Fifteen years ago, The Oprah Winfrey Show made TV history with the iconic “You get a car!” giveaway episode. Oprah surprised her studio audience with 276 brand new Pontiac G6 sedans worth over $7 million. While the surprise went down as one of the show’s most memorable moments, the aftermath of the giveaway left recipients faced with a hefty tax bill.

The segment began with Oprah calling eleven random audience members on stage and announcing that they had each won a car. After their excitement had died down, she told the entire audience to retrieve gift boxes from under their seats and announced that one of the boxes also contained car keys. Upon opening the boxes, every audience member found a set of keys causing pandemonium throughout the studio.

The giveaway was sponsored by Pontiac, a General Motors brand, as a promotional marketing campaign. While General Motors covered the price tag of $28,500 and the sales tax of $1,800, the gift tax was left for the prize winners to handle. The cars were not classified as gifts and instead were considered promotional prizes, similar to the way game show giveaways and lottery wins are treated. The value of the cars was going to be taxed accordingly, at a total of about $6,000 to $7,000. This is in accordance with the tax code which states that “Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.”

Although receiving a car at a $6,000 price tag is a significant discount, audience members had been chosen by the Oprah staff based on their need for a car. Most individuals had to scramble to come up with the funds to be able to receive any benefit from the prize. The alternate options were selling the car and paying the taxes or turning the prize down altogether.

While unfortunate, the experience of Oprah’s audience members  provides a valuable lesson about dealing with windfall events you may experience in your own life. Winning the lottery, receiving an unexpected inheritance, and cashing out a retirement plan are all financial events that can be a welcome occurrence, but can raise serious financial questions that you must deal with quickly.

Talley offers a broad spectrum of services to fulfill the needs of high net worth individuals, entrepreneurially driven companies, and their owners. Whether you are considering an M&A transaction or experiencing a financial windfall event, the professionals at Talley can help you to make the most of both your earnings and winnings.

Airbnb has become a great way for property owners to make some extra money while providing travelers with unique accommodation options. As this sector of the hospitality industry has grown, new tax regulations have been implemented to account for the additional income generated. One example is Section 199A of the Tax Cuts and Jobs Act (TCJA), which allows owners to gain tax savings through a qualified business income (QBI) deduction. Unfortunately for many individuals hoping to utilize the deduction, qualifying will take a significant amount of work.

Prior to the TCJA, Airbnb owners preferred not to be classified as a formal business to avoid a self-employment tax of 15.3 percent. The QBI deduction allows owners to claim half of that self-employment tax as a deduction and save up to 20 percent on their business income taxes. Many owners have since decided to change their status but have not kept the necessary records to prove it.

The requirements specify that owners must spend at least 250 hours each year performing rental-related activities. Most individuals do not come close to reaching this threshold and will have to spend additional hours working on their Airbnb rentals. Owners will need to create personal time cards to track their hours and keep detailed records of services performed for property maintenance. Additionally, they will need to file a Form 1099 for payments to service vendors over $600 to comply with other business status protocols.

Airbnb tax regulations may have been lenient in the past, but with many owners expected to take the deduction, the IRS is likely to verify the accuracy of business-related income. There are currently no tax court cases related to the QBI deduction to serve as a precedent, so the penalty for violators is unknown. Having an accurate record-keeping system is essential for business owners in any industry. It is better to be safe than sorry by consulting an expert tax advisor to learn more about reporting regulations.

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 the current opportunities available to you. For more information, contact us today.

The NFL’s 100th season began last week, and with it, over 38 million hopefuls kicked off their fantasy leagues and betting predictions. With several states legalizing sports betting this year, these player’s potential winnings may be taxed differently come championship time. Whether you’re playing in an official NFL channel or an unregulated one, the IRS expects to be informed of any related earnings since the money is technically classified as taxable income.

Since the Supreme Court overturned existing laws in Spring 2018, thirteen states have legalized the activity, and more are expected to create betting markets in the next few months. Over 7 million individuals are expected to bet in casino sportsbooks this year, while another 31 million people will play in less official forms.

For amateur regulated channels, the IRS places the responsibility of reporting winning on both casinos and players. Successful bets 300x the wager resulting in a win of over $5,000 would face about 24% withheld for taxes. Some betting situations under this amount may also face withholdings depending on the circumstance. After a withholding, the casino may also give you a Form W-2G, particularly with wins over $600 that are 300x your bet. For fantasy sports players the form would be the 1099-MISC which will also eventually be turned into the IRS. To help mitigate some of your gambling related tax bills, players can deduct losses up to the amount of their winnings.

For professional gamblers deductions are different due to their activity being work related. Pro players’ travel expenses can be added to their gambling loss deductions rather than being stated as a separate expense. In most cases, the final tax bill on sports betting can be higher or lower, so it is wise not to spend your winnings right away. The best option overall is to consult a tax expert to make sure you are accounting for taxes on any win big or small.

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.

Millionaire real estate mogul Todd Chrisley caught the public eye with the start of his reality T.V. show “Chrisley Knows Best” in 2014 on USA Network. The show follows Todd, his wife Julie, and their children through family drama, problems, and their over the top lifestyle in Georgia. After wrapping season seven last month, Chrisley and his wife Julie may be encountering their biggest scandal yet as they have been indicted for 12 counts of tax evasion, bank fraud, and wire conspiracy and fraud.

The IRS and FBI found that the couple had defrauded numerous banks between 2007-2012. The Chrisleys were loaned millions of dollars and used fabricated documents, including bank statements and credit reports. They used the money for lavish purchases and even rented a new home in California using cut and glued documents. For the years 2014-2016, the Chrisleys failed to submit their tax returns on time and once filed did not make payments promptly. They continued making luxury purchases during this period ignoring their tax bill.

Todd Chrisley posted an Instagram response alleging the situation was caused by a disgruntled former employee who was fired. He stated the employee created the falsified documents, and the couple’s attorney believes the Chrisleys will be exonerated entirely when the truth comes to light.

Todd and Julie turned themselves in last week to Georgia authorities and were released after posting bail. Their passports were taken, and they are mandated to stay in Georgia and Tennessee unless an exception is granted. The Chrisley’s accountant was also indicted for playing a part in the illegal activity and will have to report to court for tax offenses and lying to investigators. The couple’s son was hit with a tax lien shortly after for a reported $16,886.

If convicted, Todd and Julie could each face 30-year sentences. The U.S. Attorney Byung J. “BJay” Pak has commented that celebrities face the same consequences as any other criminal. The case can find similarities to the mail, wire and bankruptcy fraud committed by “The Real House Wives of New Jersey” reality stars Teresa and Joe Giudice who were sentenced to 15 and 41 months respectively in 2015. Both cases seem to be a part of the crackdown on tax evasion and show the seriousness with which the courts take tax and bank fraud.

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.

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.


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