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.

After a two and a half year legal battle, Colin Kaepernick’s collusion grievance against the NFL has been settled. While it is speculated that Kaepernick will receive an estimated $60-80 million before taxes, the official number is unknown since both parties are bound by a non-disclosure agreement. Like other windfall events, the large payout presents Kaepernick with equally as large tax implications. With the IRS constantly updating laws, there are a few ways a tax advisory expert can coach Kaepernick on understanding the tax game and help him avoid unnecessary fumbles.

In Kaepernick’s situation, the money he receives as part of the settlement would be counted as lost earnings and therefore treated like ordinary income on his tax filings. The only exception to this rule would be in cases involving personal physical injuries from accidents or illness that would be tax-free thanks to Section 104 of the tax code. In 1996, the IRS differentiated “personal injuries” and “personal physical injuries” meaning cases related to emotional distress, sexual harassment, and defamation are no longer included in this tax-free category.

Additionally, with recent tax laws on gross recoveries, individuals’ payments are taxed in full regardless of what lawyers may retain. If your lawyer is receiving half of your settlement, you will still be liable for income taxes on the total amount which finds many people unprepared. For professional athletes and average people alike, laws are increasingly preventing and complicating deductions both above and below the line. Understanding these complex regulations, especially during a windfall event, is one of the biggest challenges facing many today. With comprehensive knowledge of current laws, tax expert advisors offer financial, tax and legal insights needed to call the best plays.

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

After almost two years of facing off, Cristiano Ronaldo’s match with the Spanish government has ended with a guilty plea to four counts of tax fraud. The soccer star has agreed to pay a $21.7 million fine and serve a 2-year probationary period in lieu of jail time. Like his fellow fraudulent footballers Lionel Messi, Neymar, and Samuel Eto’o found, tax authorities will continue to demonstrate that celebrity athletes are not above the law.

In mid-2017, Spanish tax authorities launched an investigation into Ronaldo, alleging that he underreported his financials related to his image or likeness rights’ deals. As arguably the most famous soccer player in the world, a huge chunk of his earnings derives from his appearance and brand. As #3 on Forbe’s list of the World’s Highest Paid Athletes and #5 on the World’s Highest Paid Celebrities, it’s not a shock that Ronaldo’s finances would undergo a rigorous investigation by Spanish authorities to uncover any wrongdoing.

High net worth individuals and celebrities will continue to face increased scrutiny by tax authorities, both domestically and internationally. Seeing as U.S. celebs such as Mike “The Situation” Sorrentino from “Jersey Shore” and Teresa Giudice from “The Real Housewives of New Jersey” have faced harsher sentences, serving actual prison time, Ronaldo may have got off easy.

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.

It is no secret that failure to report crucial financial information on your tax returns can result in hefty fines and legal repercussions with the IRS, but some people still try to hide their earnings overseas. A United States schoolteacher was caught with over a million dollars in funds unreported in her United Bank of Switzerland account that resulted in a hefty $803,530 fine. Unsurprisingly, The Court of Federal Claims deemed her willfully and recklessly guilty after she tried to contest her punishment in court.

In 1999, Mindy Norman opened a foreign UBS numbered bank account allowing her to hide her financial information from the IRS. A year later, in 2000, she also waived her rights to invest in U.S. securities to further conceal her account. Later in 2008 when UBS implemented a New Business Model that informed its clients that it would soon be assisting the U.S in finding fraudulent individuals, Norman closed her UBS account and moved her money to Wegelein and Co., a now-defunct Swiss bank.

In 2009, The Offshore Voluntary Disclosure Program (OVDP) was enacted to urge the owners of offshore accounts to disclose their banking information at the promise of more lenient FBAR fines. If properly communicated and approved by the IRS, the standard fine of 50% of the unreported account balance could be reduced to 20%. Norman and her accountant opted for an alternative form of reporting called “quiet disclosure” for 2009 which included amended FBARS and tax returns for 2003-2008. Taxpayers including Norman are informed that filing this way could be risky as it could result in examination/prosecution of statements for applicable years.

Seeing as she taught both government and economics with a total of at least seven subjects, the court concluded her claims to have never read documents related to her accounts invalid. Additionally, her consistently changing testimony further shot down her arguments attempting to make her appear to have no knowledge of tax implications. Her case was dismissed, and the fine was upheld losing her half her earnings, a risky lesson to those attempting to evade the IRS.

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.

It’s not uncommon for billionaires to give up some of their money to charity, but some give a lot more than others to causes close to their hearts. The Giving Pledge, championed by Warren Buffett and Bill & Melinda Gates, invites the world’s wealthiest to pledge more than half of their wealth to charitable causes either during their lives or in their wills.  As of this year, 186 ultra high-net worth individuals have joined the effort, with many promising to allocate more than 99% of their wealth to philanthropy. 
Last year, the 5 most generous individuals and couples gave away a combined $14.7 billion. Here are some of the more notable pledgers and what causes they support.
Microsoft cofounder Paul Allen, funds invaluable scientific research through the Allen Institute for Brain Science. Allen established the Allen Institute for Brain Science, which studies the genetic causes of brain diseases and disorders. As of 2015, Allen has donated $2 billion to charity.
Warren Buffett pledged to give away more than 99% of his riches and has already donated over $21.5 billion. Buffett noted in his pledge letter that “about 20% of my shares (in Berkshire Hathaway stock) have been distributed” to various charities and he will continue to distribute another 4% of his stock every year.
Bill and Melinda Gates are champions in eradicating preventable diseases. Bill Gates and his wife Melinda gave away more money than anyone else last year, donating $4.8 billion, according to Forbes. The Bill & Melinda Gates Foundation funds initiatives and programs around the world that support agricultural development, emergency relief, urban poverty, global health, and education. They are particularly devoted to fighting diseases that, with treatments like vaccinations, are easily preventable.
Facebook founder and CEO Mark Zuckerberg and his wife Priscilla Chan are fighting Ebola and improving San Francisco Bay-area public schools. Mark Zuckerberg was one of the first individuals to join the Giving Pledge and donated $2 billion last year. 
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.

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