Since Bitcoin’s emergence in 2009, the cryptocurrency market has grown to over 4,000 variations of the virtual currency. With the government erring on the side of caution regarding the medium of exchange, different agencies have had to figure out how to regulate it as well. In recent news, the IRS has made efforts to improve compliance by sending letters to over 10,000 individuals who failed to file or filed incorrectly tax returns related to their use of virtual currency.

After receiving a letter, tax payers will have a chance to assess their errors and submit or amend their returns. The three types of letters are Letter 6173, 6174, and 6174 -A with the message included determined by information and research collected by the IRS through multiple channels.

Letter 6173 states you “may not have met your U.S tax filing and reporting requirements for transactions involving virtual currency” meaning the IRS has evidence you failed to report or didn’t file a return. Recipients must amend or submit returns, or they must respond with an explanation of their actions signed and “declared under penalty of perjury.”

Letter 6174 says the IRS believes “you may not know the requirements for reporting transactions involving virtual currency” meaning they don’t have definitive proof but think that a mistake may have been made. The letter is intended to be educational so recipients should examine their returns for violations, but a response is technically not required.

Letter 6174-A states you have an account that “may not have properly reported your transactions involving virtual currency” meaning you may have reported related transactions, but they were filed incorrectly. Individuals could have used the wrong schedule or form to classify the related business, so the IRS believes their tax filings need to be reviewed for accuracy.

Even if you’re not one of the thousands to receive one of these letters, the IRS still suggests reviewing your returns if you have used virtual currency in the past. Fixing reporting mistakes is seen positively in the eyes of the IRS and will help you avoid worse penalties or investigations in the long run. Considering the agency launched a campaign regarding Virtual Currency Compliance last year, their investigators won’t be passive in handling these tax matters.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.

NFL teams across the country have commenced their annual training camps in preparation for the upcoming football season. While most organizations keep things local holding their camps near their regular headquarters, the Dallas Cowboys take a thousand-mile trip west to breezy Oxnard, California. Although the cooler weather and isolated location bring advantages, one thing players may not enjoy are the additional state taxes.

California has the highest state tax rate, which has become a significant consideration for many sports-related decisions from trades to travel. Since training camp is an unpaid part of the job, individuals will essentially end up paying to practice in California in the form of the state’s 13.3% income tax. For players that get cut from camp early, the situation seems even worse as they will still be liable for state taxes based on the days they did complete.

The total amount players will owe to California is calculated by using a duty day ratio based on days spent in the state compared to total working days in a season. When considering summer training, potential games, and a minicamp back in June, the Cowboys will spend 20 days of their 172 duty days (160 for new players) working in California this year. Training camp represents 16 of those days making about 10% of player’s income taxed in California just for those two weeks of practice.

Looking at what the Cowboy’s multimillion-dollar players will pay for camp, Amari Cooper and Tyron Smith will pay roughly $158,000 and $177,000 respectively. Their total California tax bill for the year will include an additional estimated $40,000 considering pre-season and playoff games.

All this considered, Jerry Jones may want to think about looking into a different location for their training camp. Using their home state of Texas or an alternate lower tax state could save the organization a lot in travel bills  and taxes. Ultimately, the end game is that the choice of location was probably made after looking at the cost/benefit scenario from multiple angles. In any case, having an expert tax advisor on your team can help you and your organization avoid unnecessary fumbles.

With over 30 years’ experience consulting with industry-leading companies, we understand the challenges facing individuals with generating and protecting income. Whether you’re looking to improve your profitability, build your brand through a business transaction or capital raise, Talley is the consulting and financial services firm dedicated to strategic business solutions that deliver meaningful results.

Now that the dust is settling on the latest NBA draft, the sole focus of basketball fans around the world is on this off season’s latest crop of free agents. While there are a variety of decision-influencing factors for both teams and players, the state or country of a team determines more than just where the players’ home games will be. In the cases of some of the most wanted players such as Kawhi Leonard, the tax implications of playing for different teams will play a role in the final verdict.

Players for teams located in Texas, Florida, and Tennessee enjoy having no state income taxes, whereas state income taxes are highest for professional athletes residing in California (13.3%), Oregon (9.9%), and Minnesota (9.85%). For out of country players like Kawhi of the Toronto Raptors, being a U.S. resident and Canadian player can make things even more complicated. To start, these American player’s pay taxes on their Canadian income in Canada with provincial and federal taxes not to exceed 53.53%. They are also liable for U.S. income tax requirements not to exceed 37%, potential state taxes based on residency, and jock taxes. Even with a tax credit from Canada, the overall cost can equate to over 10% of a players earnings.

American professional athletes are subject to “jock taxes” in other states where they play, practice and earn income. It is calculated by dividing the number of work days spent in a state by the player’s total number of work days. When tax time comes up, the player will pay the rate that’s the highest between their resident and non-resident state, while getting a credit for the state with the lower rate.

Although Kawhi has enjoyed being a Texas resident (no state income tax) since his time as a San Antonio Spur, he recently purchased a $13.3 million California mansion. Considering that Kawhi is currently spending his offseason there, California’s Franchise Tax Board will likely put on a full court press in an attempt to rule him to be domiciled in the Golden State and subject to state income taxes. This residency change would increase Kawhi’s state income taxes significantly, which may make a big difference in if he wants to stay with Toronto or pursue a U.S. based team.

In any case, all players should consider the potential changes a move can have on their overall tax situations. With the help of an expert tax counsel, they’ll be able to better prepare for basketball and tax season.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.

With some of the most expensive real estate in the country, New York has no shortage of high-priced homes on the market. Although the average New Yorker will settle for a decent sized apartment in a nice neighborhood, many of the city’s upper-class millionaires will spare no expense when purchasing a home in the Big Apple. With the city set to roll out a higher tax rate on these multimillion-dollar mansions July 1st, it’s no surprise that home buyers and real estate agents alike are rushing to close their transactions.

This “mansion tax” will become staggered as opposed to a blanket rate of 1% on sales over $1 million. The updated law will keep the 1% rate for the $1-2 million range but will now mandate 1.25% on deals over $2 million and 3.9% on deals over $25 million. This increase marks a significant impact on home buyers in the market, considering the price tag on many desirable homes in the area are worth well over $2 million. New York officials have attempted to appease those affected by ensuring that the funds collected from the increase will go towards helping the community. The proposed plan will use the estimated additional $365 million a year to repair and revive the city’s subway systems.

In response to the news, the New York real estate community has seen a rise in deal closures as the deadline looms. Experts have said that the tax change hasn’t drawn in a massive number of new buyers but has changed the attitudes of those who were in the market to buy. In the past year, many believed potential residents were leaning towards renting over buying in such a tight market illustrated in the 6% decrease in deal closures. June is expected to be a good sales month as buyers rush to avoid the new tax, and it will be interesting to see how the overall sales data will be affected the rest of the year. In several cases, contracts are even being structured to include repercussions for the seller if the sale is delayed past the June 28th deadline.

In any major transaction, consulting with tax experts is one way individuals can educate themselves on policy changes and learn how their life decisions may impact their tax situation.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.

Stephen M. Ross has become the University of Michigan’s biggest donor, having given over $378 million to his alma mater over his lifetime. In what has become a sixteen-year development, the federal appeals court has reaffirmed a 2017 ruling that the billionaire had grossly overstated a charitable donation of $33 million on his 2003 tax returns.

From 2002 to 2003, Ross and his associates at RERI Holdings LLC bought and then gifted commercial real estate worth an estimated $3.9 million but claimed the same donation as a $33 million deduction. An audit in 2017 led the IRS to discover the massive $29 million difference in value. The Tax Court judges ultimately concluded that Ross and RERI Holdings’ donation was “a sham for tax purposes” and “lacked economic substance.” This year in an attempt to fight that judgment, the group decided to take their case to appeals court, which failed for a few of the following reasons.

At the time, Ross and RERI attempted to reason the write-off valuation was accurate, claiming their appraisal was based on future interest on the real estate. Some believe that the group may have reached this calculation using the Section 7520 rate, which was about 4% at the time, to value the interest on the charitable donation. Unfortunately for Ross and RERI, the 7520 rates were not applicable, and the value of the real estate could never reasonably reach that high of a markup.

Additionally, they incorrectly prepared their Form 8283 Noncash Charitable Contributions. They filled out the fair market value as $33 million as well as the date but failed to state the basis, which would have been approximately $3 million. On one hand, if the number had been included, the IRS would have most likely been suspicious, but on the other, by leaving it blank, this became a red flag of failure to substantiate.

With the case finally closed, Ross and RERI’s final ruling leaves them unable to claim the deduction and liable for a 40 percent penalty on the tax underpayment. As in most tax fraud cases charitable or not, when attempting to deceive the IRS, you will most likely come out as the loser.

No matter the amount, your generosity in gifting time and money to worthwhile causes can have a significant impact on your tax liability. While tax considerations should never drive your charitable giving, it makes sense to structure your gifting to maximize the tax benefits. If you have questions regarding your gifting or estate plan, please contact Talley LLP today.

In 2012 the Golden State Warriors announced their desire to relocate from Oakland’s Oracle Arena, and by 2017 commenced construction on the team’s brand-new facility, the Chase Center in Mission Bay. With the massive multi-purpose arena set to open before the 2019-2020 season, the Warriors revealed that they would be selling memberships in the $15,000-$35,000 range to help finance the billion-dollar project.  The sales of these memberships are estimated to total about $300 million in interest-free loans and bring into question if the Warriors would be required to pay income taxes on the membership fees.

After analyzing the terms, the IRS determined that the Warriors will not have to pay taxes on the money received from the memberships. This ruling was in the Warriors favor as the tax code would not classify the loan proceeds as a part of the team’s gross income, a benefit related to their federal income taxes.

On the other hand, the IRS ruled that those who purchased memberships will not be able to deduct the loan from their taxable income. Looking at the loan details, the thirty-year season ticket memberships are paid either in full without interest, or in installments with interest. By the end of the membership period, the Warriors state they will repay the fees to buyers, under the stipulation that the team will not have to pay interest.

In response to the ruling, the team wanted to inform their potential ticket holders, and have clearly stated in the membership agreements that the loan amount is not deductible on members’ income taxes. Not surprising for a team that’s won three out of the last four NBA championships, the news hasn’t deterred their diehard fans with the membership waiting list having over 40,000 individuals.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.

This year, Netflix released the new show “Tidying Up with Marie Kondo” that follows organizational expert Marie Kondo’s quest to help American families clean up their homes. As Kondo visits a new family each week, she focuses on evaluating all their belongings and only keeping those that “spark joy.” In each episode, the piles of “non-joy sparking” items continue to grow and with it the potential opportunity to make tax-deductible donations. Although April 15th may have already passed, consider donating over dumping to work on your tax position proactively.

When donating to charitable organizations such as Goodwill and Out of the Closet, make sure you obtain a donation receipt from the charity. You should also make an itemized list with the items’ estimated fair market values, also known as the price someone would potentially pay for your goods. This step is especially crucial if you think the total monetary value of the donation given is over $500. Remember to write down the name of the organization you donated to and the date of your donation for your records. In cases where your contribution is valued at over $5,000, an appraisal may be required, and you should always have the charity acknowledge the item that you donated in writing. You may be able to claim up to 50 percent of your income as a tax deduction based on your donations. A tax attorney can help you properly value and classify all kinds of donations based on very specific IRS rules.

Keep in mind that when making any charitable donation you won’t receive the deduction until the items or cash are turned in, and all donations must be given by the end of the tax year. You should also always research organizations you donate to, confirming they are legitimate and a qualified tax-exempt organization. If you have a cause in mind, you can determine if it’s an eligible 501(c)(3) for tax-deduction purposes using this IRS search tool.

No matter the amount, your generosity in gifting time and money to worthwhile causes can have a significant impact on your tax liability. While tax considerations should never drive your charitable giving, it makes sense to structure your gifting to maximize the tax benefits. If you have questions regarding your gifting or estate plan, please contact Talley LLP today.

With the marriage of Meghan Markle and Prince Harry last year, the citizenship of the American actress brought tax implications of dual citizens to light. As Markle took on her role as a British royal, many were curious to see if she would renounce her American citizenship, a choice she ultimately ended up deciding against. Not long after the pair officially tied the knot, they announced they were expecting their first child. Although the family is excited as their suspected due date looms, tax experts believe the couple should start planning their child’s tax strategy sooner rather than later.

Although not all newborns have assets, as a royal, Markle’s baby will likely receive some that will begin earning income immediately. As seen in the complications with Markle’s tax situation, the baby will be obligated to file U.S. taxes on those assets since they are categorized as a dual citizen at birth.  Parents are unable to renounce citizenship for their children, so as long as Markle is an American citizen when any of her kids are born, they will become dual citizens as well.

The Foreign Account Tax Compliance Act of 2010 requires the filing of a Form 8938, which would involve the royals’ financials, and mandates that non-U.S. banks and governments give up necessary financial information about their American account holders. In response to the stringent tax income and reporting laws of the IRS, many dual citizens have renounced their American citizenship. On average over the past two years over 5,000 American renounce their citizenship although many others are unaccounted for officially.

For Markle to do this for herself, she would have to prove five years of IRS tax compliance, pay a $2,350 fee, and most likely pay an exit tax on her estimated $5 million net worth. Fortunately for the royal child, if they give up their citizenship having not lived in the U.S for ten years and before reaching the age of eighteen and a half, they will be able to avoid the hefty exit tax. Having handled Markle’s IRS tax situation, the Sussex Royals will no doubt consult a team of tax experts.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.

This week the news was flooded with reports of the college admissions scandal involving cheating and bribery from some very well-known individuals including celebrities and CEOs. Wealthy parents paid thousands of dollars to fake their children’s way into elite schools and will be facing legal repercussions for many months to come. As more information is revealed, those involved are finding themselves entangled in charges including money laundering, obstruction of justice, and ultimately tax fraud.

The “Operation Varsity Blues” scheme, ran by William Rick Singer, involved fixing SAT scores and faking students’ credentials as promising athletic recruits. Parents, with or without the knowledge of their children, struck a deal with Singer who bribed various admin staff members, exam proctors, and coaches. Payments were made in the form of “charitable donations” to Singer’s non-profit, the Key World Foundation (KWF). KWF was an official IRS-recognized organization established in 2014 and received approximately $2-4 million in yearly contributions from 2015-2016.

KWF “donated” to schools across the country, including Chapman University, DePaul University, NYU, University of Miami, University of Texas, USC, UCLA, among others. Over the years KWF would distribute over $7 million in grant “bribes.” Given the non-profit status of the organization, these donations qualified as tax deductions for those who contributed, which many of the accused took advantage of. Because of this, whether intentionally or not, when hiding their crimes through the KWF non-profit, parents were also committing tax fraud. As each case is brought to trial, those involved in the scandal will face the legal repercussions of defrauding the IRS.

Only broadly experienced tax advisory professionals can provide a truly global perspective so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. Talley welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us today.

Last week, free-agent right fielder Bryce Harper finalized his move to Philadelphia, Pennsylvania to play for the Phillies for a whopping $330 million thirteen-year commitment. When choosing a team, MLB players have a lot to consider from location to loyalty to long term payoff. Something most players don’t initially consider is that different states have very different state taxes and how their salaries are structured may have major league tax implications.

Besides the Phillies, the other big contenders taking a swing at landing Harper were the Dodgers, Padres, and Giants in California. Being that the California state tax rate on personal income taxes is one of the country’s highest at 13.3% vs. Pennsylvania’s low 3.07%, it’s not surprising the Phillies might have had a slight advantage. When making offers, teams and consultants must use numbers that bring this into consideration. California’s players pay millions more in taxes each year, meaning many of the teams must make higher initial offers or face rejection.

With a smart management team and the help of tax consultants, players can assess the pros and cons of competing offers. His former team, the Washington, D.C Nationals, had allegedly offered him $300 million for ten years, but even with a 0% state tax rate Harper declined the bid. Consider Harper’s $20 million signing bonus, which is usually exempt from state taxes. This isn’t the case In Pennsylvania, where signing bonuses are recognized as allocable income, meaning a portion of his signing bonus is taxable, to the tune of $603,109. In his 13 years as a Phil, Harper will pay over $9 million to the state and city, not a bad deal as he will still end up with around $320 million.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.


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