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Monday
Oct132014

Derek Jeter’s Retirement Gifts Are Taxable

Derek Jeter received many fine gifts on the occasion of his retirement from baseball. As tax attorney Rob Wood points out in this report and in his Forbes article “Derek Jeter's Big Tax Bill On 'Gifts' That Really Aren't Gifts,” Jeter will owe some taxes on these gifts.

 

Jeter earned about $265 million during his baseball career. As he left baseball, he received a number of gifts from the Yankees and from other baseball teams. Wood notes that most of us assume, usually correctly, that a gift is not income. However, things are not always what one might expect. “The question is, are these gifts the way you give a child or family member a Christmas gift” or are they promotional items? Wood says that these gifts are business gifts, and the baseball clubs are deducting them as expenses. That makes them taxable to Jeter.

Wood notes that the gifts received by Jeter include golf clubs, wine, vacation packages, cowboy boots, a kayak, framed jerseys autographed by the two captains of the Cincinnati Reds, photos of the day Jeter was named captain, a massage therapy machine, a 10-day trip to Italy, Waterford Crystal, a seat from the Kingdome (where Jeter made his major-league debut), and a $34,000 watch.

There is also a distinction between gifts given to an employee to encourage him to stay and gifts like these. There are valuation issues, Wood says, but these gifts will be taxable. The amount due will be about $16,000. Wood notes that Jeter will have no trouble coming up with the money. Situations like this are the reason celebrities and sports stars need to have tax advisors.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

 

Monday
Oct132014

IRS Falls Short in Collecting Unpaid Taxes

The IRS, which already has more problems than it needs, has gotten another black eye, this time from the Treasury Inspector General for Tax Administration (TIGTA), for failing to collect unpaid taxes. Tax attorney Rob Wood discusses the TIGTA audit in this report and in his Forbes article “IRS Flubs 57% Of Tax Collections, Says Audit Of IRS.”

 

The report finds that the IRS has been doing a bad job of collecting taxes owed to them. As Wood points out, anyone who has had a bad experience with vigorous tax collection efforts by the IRS will be put off by reading that many others are getting away with nonpayment of taxes owed.

TIGTA’s report finds that the agency is not following its own rules on collecting taxes and “is leaving a lot of money on the table.” The amount not collected is about $6.7 billion, a considerable sum to ignore. Wood believes that it is hard for the IRS to follow its own rules, but it is essential that the IRS do a better job than this.

Wood explains that the “overwhelming majority of the US tax system is based on self-assessment.” That’s why it is so critical for Americans to believe in the system and to believe that everyone is being treated the same. Wood says that apparently most of the uncollected taxes result from taxpayers who did self-assessment, who can’t pay the full balance, and who send in what they can. The problem is that the IRS has not followed up in these situations.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Thursday
Oct092014

IRS Reform—Can Congress Get the Job Done?

 

The IRS has received a lot of bad press about bonuses and lost emails, among other things. Congress has made some moves in the direction of reforming the IRS and the tax code. Tax attorney Rob Wood discusses what is happening in this report and in his Forbes article “Congress Moves To Reform The IRS.”

 

Wood says that much of the discussion has to do with reforming the tax laws. He opines that most of the measures under consideration will probably not pass through Congress. But there are some measures under consideration that would change how the IRS does business. Wood suggests that several of the proposals are more political than anything else.

There have been a number of discussions about a flat tax of some kind, and Wood supports this approach. “The system is really moribund. It is a snarl of complexity.” Wood says that the tax laws are so complex that no one person can probably understand them all. Businesses and individuals get trapped by the byzantine provisions of the law, and even tax professionals sometimes get it wrong.

Wood mentioned Herman Cain’s 9-9-9 proposal as perhaps a move in the right direction. A plan like the Cain plan might help eliminate problems like corporate inversions, which have been in the news so much lately. Cain’s plan drew some opposition because of its inclusion of a federal sales tax. Wood points out that a plan like Cain’s could provide some breaks for low-income taxpayers such that they might actually pay less in total taxes than they are paying under our current system. The tax on the upper incomes could be less than 20% and still produce appreciable revenue.

Wood says that politics and a very divided Congress make it unlikely that reform will occur in the foreseeable future.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Wednesday
Oct082014

Apple’s 2% Tax Deal with Ireland—Legal?

Apple, like many companies, is always looking for ways to reduce expenses, including taxes. Apple has struck a deal with Ireland that apparently will give it, in effect, a 2% tax rate in a country where the published corporate tax rate is 12.5%. Tax attorney Rob Wood discusses the situation in this report and in his Forbes article “If Apple's 2% Irish Tax Deal Is Illegal, Fines Could Be Billions."

 

Wood notes that Apple could be facing billions of dollars in fines if the arrangement is found to be illegal. Wood cautions that his comments are based on what has been made public about the deal in the EU report. “The EU . . . has taken umbrage at what it sees as Apple’s extraordinarily favorable deal with Ireland.” Wood points out that Ireland’s low corporate tax rate has attracted interest from companies such as Google, Facebook, and Twitter, causing them to put some kind of entity in Ireland.

What this is all about, says, Wood, is whether Apple is getting an inappropriate tax break from Ireland and whether Apple did something wrong. The essence is that Apple will get a tax break in exchange for bringing a lot of business to Ireland. Apple is saying that it did nothing wrong, that the deals are perfectly legal, and that Apple has an obligation to its shareholders to get the best tax deal it can get.

The concern from the EU standpoint is illegal corporate financing. “Under EU law, state financing for individual companies is heavily restricted.” Apple denies that it is receiving any state aid from Ireland. Wood points out that tax deals in exchange for corporate consideration are common in the U.S., where various states compete vigorously for new corporate money by providing all sorts of tax breaks.

This story will be interesting to watch as it plays out.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Friday
Oct032014

Tax Inversions: Treasury Department Strikes Back with New Rules

 

On September 22, the Treasury Department issued new rules aimed at discouraging US companies from moving their headquarters to countries with lower tax rates—the corporate inversions much in the news lately. Tax attorney Rob Wood discusses this latest government in this report.

 

Wood feels the new rules don’t solve the problem of tax inversions. They are rather complex and not easy summarize, Wood says, and they have the problem of being administrative rules rather than laws passed by Congress.

The new rules also have the problem that they are not merely prospective; they have an effect on transactions already in process. Wood says that this sort of thing has happened before, although most administrative rulemaking is prospective only. Wood says that, in the case of Medtronic, an effort is being made to comply with the new rules. The biggest effect is that the new rule will make things more difficult and expensive, but not impossible. [Note: the Medtronic inversion was the subject of an earlier LBN report.]

The rules apparently will allow inversions where the US ownership percentage is in the 60-80% range. Wood opines that one problem with the recent action by Treasury is that it more or less lets Congress off the hook and permits them to do nothing to respond to complaints. Had the new rules not been promulgated, Congress would have been pressured to act. Wood says that the tax code is a mess, but the new rules are a “rifle shot” aimed at a specific type of transaction, but this sort of approach is like to slow down any comprehensive tax code reform.

Wood suggests that the new rules are not so much a revenue measure as an effort to respond to react to public opinion about inversions. Wood says that the president has used “patriotism” in talking about these transactions, a suggestion that public opinion is the driving force here.

Wood does not know whether the new effort will lead to a reduction in corporate tax rates, but he believes they should be lowered. One thing militating against the lowering of corporate tax rates is the feeling that it is wrong for big corporations to be taxed at a lower rate than individuals. However, Wood notes, our two-tiered tax system imposes taxes on corporations as well as taxes on shareholders, and salaries paid to corporate employees.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group