Sarkozy to become France's President. Hollande immediately did what Socialists typically promise to do — he hiked taxes. Specifically, the new government imposed a one-time levy on 2011 income for households earning over €1.3 million (roughly $1.67 million). That levy hit top incomes hard. In 2012, over 8,000 households paid taxes topping 100% of their income. 9,910 households paid between 85% and 100%, and a further 12,000 paid between 75% and 85%. And you think you pay a lot?

Hollande wasn't satisfied with that one-time hike. He also proposed an "exceptional solidarity contribution" nearly doubling taxes on about 1,500 top earners with income over €1 million from 41% to 75%. That move led actor Gerard Depardieu and several other high-profile personalities to renounce their French citizenship.

France's Constitutional Council, which rules on the constitutionality of legislation before it goes into effect, struck down that 75% tax as unfair. They didn't have a problem with the rate, per se. They objected that it applied to individuals rather than households — a household with two individuals, each earning €900,000 would escape it, while a household with a single individual earning €1.1 million would pay. However, the council still approved raising the top rate to 45% on incomes over €150,000 (roughly $198,000), cutting several existing loopholes, and stiffening a wealth tax on net assets worth more than €800,000. And Prime Minister Jean-Marc Ayrault has pledged to reintroduce the 75% top rate, using the template provided by the Constitutional Council.

Perhaps not coincidentally, Hollande is now the least popular president in French history. How happy would you be with your President if he wanted three out of every four of your extra dollars!

Fortunately, our taxes are nowhere near that high. But they still aren't any fun to pay. That's why we focus our business on proactive tax planning to help you pay less. Maybe you'll use the savings for that dream vacation you've always wanted. They say Paris is nice this time of year!

Don't Be Like These People

Last week, we talked about the IRS Criminal Investigation unit, which just released their Fiscal 2012 report. That report was filled with the sort of dry statistics you would expect from an IRS annual report: 5,125 total investigations launched, 202 crooked tax preparers indicted, 199 identity thieves sent to prison, and 64 months average time behind bars for money launderers. But the report also includes dozens of stories of tax cheats who really just should have known better — and some whose stories are so entertaining we just had to share them. Are you having a bad day? Well, be glad you're not one of these people!

• Michael Gerace owned Abbott Pizza in Buffalo, New York, where he cooked up delicious pizzas, calzones, and strombolis. He also cooked up a fake set of books for his accountant, shorting Uncle Sam about 500,000 pepperonis over three years. Now, instead of serving happy customers, Geraci is serving 21 months in prison. Here's hoping the warden recognizes his talents and assigns him to the kitchen instead of the license plate shop!

• Miguel Vasquez was a tax preparer in suburban Philadelphia. In 2008 and 2009, he prepared 1,654 fraudulent tax returns claiming fake deductions for fake business losses and applying for fraudulent refunds. Bad move, right? As if that wasn't bad enough, he failed to report the income he earned from defrauding the government on his own tax return! Vasquez can look forward to 10 years in jail, plus a $1.6 million fine.

• Evelyn Wells and her daughter Cassandra Dean recruited friends and family to file false tax returns using fabricated W-2s reporting fabricated employers and fabricated withholding amounts. Those co-conspirators then claimed very real cash refunds. Wells drew a year and a day in prison, while her daughter drew 21 months. We're all for "family values." But this hardly seems like the sort of activity you want to share with the kids!

• Veronica Dale worked for a company that serviced Medicaid beneficiaries, where she stole personal information. She and various co-conspirators used that information to file over 500 fraudulent returns and request $3,741,908 in tax refunds. Dale drew 334 months in prison and a $2.8 million fine. Identity theft has become a top target for IRS criminal investigators, but not everyone seems to have gotten that memo.

• John Walshe owned Finzer Business Systems in Denver. From 2005 through 2007, he withheld $912,286 in income tax and FICA contributions from his employees' paychecks, but "forgot" to send it to the IRS. (He also stole $18,853 in 401k contributions, but who's counting?) Walshe was sentenced to 46 months in the hoosegow, where he'll have a hard time earning enough to pay his $1.3 million fine.

• Miguel Angel Trevino Morales and his brother Omar raised quarter horses at a farm in sleepy Lexington, Oklahoma (population 2,152). The farm turned out more than its fair share of winners, including one named Mr. Piloto who scored a million-dollar purse at Ruidoso Downs. But the farm also turned out horses with curious names like "Number One Cartel" and "Coronita Cartel." It turns out (spoiler alert) that the brothers were laundering cash for Mexican narcotrafficantes. Associates bought horses at auction, sometimes paying with duffel bags of cash. Authorities indicted the Trevinos and seized over 400 horses worth $12 million.

Look, we know you want to pay less tax. But you don't have to risk time behind bars to do it. 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!

Who's Afraid of the Big Bad Wolf?

Our federal government devotes millions of man-hours and billions of dollars each year to law enforcement. The FBI, DEA, and Bureau of Alcohol, Tobacco, and Firearms, along with lesser-known agencies like the U.S. FDA's Office of Criminal Investigations (pursuing criminal violations of food and drug laws), the Department of Commerce's Office of Export Enforcement (responsible for keeping dangerous technology out of the wrong hands), and NOAA's Fisheries Office for Law Enforcement (charged with protecting the ecosystem and marine life) all strike fear in at least somebody's heart.

But there's one agency that has an almost mythical power in most minds, and that's the IRS. The tax cops put Pete Rose and Wesley Snipes in jail. They put Al Capone in jail, for pete's sake! We'd all better watch out, right? Well, you be the judge. Last week, the IRS Criminal Investigation unit released their Fiscal 2012 annual report -- and the findings might surprise you. Here are some of the highlights:

• Investigators cover a wide variety of tax-related crimes beyond the garden-variety tax fraud and celebrity "failure to file" cases that command the biggest headlines. Their work also includes identity theft, offshore tax evasion, tax treaty cases, tax protestors, money laundering, terrorist financing, public corruption, and drug enforcement cases.

• Business is booming -- but numbers are still relatively small considering the 100 million+ returns the IRS collects every year. For Fiscal 2012, the Service initiated just 5,125 investigations, up from 4,720 in 2011. Out of those 5,125 investigations, they recommended 3,710 prosecutions (IRS investigators don't actually prosecute offenders themselves; they turn that job over to the Department of Justice.) There were 3,390 indictments and 2,634 convictions -- the Feds generally don't take you to court if they're not already sure they can win. 2,466 lucky winners drew all-expense-paid trips to "Club Fed."

• Investigators spend a lot of time chasing down crooked tax preparers. For 2012, they investigated 443 suspicious-looking characters, recommended 276 prosecutions, and won 178 convictions. The average convicted preparer earns 29 months in jail, up from 25 months in 2011.

• The IRS continues to uncover people who really just ought to know better. Take Jimmy Dimora, for example, a former Cuyahoga County (Ohio) Commissioner, who found himself looking for ways to supplement his county pay. Dimora took more than $166,000 in bribes to steer contracts to allies, get jobs and raises for associates, intercede with judges on pending cases, and generally abuse his office. Naturally, he forgot to pay tax on those bribes. Jimmy wound up drawing a 336 month sentence for his sideline business. (For those of you who try not to use math on a daily basis, that's 28 years behind bars.)

Do any of these points strike a chord with you? Of course they don't. The average American has nothing to fear from the Criminal Investigations unit. As far as most of us are concerned, the IRS is just the federal government's collection agency, nothing scarier. You've got to do something really outrageous to draw one of those 5,000 case investigations.

We all know taxes are going up this year, and we all know nobody wants to pay. That's the bad news. The good news is you don't have to flirt with IRS Criminal Investigations to pay less. You just need a plan. There's no shortage of court-tested, IRS-approved strategies for minimizing your tax. So if you're still smarting from April 15, and you haven't asked us about our planning service, what are you waiting for?

Late Night Taxes

Television's late-night hosts have entertained us since Steve Allen first took the mic on The Tonight Show back in 1954. Today's late-night monologues riff on serious topics like international politics and economic policy, and silly topics like the "Real Housewives of Lima, Ohio." Naturally, they've also weighed in on our friends at the IRS. So this week, we present some of our favorite tax wisecracks from late-night television:

• "65% of people say that cheating on your income tax is worse than cheating on your spouse. The other 35% were women." (Jay Leno)

• "Just taught my kids about taxes by eating 38% of their ice cream." (Conan O'Brien)

• "Tax day is the day that ordinary Americans send their money to Washington, D.C., and wealthy Americans send their money to the Cayman Islands." (Jimmy Kimmel)

• "President Obama held a press conference earlier today, and he said he still wants to close the Guantanamo Bay prison facility, but he doesn't know how to do it. He should do what he always does: declare it a small business and tax it out of existence. It will be gone in a minute." (Jay Leno)

• "Nobody likes taxes, but they've been around forever. Taxes date back all the way back to the year one, when baby Jesus was visited by two wise men and an IRS agent, who demanded half the family's frankincense." (Jimmy Kimmel)

• "It's fitting that April 14 is National Pecan Day because today, we recognize nuts. And tomorrow, on April 15, we pay our taxes to support them." (Craig Ferguson)

• "Regis Philbin's back in primetime, hosting 11 new episodes of 'Who Wants To Be a Millionaire.' But because of Obama's tax plan, it's been re-titled 'Who Wants To Win Just Under $250,000.'" (Jimmy Fallon)

• "And there are a lot of new taxes coming. California state legislators want to solve our state's giant deficit by taxing marijuana. Meanwhile, Oregon wants to increase a tax on beer, while New York wants to tax Internet porn. You know what this means? By the end of spring break, this whole thing could be paid for." (Jay Leno)

Late-night yucksters make fun of taxes onstage. But you can be sure that offstage, entertainers like David Letterman (2013 salary, $28 million) and Jay Leno ($24 million) think taxes are as funny as a heart attack. They know that proactive planning is the key to paying less. So be sure to call us when you're ready to laugh last with the IRS!

Play Ball

The 2013 baseball season is barely a month old, and fans are already bickering over the first twists and turns. That's because rabid fans are never content to just watch a game. They have to discuss it -- among friends, at the local tavern, and on talk radio. If a pop fly drops for a single behind Cubs center fielder David DeJesus, and no one is there to argue he should have caught it, does it really make any noise?

Statisticians have always delighted in analyzing baseball -- some would say, analyzing it to death. So-called "sabermetricians" (followers of the Society of American Baseball Research, or SABR) pore over arcane stats like "batting average on balls in play" (a measure of how many balls in play against a pitcher go for hits, excluding home runs, used to spot fluky seasons) or "value over replacement player" (a measure of how much a player contributes to their team in comparison to a fictitious replacement player who is an average fielder at his position but below-average hitter).

Now there's a whole new category of relevant statistics for fans to debate. The Journal of Sports Management has just accepted a paper from Fordham University business professor Stanley Veliotis, titled Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes. And this one will blow the lid right off Moneyball! Here's the abstract:

 "This paper derives equivalent gross salary for Major League Baseball free agents weighing offers from teams based in states with different income tax rates. After discussing tax law applicable to professional sports teams' players, including 'jock taxes' and the interrelationship of state and federal taxes, this paper builds several models to determine equivalent salary. A base-case derivation, oversimplified by ignoring non-salary income and Medicare tax, demonstrates that salary adjustment from a more tax expensive state's team requires solely a state (but not federal) tax gross-up. Subsequent derivations, introducing non-salary income and Medicare tax, demonstrate full Medicare but small federal tax gross-ups are also required. This paper applies the model to equalize salary offers from two teams in different states in a highly stylized example approximating the 2010 free agency of pitcher Cliff Lee. Aspects of the models may also be used to inform other sports' players of their after-tax income if salary caps limit the ability to receive adequately grossed-up salaries."

Aren't you glad you've got us to make sense of this stuff? (And this is baseball -- it's supposed to be fun.)

Taxes have always dogged professional athletes. What basketball fan hasn't wondered what role Florida's sunny tax-free climate played in luring superstar LeBron James to the Miami Heat? And really, who can blame golfing great Phil Mickelson for threatening to abandon California to escape a 63% tax rate?

But just imagine the debates this paper will inspire! How will interleague play affect equivalent gross salaries for NL East teams playing even more games in tax-heavy New York? Does A-Rod really come out ahead by sticking with the Yankees? Will fists fly when Canadians realize none of this has any meaning for the lowly Toronto Blue Jays?

You may think the tax code is harder to understand than the infield fly rule. (You may even be right.) But there's one very important difference between baseball and taxes. Stats geeks can use measures like the "player empirical comparison and test algorithm" to guess how players might perform for the rest of the season. But proactive tax planners like us can use proven strategies like the medical expense reimbursement plan, S-corporation, or home office deduction to guarantee less tax. So call us when you're ready to measure some savings that count!

Very Serious Stuff

When most of us think "taxes," we think of federal taxes -- the IRS, Form 1040, and everyone's favorite holiday, April 15. It's true that the IRS is full of Very Serious People collecting Very Serious Taxes. But we can't forget state and local governments either. They collect their fair share of serious taxes -- but they impose some pretty silly tax laws, too. Here are some of our favorites:

• California offers a tax exemption for income you receive to settle claims arising out of the Armenian genocide. If you or your ancestors were persecuted by the Ottoman Turkish Empire between 1915 and 1923, your income from that settlement is tax-exempt. But sadly, if the persecution occurred in 1924 or later, your friends in Sacramento want a share.

• California also imposes a 33% tax on fresh fruit bought from vending machines. Apparently, the folks in charge of promoting healthy lifestyles would rather see you buy cookies or potato chips!

• Maryland imposes a $5.00/month "Chesapeake Bay Restoration Fee" on homeowners and businesses to raise funds to improve sewer treatment plants that discharge into the bay. Naturally, taxpayers have dubbed it the "flush tax."

• Minnesota and several other states impose a tax on marijuana -- in Minnesota, it's $3.50 per gram. But wait, you say . . . pot isn't even legal in Minnesota, is it? Well, no, it's not . . . but if dealers don't pay the tax, the state has another way to bust them. (Remember who finally got Al Capone?) So . . . genius? Or evil genius?

• New York lets you buy bagels and take them home to eat without paying sales tax. But let the counter man slice it, and now it's a "prepared" meal for on-premises consumption -- and subject to an 8% sales tax.

• Oregon generously gives double amputees a $50 tax credit. But lose just one limb and you're out of luck. (Apparently, it costs an arm and a leg to be disabled in Oregon!)

• South Carolina offers a $50 per carcass "Venison for Charity" credit, with an actual form (SC Schedule TC-51) for licensed butchers and meat packers who donate deer meat for distribution to the needy. (We're not making this up.)

• Washington's King County, which includes Seattle, imposes a new $50 fee to report a death to the Medical Examiner's office. Officials call it a crime-prevention measure to give the government enough money to look at more questionable deaths for evidence of crime.

Governments have always found silly ways to nickel-and-dime their citizens. And some of those are just plain unavoidable. (If you live in Maryland's Chesapeake Bay watershed and you've got to go, well, you've just got to go.) But there's nothing silly about wasting money on taxes you don't have to pay. That's why we specialize in proactive tax planning to help pay less. Do you think you paid too much on April 15? Give us a call and let's see if we can save you some serious money!

More Gossip About Presidents and Taxes

If you saw your 2012 tax return splashed all over the internet, you'd probably be pretty unhappy. Maybe you don't want your family, friends, or colleagues to know just how well you did last year. Or maybe you'd want them all to think you had done better than in reality. (Donald Trump is famous for pestering the folks who compile the Forbes 400 list of the richest Americans to rank him higher than they do.) But most of us would rather put our most embarrassing eighth-grade class photo online than our taxes.

Well, President Obama and his family don't have that luxury. Legally, presidential tax returns are as private as anyone else's. However, presidents, vice-presidents, and major party nominees dating back to Richard Nixon have released at least some of their tax return information. The Obamas released their 2012 returns on Friday, and they reveal an intriguing snapshot of presidential finances.

For 2013, the Obamas reported $608,611 in adjusted gross income. This included $400,000 for leading the Free World, $258,772 in book royalties, $11,462 in interest, and a whole $2 in dividends. They also reported $3,000 in long-term capital losses, with an additional $115,516 to carry over to future years or offset future gains. Of course, they enjoy some nifty tax-free perks, too -- helicopters, airplanes, personal chefs and other staff. They also enjoy the use of a 132-room mansion in the heart of Washington, DC, which has been appraised at anywhere from $110 million to $302,021,348.

On the "deduction" side, the Obamas stashed $50,000 into a retirement plan. (That should be reassuring in the event they can't support themselves on the speaking circuit.) They also deducted $45,046 in mortgage interest, $63,305 in state and local tax, and a total of $150,034 in charitable gifts to 33 separate organizations. (The largest single gift, $103,871, went to the Fisher House Foundation, which provides free or low-cost lodging to veterans and military families receiving treatment at military medical centers.)

The Obamas finished up with $335,026 in taxable income. The regular tax on that amount is $87,465, which is more than most voters make in a year. But they got whacked for another $21,221 in Alternative Minimum Tax, plus $6,930 in self-employment tax on the book royalties. Subtract $3,402 in foreign tax credits, and the total bill settles in at $112,214.

What's ahead for next year? Well, if the Obamas report the same income and expenses in 2013, they'll avoid the new 39.6% bracket that kicks in for taxable incomes over $450,000. But they'll lose 3% of their itemized deductions and 2% of their personal exemptions for each dollar of adjusted gross income over a $300,000 threshold. They'll pay an extra 0.9% payroll tax on earned income over $250,000, plus a 3.8% "unearned income Medicare contribution" on their investment income.

Presidents usually find themselves solidly in the "top 1%" that dominated the conversation in last year's election. George W. and Laura Bush reported $784,219 in AGI in the fourth year of his presidency, including nearly $400,000 in interest and dividends. Bill and Hillary Clinton reported $1,065,101 in AGI in the fourth year of his presidency, including $742,852 in Hillary's book royalties that went to charity. And who can forget 1991, when George and Barbara Bush's dog Millie "earned" $889,176 in royalties for "her" memoir, Millie's Book? Of course, the big money comes after leaving office -- these days, Bill Clinton earns as much as $10 million per year from speaking.

We prepare every return to stand up to the same level of scrutiny as the President's. But we understand our real value comes from tax planning. And you don't have to earn a presidential income to take advantage of our proactive approach. So call us when you're ready to pay less!

Hereeeee's Jimmy

Newsman Edward R. Murrow famously said that television is a vast wasteland. But that doesn't stop millions of Americans from tuning in every night for their favorite comedians. Jay Leno, David Letterman, Conan O'Brien, the two Jimmies (Fallon and Kimmel) and their wannabe imitators squeeze out one last wisecrack before bedtime.

NBC's Tonight Show has been broadcasting since 1954, which makes it the longest-running entertainment program on air. Amazingly, it's had just five hosts since it's inception: Steve Allen from 1954-57, Jack Paar from 1957-1962, the legendary Johnny Carson from 1962-1992, Jay Leno from 1992-2009, and Conan O'Brien for eight short months in 2008-2009. Leno returned in March of 2010, but, in Hollywood's worst-kept secret, announced last week that he would be giving up his chair to current Late Night host and Capitol One pitchman Jimmy Fallon. Leno congratulated Fallon in his monologue last Wednesday: "I just have one request of Jimmy. We've all fought, kicked and scratched to get this network up to fifth place, okay? Now we have to keep it there. Jimmy don't let it slip into sixth. We're counting on you."

And more news . . . the show is leaving its studio in "beautiful downtown Burbank," California, where it's made its home since 1972, and returning to New York's 30 Rockefeller Plaza. There are lots of reasons to move back to the East Coast. Lorne Michaels, the producer behind NBC's longtime New York-based Saturday Night Live, is taking over at The Tonight Show, and host Fallon is already headquartered there. But there's one more behind-the-scenes reason that may be more important than all the rest. That's right, the tax man is welcoming The Tonight Show back with open arms!

Hosting a program like The Tonight Show is big business, and states naturally compete for it. New York decided to play hardball, and Governor Andrew Cuomo and the New York state legislature passed a sweetheart tax deal, dubbed the "Jimmy Fallon tax credit," to lure The Tonight Show back. The credit is available to "a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season in New York." The show has to have a budget of more than $30 million or drop at least $10 million in capital expenses every year. It has to be filmed before a studio audience of at least 200 people. The credit is worth 30% of production costs. Remember, a tax credit is a dollar-for-dollar reduction in tax, not a deduction from taxable income. Assuming the show spends $30 million on production, that means $9 million in New York tax savings to parent company NBC. That's not a bad little bonus for a program that's estimated to make between $25 and $40 million per year!

That's some suspiciously targeted legislative language, isn't it? It doesn't have the broad reach of, say, "Congress shall make no law . . . abridging the freedom of speech." But it got the job done, and Governor Cuomo issued the following statement: "The original Tonight Show ushered in the modern era of television, broadcast here from New York. It is only fitting that as The Tonight Show returns to our state, it will be headlined by New York's own native son and resident, Jimmy Fallon. Today's announcement builds on the recent surge of television and film production happening here in New York that has restored our state as a global film production capital and driven the creation of new jobs and business growth throughout the state. I welcome The Tonight Show home."

We talk a lot here about tax planning. We're glad to see the folks at The Tonight Show listen! Keeping up with new opportunities is an important part of our job. We can't always find you million-dollar credits, but we can promise a proactive attitude. So call us when you're ready to pay less!

New Audit Risk

New Audit Risk

 When it comes to audits, our friends at the IRS are interested in examining returns as accurately as possible. (No, they're not just interested in squeezing out more tax, and some audits actually result in refunds.) So the folks in the Small Business/Self-Employed area have compiled a series of Audit Technique Guides to help examiners with insight into issues and accounting methods unique to specific industries. As the IRS explains, "ATGs explain industry-specific examination techniques and include common, as well as unique, industry issues, business practices and terminology. Guidance is also provided on the examination of income, interview techniques and evaluation of evidence."

There are currently dozens of ATGs available. Some are straightforward and predictable, like attorneys, consultants, and child care providers. Others are more specialized or esoteric, like art galleries, cost segregation studies for real estate investors, and timber casualty losses. At one point, there were even two separate guides for Alaskan commercial fishing activities -- one for the fishermen who catch the fish and another for the vendors who sell it. You can find all of them online -- if you find yourself on the business end of an audit notice, reading your own industry's guide is like taking a sneak peek at your opponent's battle plan!

Naturally, the IRS wants to keep up with new challenges in new industries. And identity theft is one of those new industries playing a growing role in today's electronic and online economy. Identity thieves pretend to be someone else to access resources or obtain credit and other benefits -- like fraudulent tax refunds -- in that person's name. The problem is serious enough that the IRS has put identity theft at the top of its annual "dirty dozen" list of tax scams. And now, this year, the IRS has just issued an Audit Technique Guide for identity thieves.

You might be surprised that the IRS is publishing an audit guide for a clearly illegal business. But U.S. citizens are subject to tax on all worldwide income, from whatever source derived. The IRS really doesn't care how you make your income -- they just want their fair share. (Remember who finally nailed Al Capone?)

The good news is, there are plenty of legitimate deductions you can take to cut the tax on your spoils from identity theft. For example, you can deduct home office expenses if that's where you phish for information. Your home office qualifies if you use it "exclusively and regularly for administrative or management activities of your trade or business" and "you have no other fixed location where you conduct substantial administrative or management activities of your trade or business." To substantiate your deduction, keep a log and take photos to record your business use. It doesn't have to be an entire room -- you can claim any "separately identifiable" space you use for work. Rev. Proc. 2013-13 even offers an optional "safe harbor" method for deducting $5/foot for up to 300 square feet!

You can capitalize equipment like computers and printers that you use for hacking, or choose first-year expensing for faster deductions. You can also deduct day-to-day expenses, like internet access, utilities, and vehicle costs for driving to trash dumpsters to find personal information (mileage allowance or actual expenses). Some aggressive practitioners argue that you can even deduct business-related dry-cleaning expenses for "dumpster diving" outfits; however, there's no formal authority for this position.

We'll finish here with two important warnings. First, remember that identity theft is still a serious crime. If you're caught, you can face crushing fines, serious jail time, or both. And second, be very careful with anything you read around April Fools' Day!

Marry for Love

April 15 is almost here, and many of you are still scrambling to get your returns ready to file. Here's a collection of fun quotes to help you "sprint to the finish" this tax season:

"Another difference between death and taxes is that death is frequently painless."
Anonymous

"A fine is a tax for doing something wrong. A tax is a fine for doing something right."
Anonymous

"A citizen can hardly distinguish between a tax and a fine, except the fine is generally much lighter."
G.K. Chesterton

"Alexander Hamilton started the U.S. Treasury with nothing, and that is the closest our country has ever been to being even."
Will Rogers

"A person doesn't know how much he has to be thankful for until he has to pay taxes on it."
Ann Landers

"The best things in life are free, but sooner or later the government will find a way to tax them."
Anonymous

"The way taxes are, you might as well marry for love."
Joe E. Lewis

"People who complain about taxes can be divided into two classes: men and women."
Anonymous

"Once -- just once -- I'd like to be fixed up with a guy who earns in a year what I pay in taxes."
Anonymous Female Lawyer

"I'm putting all my money in taxes -- it's the only thing sure to go up."
Anonymous

Cracking jokes about taxes is easy. Paying less is usually a little harder. That's why we're here -- to give you the plan you need to minimize your bill. So call us when you're ready to get serious about keeping more of what you make!

Help Wanted

On March 8, the Bureau of Labor Statistics announced that the unemployment rate had edged down to 7.7% for February. That's good news compared to the high of 10.1% registered back in October, 2009. But unemployment is still unacceptably high, and surveys show Democrats and Republicans alike are citing jobs as our most pressing problem.

You might think that with jobs still scarce, employers would have their pick of applicants. In fact, the New York Times recently reported that some employers are requiring bachelors degrees for positions like file clerk, dental hygienist, cargo agent, and claims adjustor that don't require college-level skills. Nevertheless, there's one pretty important organization who's having trouble with jobs -- and that employer, surprise surprise, is our old friend the IRS. It's a cushy enough gig -- air-conditioned offices, great holidays and benefits, no heavy lifting, and flexible schedules that let you hit the road before traffic gets ugly. So, what's the problem?

On January 13, the Treasury Inspector General for Tax Administrations ("TIGTA"), an independent board assigned to oversee IRS operations, issued a riveting report with a can't-miss title: "Improvements Have Been Made to Address Human Capital Issues, but Continued Focus is Needed." (Seriously, if John Grisham could write like this, he'd have a real future.) It turns out the IRS has addressed most of the issues TIGTA identified four years ago in their last "human capital" audit. But there are still real problems, even in today's "seller's market" for jobs:

• Total employment is down 9%, from 107,622 at the end of FY 2010, to 97,717 at the end of FY 2012. Simple common sense says that fewer people processing more tax returns means more problems.

• Pending retirements are poised to gut senior staff like a trout. 48% of today's executive managers, 37% of field staff, and 31% of nonexecutive managers will be eligible for full retirement by the end of next year. This lack of experienced leadership will reverberate throughout the organization.

• It takes the IRS an average of 30 days to approve filing open positions, and 54 days to hire anyone from outside the organization. That's down from 157 days in 2009, but still frustratingly long in today's environment.

• New hires report they aren't getting enough coaching and mentoring. That means the new kids on the block will be even less effective at cutting through the red tape and bureaucracy!

We realize you might think "sequestering" the IRS is a good thing. But the IRS is facing real challenges, and we'll all be in trouble without experienced leadership at the helm. The tax code is getting more complicated. ("Obamacare" alone includes 42 provisions that add to or amend the tax code, including eight that require the IRS to build new processes that don't exist within current tax administration.) And the IRS is under increasing pressure to stop billions of dollars in fraudulent or improper tax refunds due to erroneous claims or identity theft. How can they succeed with their most experienced staffers fleeing like lemmings?

What's the bottom line? "TIGTA made no recommendations in this report; however, key IRS management officials reviewed it prior to issuance." Comforting, right?

Dealing with the IRS is never fun. Fortunately, you've got us here, to fight on your behalf even as the fight gets harder. Let us worry about IRS staffing for you -- and remember, we're here for your family, friends, and colleagues, too.

A Rate of Your Own

On January 1, Congress passed a bill to keep the government from leaping off the so-called "fiscal cliff" -- a set of tax hikes so devastating that Washington insiders warned they would ricochet through the economy, plunge us back into recession, and possibly even send the earth spinning into the sun. That bill included raising the top marginal rate on taxable income over $400,000 ($450,000 for joint filers) from 35%, where it had stood for the last 12 years, to 39.6%.

39.6% may sound like a lot today. But it's still really quite low, as far as top rates are concerned. Back in 1935, the nation was mired in the depths of the Great Depression. Inflation was 3.71% and unemployment stood at a whopping 21.7%. As for taxes, the top rate reached 79% on income over $5 million (roughly $85,672,000 in today's dollars). But -- and this is a pretty big but -- according to tax historian Joseph Thorndike, just one person actually paid that rate: billionaire John D. Rockefeller, Jr.

So, lots of rich guys still had city mansions and country estates, even in the midst of the Depression. Lots of millionaires had yachts, jewels, and priceless art. But only Rockefeller was rich enough to have his own tax rate. And that got us thinking -- what would some of today's rich and famous pay if they had their own tax rates?

• Mitt Romney ran for president on the strength of his business record. He took heat from progressives for using the "carried interest" rules to pay around 14% on his multimillion dollar income. But Romney made bigger headlines for a number he thought he was uttering in private -- so we say his bespoke tax rate should be 47%.

• A year ago, British author E.L. James was just a former TV executive, wife and mom of two from the London suburbs. Since then, she's rocketed to fame with three books that some fans prefer to read on their Kindle (to avoid showing the cover). International tax planning leaves room for plenty of shades of grey, so we suggest she pay 50% on her U.S. income.

• Baltimore quarterback Joe Flacco has had a big year. Last month, he led his underdog team to a Super Bowl victory over the favored San Francisco 49ers. Last week, he signed a $120.6 million contract making him the highest-paid player in NFL history. And it's only March! Flacco wears Number 5 for the Ravens, so we think it's only fair that he pay 5% of his income in tax. (Receiver Anquan Boldin, who wears Number 81, does not like where this discussion is going!)

• Reality "star" Kim Kardashian is back in the news again, this time for carrying rapper Kanye West's baby. Kardashian's previous relationship, a marriage to Brooklyn Nets power forward Kris Humphries, lasted 72 days -- so we'll tax Kim at 72%.

• Kiefer Sutherland should pay 24%. Morley Safer should pay 60%. And Nick Lachey should pay 98%. (Not just because his band is named 98 Degrees, but because we should try and tax all "boy bands" out of existence.)

Who do you think should have their own tax rate, and what should they pay? Let us know! In the meantime, remember that you don't have to have your own tax rate to pay less. You just need a plan. That's what we're here for. And we're always here for your family, friends, and colleagues, too!

Tax Strategies for Asteroid Impacts

Tax Strategies for Asteroid Impacts

On February 22, 2012, a telescope in Spain discovered an asteroid, 150 feet across, in an orbit that would bring it uncomfortably close to earth. Astronomers reassured us that we would be safe -- this time -- but that it was "a wakeup call for the importance of defending the Earth from future asteroid impacts." Last month, that asteroid, named 2012 DA14, passed within 17,200 miles of earth at a speed of nearly 17,500 miles per hour. That's a hairsbreadth in cosmological terms -- it actually flew under the ring of communications satellites orbiting earth before it headed safely back out into space. 

Earth isn't always so lucky. Ironically, on the same day that 2012 DA14 flew by, a meteorite struck outside the remote Russian town of Chelyabinsk with the power of 30 atomic bombs. Amazingly, no one was killed. A century ago, a meteor broke up with similar force over Russia's Tunguska forest, flattening an estimated 80 million trees. Again, amazingly, no one was killed. And just last week, astronomers discovered a comet that could strike Mars next year with an apocalyptic force equal to 25 million times the largest nuclear weapon ever tested on earth. 

But what if 2012 DA14 hadn't passed harmlessly by? What if it had struck the earth, with its estimated 3.5 megatons of energy and 200 times the power of the atomic bomb that destroyed Hiroshima? What would our friends at the IRS have done? 

It probably won't surprise you to learn that the doomsday preppers at the IRS have a well-established disaster plan. Internal Revenue Manual Section 10.2.10 outlines comprehensive continuity planning requirements for all sorts of emergencies, including "natural disasters, accidents, technological failures, workplace violence, and terrorism." The goal, in all cases, is "to ensure the continuation of IRS mission essential functions under all circumstances." And Section 25.16.1, updated just last June, lays out pages of disaster assistance and emergency relief program guidelines

So, what actually happens if a chunk of space rock takes out Washington or another major city? The plan assumes that the IRS will resume assessing and collecting taxes within 30 days of the strike. They might be authorized to make cash grants to survivors, or buy assets destroyed in the disaster (and even pay off any outstanding bank loans or mortgages). IRS employees could be reassigned to any job "regardless of and without any effect on the current positions or grades of the employee."

At one point, the Manual even appeared to give delinquent taxpayers a "Get Out of Jail free" card. "On the premise that the collection of delinquent accounts would be most adversely affected, and in many cases would be impossible in a disaster area, the service will concentrate on the collection of current taxes," it said. Of course, that rule would apply only in the disaster area: "However, in areas where the taxpaying potential is substantially unimpaired, enforced collection of delinquent taxes will be continued." Ouch!

The tax code gives you plenty of breaks if your own stuff gets taken out from space. You can deduct unreimbursed damage caused by a meteor strike or other sudden, unexpected, or unusual event. You'll have to reduce the amount of your loss by $100, then by 10% of your adjusted gross income. Then you'll report the remaining amount on Form 4864.

None of us like paying taxes -- but you don't have to wait for an asteroid strike to pay less. The real answer, of course, is planning. And if "continuity planning" is the answer for the IRS, tax planning is the answer for us. So call us before disaster strikes, and see how much you can save!

Tax Strategies for Asteroid Impacts

On February 22, 2012, a telescope in Spain discovered an asteroid, 150 feet across, in an orbit that would bring it uncomfortably close to earth. Astronomers reassured us that we would be safe -- this time -- but that it was "a wakeup call for the importance of defending the Earth from future asteroid impacts." Last month, that asteroid, named 2012 DA14, passed within 17,200 miles of earth at a speed of nearly 17,500 miles per hour. That's a hairsbreadth in cosmological terms -- it actually flew under the ring of communications satellites orbiting earth before it headed safely back out into space. 

Earth isn't always so lucky. Ironically, on the same day that 2012 DA14 flew by, a meteorite struck outside the remote Russian town of Chelyabinsk with the power of 30 atomic bombs. Amazingly, no one was killed. A century ago, a meteor broke up with similar force over Russia's Tunguska forest, flattening an estimated 80 million trees. Again, amazingly, no one was killed. And just last week, astronomers discovered a comet that could strike Mars next year with an apocalyptic force equal to 25 million times the largest nuclear weapon ever tested on earth. 

But what if 2012 DA14 hadn't passed harmlessly by? What if it had struck the earth, with its estimated 3.5 megatons of energy and 200 times the power of the atomic bomb that destroyed Hiroshima? What would our friends at the IRS have done? 

It probably won't surprise you to learn that the doomsday preppers at the IRS have a well-established disaster plan. Internal Revenue Manual Section 10.2.10 outlines comprehensive continuity planning requirements for all sorts of emergencies, including "natural disasters, accidents, technological failures, workplace violence, and terrorism." The goal, in all cases, is "to ensure the continuation of IRS mission essential functions under all circumstances." And Section 25.16.1, updated just last June, lays out pages of disaster assistance and emergency relief program guidelines 

So, what actually happens if a chunk of space rock takes out Washington or another major city? The plan assumes that the IRS will resume assessing and collecting taxes within 30 days of the strike. They might be authorized to make cash grants to survivors, or buy assets destroyed in the disaster (and even pay off any outstanding bank loans or mortgages). IRS employees could be reassigned to any job "regardless of and without any effect on the current positions or grades of the employee." 

At one point, the Manual even appeared to give delinquent taxpayers a "Get Out of Jail free" card. "On the premise that the collection of delinquent accounts would be most adversely affected, and in many cases would be impossible in a disaster area, the service will concentrate on the collection of current taxes," it said. Of course, that rule would apply only in the disaster area: "However, in areas where the taxpaying potential is substantially unimpaired, enforced collection of delinquent taxes will be continued." Ouch! 

The tax code gives you plenty of breaks if your own stuff gets taken out from space. You can deduct unreimbursed damage caused by a meteor strike or other sudden, unexpected, or unusual event. You'll have to reduce the amount of your loss by $100, then by 10% of your adjusted gross income. Then you'll report the remaining amount on Form 4864. 

None of us like paying taxes -- but you don't have to wait for an asteroid strike to pay less. The real answer, of course, is planning. And if "continuity planning" is the answer for the IRS, tax planning is the answer for us. So call us before disaster strikes, and see how much you can save!

Biggest. Crybabies. Ever

Biggest. Crybabies. Ever.

 Here in America, we're used to people running to court every time life throws a curveball. Spill hot coffee in your lap? Sue McDonald's! Get drunk, drive your car into a bay, and drown because you can't open your seat belt underwater? Mom and Dad can still sue Honda and win $65 million! Electrocute yourself trying to rob a bar? There's a lawyer for that! 

Earlier this month, though, we saw some satisfying comeuppance in one of those cases that makes us roll our eyes in amazement.

 First, a little history. UBS is Switzerland's biggest bank -- and, like most Swiss banks, it used strict Swiss secrecy laws to attract depositors. They solicited Americans to open accounts, knowing full well that many of them were using those accounts to cheat the IRS -- and in some cases, even advising them how to do it. In 2007, a disgruntled employee blew the whistle (and earned a record $104 million reward in the process). Two years later, UBS paid $780 million and ratted out 4,700 clients to settle charges. The scandal scared 35,000 taxpayers into joining an IRS amnesty program, coughing up over $5 billion in back taxes to dodge criminal charges.

 You would think that people 'fessing up to a pretty serious felony would just slink back home with their tails between their legs. Right? Well, you would be wrong . . . at least here in America. What do we do here? We sue the bank for not stopping us from cheating!

The three plaintiffs in Thomas V. UBS each hid money with the bank, in amounts ranging from $500,000 to $2 million. They didn't report the existence of the accounts on their tax returns, as the law requires. They didn't report the interest they earned on their accounts. And of course, they didn't pay tax on that interest. When the scandal broke, they scurried to the shelter of the amnesty program, paying taxes, interest, and a 20% penalty. 

Then, what did they do? They hauled UBS into court to recover the penalties, interest, and other costs they incurred to come clean. Why? Because UBS profited from the fraud and other wrongful acts they committed when they induced depositors to bank with them in the first place!

 Fortunately for those of us on the side of common sense, the case ended up before Appeals Court Judge Richard Posner. Posner is one of the judiciary's most colorful characters, author of nearly 40 books, and not afraid to call B.S. when he sees it. His comments dismissing the plaintiffs' complaint are especially scornful -- you can almost hear him literally laughing them out of court:

 "Our plaintiffs do not argue that they (or other members of the class) received tax advice from UBS. They argue rather that the bank should have prevented them from violating the law. This is like suing one's parents to recover tax penalties one has paid, on the ground that the parents had failed to bring one up to be an honest person who would not evade taxes and so would not subject himself to penalties. There is in general no common law duty to prevent another person from violating the law. 

We needn't discuss the plaintiffs' remaining claims--of negligence and malpractice--as they are frivolous squared. This lawsuit, including the appeal, is a travesty. We are surprised that UBS hasn't asked for the imposition of sanctions on the plaintiffs and class counsel."

The irony here is that none of the plaintiffs who spent their money on alpine vacations had to cheat to pay less tax. They just needed a plan to take advantage of perfectly legal concepts and strategies. We give you that plan to pay less tax, legally. So now you can spend time in Switzerland visiting chocolate factories and cuckoo clocks -- not your hidden bank accounts!

Cruising in Style

Cruising In Style

Cruising the high seas has become an increasingly popular way to travel, with over 14 million Americans cruising in 2010. Cruise fans love the convenience of unpacking just once and letting a floating resort take them from one glamorous destination to another. Cruise critics cringe at the stereotypical cheesy Vegas-style shows, 'round-the-clock buffets, and abbreviated shore excursions to the same chain retailers they can visit at their local mall. But all of us were thoroughly disgusted by this month's sordid tale of the Carnival Triumph, the mega-ship that lost power in the middle of the Gulf of Mexico. Four-hour waits for onion sandwiches sound bad enough from a ship that prides itself on a reputation for all you can eat. But just imagine 4,200 passengers and crew lining up to use 12 working toilets, and you'll immediately understand why observers dubbed the ship a "floating petri dish." 

Carnival's spinmeisters clearly recognize a PR disaster when they see a towboat dragging it past them at 5 knots. They've agreed to give passengers a full refund for cruise and transportation costs, plus $500 in cash, plus a credit for a free future cruise. (Wonder how many will take them up on that offer?) That didn't stop passengers from suing, however, with the first action filed mere hours after the boat finally docked in Mobile harbor. 

But it turns out the Triumph's passengers aren't the only ones who are less-than-delighted with Carnival. Would it surprise you to learn that our friends at the IRS aren't fans either? 

Carnival takes a lot of help from the government. As the New York Times reports, "The Carnival Corporation wouldn't have much of a business without help from various branches of the government. The United States Coast Guard keeps the seas safe for Carnival's cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries. State and local governments have built roads and bridges leading up to the ports where Carnival's ships dock." 

Those government subsidies have helped Carnival become the biggest cruise line in the world, based on passengers carried, annual revenue, and total number of ships. The company's "fun ships" earned $11.3 billion in profit over the last five years. So, how much did the IRS get in exchange for all that government help? Well, Carnival's total "cash taxes paid," including federal, state, local, and even foreign taxes, add up to a miserly 1.1%. 

How does Carnival do it? Mainly through "offshoring," a popular strategy for corporations in industries as diverse as technology, pharmaceuticals, and even online advertising. Carnival's executives work out of offices in Miami, and the holding company's stock trades on the New York Stock Exchange. But the operating company is incorporated in Panama, and the actual ships are "flagged" in Panama or the Bahamas. 

Offshoring has been so successful that Carnival's founder Ted Arison offshored himself -- he renounced his U.S. citizenship and moved back to his native Israel to avoid U.S. estate tax back in 1990. Arison was one of the world's richest men at his death, with an estimated net worth of $5.6 billion. Unfortunately, at least for his heirs, he died nine months before achieving the 10-year absence from the U.S. that was necessary to avoid the tax. 

Carnival is hardly the only U.S. corporation to use perfectly legal strategies to cut its tax. The Times reports that over the last five years, Boeing has paid just 4.5% (in part by making outsized contributions to its pension fund and taking advantage of tax breaks for research and development on new planes); Southwest Airlines paid 6.3% (in part through accelerated and bonus depreciation on new plane purchases); and Yahoo paid 7% (in part through net operating losses the company racked up in previous years). But Carnival's planning just seems more shrewd than most. 

We can't imagine anything much worse than spending five days in the open sea with no power for lights, air conditioning, or hot water. But paying more tax then you legally have to is no boatload of fun, either. Fortunately, you don't have to spend days adrift at sea to accomplish that. You just need a plan. And we're here to get you shipshape. So call us when you're ready to pay less!

Sneaky Sneaker Tax

Sneaky Sneaker Tax

Today's tight economy is forcing governments at every level to stretch for new revenue, with varying degrees of success. In Washington, the dysfunctional family known as "Congress" just raised the top income tax rate to 39.6%, and there are new taxes on earned income and investment income as well. But when President Obama proposed cutting loopholes to raise even more money as an alternative to the budget sequester, his idea was met mostly with scorn. 

Most state governments are in fiscal hot water, too. But Illinois may be worst off of all. Nearly $100 billion in unfunded pension liability is crushing the state budget. Last week, the bond ratings agency Standard & Poor's downgraded the Land of Lincoln's score to last in the nation. Ratings rival Moodys ranks Illinois at the same level as the African nation of Botswana. (Some observers might ask what else you could expect from a state that defines "bipartisanship" as having both Democratic and Republican ex-governors in jail at the same time.) 

The cash crunch has left Illinois's discretionary spending programs gasping for funding. So it's no surprise that beleaguered lawmakers are looking for creative ways to protect favored programs. And one representative thinks he's found a solution. State Rep. Will Davis (D-Hazel Crest) has proposed a 25 cent tax on athletic shoes which would raise $3 million per year for Illinois YouthBuild, a nonprofit organization with 16 programs providing job training for disadvantaged youth. 

Targeted taxes are nothing new, of course. The federal gasoline tax raises about $25 billion per year, with most of that dedicated to the Highway Trust Fund. Governments are especially fond of so-called "sin taxes" targeting irresponsible or undesireable behavior. That's why we see cigarette tax revenue going towards lung cancer research, soda taxes targeting obesity, and even a new 10% tax on tanning bed revenue. 

And a sneaker tax sounds simple enough -- especially compared to, say, the rules for Alternative Minimum Tax net operating loss carryforwards. (That's a real thing, by the way, and it's every bit as awful as it sounds.) But as is usually the case with taxes, the devil's in the details. Davis's tax would apply to any "shoe designed primarily for sports or other forms of physical activity." So, does "walking" count? What about hiking boots, ski boots, or snowshoes? Will there be refundable credits for sneaker-buying families earning less than the poverty level?

 But the real problem is that Rep. Davis's sneaker tax might open the floodgates to imitators. Just consider what other targeted taxes might be next:

• A tax on Valentine's Day flowers to support marriage counseling services?

• A tax on snowplows to support research into global climate change?

• A tax on footballs to keep replacement refs off the field?

• A tax on "reality TV" shows to support public broadcasting?

Nobody really wants to see new taxes, of course. But we all know we have to pay something. What sort of new tax could you support, and where would you spend the revenue it raises? Let us know what you think. And remember, no matter what gets taxed, we're here to help you pay less!