Claim another victory for the (not so) little guy vs. the IRS: Amazon.com Inc. won a key victory over the Internal Revenue Service in a dispute worth over $1.5 billion relating to the online retailer’s transactions with a Luxembourg subsidiary.

The U.S. Tax Court ruled Thursday that the IRS made arbitrary determinations and abused its discretion in several instances, marking another setback for the agency in high-profile international corporate tax cases. It wasn’t clear from the ruling what Amazon’s ultimate tax bill would be.

The case involved a series of transactions known at Amazon as Project Goldcrest that transferred certain U.S. assets, such as software, trademarks and customer lists, to their Luxembourg headquarters, which helped lower the company’s tax bill in 2005 and 2006.

According to an annual report filed by Amazon, the company’s tax bill would have increased by about $1.5 billion plus interest for those two years alone, with the possibility of additional bills for years beyond that,

Amazon isn’t out of the woods yet.  In a similar case last year, Apple faced a potential bill of billions over its Irish tax affairs after a European Union ruling last year. Amazon will still face scrutiny in Europe, where Brussels is examining Amazon’s European tax deals to determine if they constitute illegal “state aid” from Luxembourg to the company, benefits that could give them an unfair advantage over rivals.

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 here.

March Madness is one of the biggest gambling events of the year: Americans bet $9.2 billion last year on the tournament through office pools, offshore sites and bookmakers, according to the American Gaming Association. But few people realize that if they get lucky, the IRS gets lucky too.
While there are a lot of eyes on Warren Buffet’s employee bracket competition, the battle wages on for millions of others who’ve placed friendly bets in pools that carry much better odds, though of course for much smaller amounts of money. Yet we’re willing to wager that few (if any) of them have been thinking about how winning would impact their taxes. Of course, here at Talley, you know we do just that. That’s because whether there’s $1 million per year for life at stake or $100, March Madness bets are classified as gambling, and gambling is taxable. 
Like with any day at the track, outing to a casino, or purchase of a lottery ticket, cash and non-cash winnings from March Madness bets are taxable. All winnings should be reported on Form 1040 as “Other Income” (line 21). In addition, you may be required to pay an estimated tax on your gambling winnings.  
Special paperwork comes into play only if your winnings are over $600 or 300 times the wager (lucky you, if that’s the case). Gambling winnings in excess of $5,000 could also be subject to a tax withholding requirement before the winning payout is made to the recipient. If luck wasn’t on your side, take heart-some gambling losses can also be deductible if you itemize and keep good records.
If you enjoy the entertainment making a trip to Vegas to try your luck at the slots, or in the rare instance that you make a living as a professional gambler, detailed win-loss records are a must.  
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 & Company can make the most of both your earnings and winnings.

Here’s something you might not know: Over 1.33 billion chicken wings and 49.2 million cases of beer will be consumed during this weekend’s championship football game. 

But what happens when the red-hot Atlanta Falcons and the experienced New England Patriots, a team that has played in a record 8 big games, go toe-to-toe in Houston Texas? We’re hoping it’ll be an epic game, but many players involved already have something to be thankful for, a bump in pay due to the big game being in Houston, and Texas doesn’t collect income tax.

Since pro athletes work in numerous states, they’re affected by each state’s different income tax level, which has affectively been termed the “jock tax”. That means that for every game they play in, they have to pay the income-tax rate of the state where the game is played. However players on the Atlanta Falcons and New England Patriots are in luck this year: everything may be bigger in Texas, except the taxes.

What does that mean for each player’s piggy bank? Each player on the winning team will be cut a $107,000 check by the NFL, while the losing team’s players will receive $53,000. Although Texas has no state income tax, Patriots and Falcons players who are residents of states with income taxes will still be taxed by those states as well as the federal government. This means Tom Brady, who reportedly is a resident of Massachusetts (5.1% state income tax rate), and Matt Ryan, who reportedly is a resident of Georgia (6% state income tax rate), will not receive a tax free check, just a slightly higher one than if the game were played in their home state or another state with a higher tax rate.

By comparison, last year’s Super Bowl was in the Bay Area, and many players had faced California’s top tax rate of 13.3% on their Super Bowl paychecks, so Brady and Ryan probably aren’t complaining about the change of venue.

The Pats and Falcons are also lucky they’re not playing in next year’s championship game scheduled to be played in Minnesota, which has a 9.85% income tax.

Like NFL athletes, many entrepreneurs hit new revenue strides and quickly find themselves the decision-makers of an increasingly intricate business playbook facing many additional tax “flags on the play”. We have yet to hear clients complain about quarterbacking in more money, but many soon come to see that having an expert advisory team can help avoid unnecessary fumbles and maximize growth. With a full playbook of services complimenting the needs of entrepreneurs and their closely-held businesses, Talley can offer you an accurate look at financial, tax and legal insights you need in order to call the best plays for you and your business.

What does the holiday season mean to you?  For many, it is a time where families come together and celebrate their traditions and the spirit of the holidays. It’s also the season for giving: Americans donated a whopping $373.25 billion last year. While giving to your favorite cause means much more than just tax savings, if you decide to donate your time, money or services/products to a charitable cause, understanding how the IRS treats contributions from a tax-deduction perspective can help you maximize your dollars and efforts. Here’s what entrepreneurs and their businesses need to know.

Not Every Charity is Eligible with the IRS. 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.

What You Can and Can’t Deduct. There are many types of tax-eligible contributions, and the IRS handles them all differently. These are some general guidelines:

  • Donating Money – Typically, monetary contributions made within the current tax year can be claimed for a deduction and itemized on Schedule A of your return.
  • Donating Inventory or Property – You can deduct the fair market value of inventory or property donated, but the contribution must be made to the organization. For example, backpacks made by your company and donated to children at a youth center would not be ineligible, but if provided to the youth center itself to distribute, they would. The fair market value must be assessed for anything over $500, and items over $5,000 generally require an appraisal. A tax attorney can help you properly value and classify all kinds of donations based on very specific IRS rules.
  • Volunteering – While the monetary value of services your business renders can’t be claimed, some expenses incurred for performing them can. For example, if your marketing firm has agreed to assist with the design and printing of invitations, t-shirts and flyers for an upcoming charity auction, the cost of t-shirts, printing, and mileage to and from the event can be deducted. However, your normal rate for designing and developing those projects cannot.
  • Getting Something in Return – If you receive something as a result of making a contribution, your efforts may be classified as something other than a donation. For example, let’s say your company makes soccer balls and you donate to a local soccer league that, in return, runs an ad for your business at their facility. This is now an advertising expense that can be deducted on Schedule C. Here’s a different scenario: You make a contribution of $1,000 to an organization and, in return, receive admission to a sporting event for which a ticket would normally cost $300. The IRS allows you to deduct the difference, which in this case would be $700.

Limits, Deadlines and Paperwork
No more than 50 percent of your income can be claimed as a tax deduction, and all donations must be paid by the end of the tax year. The IRS also requires a written statement from the organizations you contribute to showing the place, date, amount and nature of the expenses claimed.

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 & Company today.

The European Union’s main regulatory body, the European Commission, has sent Apple a staggering tax bill of an estimated $14.5 billion for unpaid taxes. While the commission had been expected to rule against Apple, both Apple and the U.S. government had anticipated a much smaller amount. Here is how it happened and why U.S. taxpayers may end up having to pay most of the bill.
Apple, like many other big U.S. tech multinationals, built its European headquarters in Ireland. While there are various reasons Ireland is attractive to U.S. tech companies, the most crucial attraction is Ireland’s very corporation-friendly tax system. Apple located its intangible intellectual property in subsidiaries in Irelend, which earned about 90 percent of Apple’s foreign profit, protecting it from tax authorities outside of Ireland.
Other countries in the European Union are concerned with Ireland’s tax policies, believing that Ireland is stealing business as well as tax revenue. Until now, the European Union had limited authority over taxes making it very difficult for these countries, or European authorities, to do anything about it. Now the European Commission has taken the stance that Irish tax policy for multinationals is a kind of state aid to business, which the European Commission does have jurisdiction to police. The European Commission has decided that Ireland’s tax arrangements are an illegal state subsidy, which would force Ireland to reverse the subsidy and demand back taxes from Apple.
“It’s also possible that the kinds of payments that are contemplated by the EU decision today, at the end of the day, are merely a transfer of revenue from U.S. taxpayers to the EU,” said White House spokesman Josh Earnest in a press briefing on August 30, 2016. “That’s the crux of our concerns about this approach.”
If Apple was required to pay billions in back taxes to Ireland, it could then deduct those payments from what it owes to the Internal Revenue Service (IRS), either retroactively or in future returns. Those deductions, could reduce Apple’s tax bill to the U.S. government, ultimately lowering the amount collected by the IRS. Theoretically, that would mean U.S. taxpayers would have to make up the difference, or the government would simply have to go without those monies.
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 & Company welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us here.

 

Earlier this week, a Spanish court found Argentine soccer player Lionel Messi guilty of three counts of tax fraud. The charges were related to allegations raised in 2013 that Messi’s father used a series of shell companies in tax havens to shield royalties and other licensing income from tax. In the scheme, which dated back to 2005, income from his many endorsement contracts with such companies as Pepsi and Adidas was reportedly funneled offshore to Belize and Uruguay through an elaborate structure of entities and countries to avoid paying income tax in Spain.
The soccer star has been sentenced to 21 months in prison, though he will likely only face probation due to Spain’s stance on light prison sentences involving non-violent crimes and non-habitual offenders.
Messi’s conviction comes at a time where high net worth individuals are facing increased scrutiny by tax authorities related to their off-shore holdings.
Since 2012, 30,000 Americans have avoided stiff tax penalties by entering into the IRS streamlined program, stating they had innocent reasons for failing to disclose offshore holdings. Those living in the U.S. who voluntarily came forward paid penalties of 5 percent of their undisclosed offshore assets, while overseas residents paid none. Under the program they received no assurances they would not be prosecuted in the future.
With the recent settlements between the U.S. Government and 80 Swiss banks that participated in a limited-amnesty program, the Justice Department has begun scrutinizing information the banks turned over on thousands of U.S. taxpayers’ Swiss accounts to compare that information with what the tax payers have reported to the IRS. The data could expose U.S. tax payers who hid money in Swiss accounts or failed to disclose all their offshore assets after coming forward under the IRS streamlined program.
U.S. Taxpayers who entered int the IRS program that made it easier to disclose their hidden offshore bank accounts may have thought they put their legal troubles behind them. Now prosecutors may be trying to put some of them in jail for not sharing all.
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 & Company welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us here.
Last week, John Oliver, the British comedian and host of Last Week Tonight, set his sights on critiquing the largely unregulated debt-buying industry. To illustrate how easy it was to establish a debt-buying company, Oliver did just that, forming Central Asset Recovery Professionals, or CARP (after the bottom-feeding fish) in Mississippi via the internet.
Soon after, CARP purchased $15 million in out-of-statute medical debt for $60,000, acquiring the debt, names, current addresses and social security numbers of nearly 9,000 debtors. While Oliver was permitted to now pursue the owing parties, instead he chose to forgive the $15 million in debt, freeing 9,000 people from the threat of late-night phone calls from creditors, while simultaneously achieving the largest monetary giveaway in TV history.
…But what about the taxes??
The IRS is in the habit of taxing people (surprising, we know) when they are enriched. And in their eyes, being forgiven of an obligation to pay someone $5,000 that you owe them is no different than someone handing you $5,000: in either situation, you should pay tax. However those paying close attention to Oliver’s explanation of the process, noticed he added that the debt would be forgiven “with no tax consequences” to the debtor, but how?
The answer is found in Section 108(e)(2), a provision that offers a host of exclusions to the general rule that the forgivenenss of debt generates taxable income. The section provides that “no income shall be realized from the discharge of indebtedness to the extent that payment of the liability would have given rise to a deduction.”
Because individuals are cash-basis taxpayers, they cannot deduct a liability until it is paid. If the taxpayer has never paid the outstanding debt, they understandably have never taken a deduction for the amount. As a result, when the debt is forgiven, they have not been enriched in an accounting sense because the taxpayer’s net worth was not reduced upon the initial accrual of an unpaid liability.
If Oliver’s forgiveness of $15 million in medical debt causes, as he stated, no tax consequences to the borrowers, then that must mean that payment of those liabilities would have given rise to a tax deduction, right? Yes, and that deduction is provided for in Section 213, which allows a tax deduction for “medical expenses not compensated for by insurance.”
It appears, in this case, the IRS is willing to concede that Section 213 provides a tax deduction for medical expenses, and so you are permitted to exclude the forgiveness of the underlying medical liabilities, even if you don’t itemize your deductions or the sum of the deductions don’t exceed your AGI limit.
Take note Oprah, John Oliver wiped the medical debt of 9,000 individuals, and he may have just successfully* accomplished it without costing them any tax dollars.

Talley & Company

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*Note: “Last Week Tonight” transferred the debt it bought to an organization known as RIP Medical Debt, which has applied for but not yet been recognized as a non-profit under section 501(c)(3) of the U.S. Internal Revenue Code as of 6/10/16.. Should the Internal Revenue Service (IRS) deny RIP Medical Debt’s non-profit status, then the people that Oliver helped could still face a hefty tax bill.

Source: Forbes.com 6/10/16

While it’s nice to get a few extra days to file your taxes this year, the annual chore of handing over money to the government can get people a little grouchy. Businesses have a long-standing tradition of using tax day as a marketing opportunity in hopes of trying to capture some of the refund money tax payers receive each year, with this year being no different. If you’re looking for a distraction from filing your taxes at the last minute, here’s a fun roundup of the best deals and freebies celebrating the end of the tax season on Monday, April 18.
Food and drink
  • Boston Market: On Tax Day, guests can get a half-chicken individual meal with two sides, cornbread, a regular fountain drink, and a cookie1 for $10.40, in honor of the awesome form.
  • Outback Steakhouse: Diners can get 15 percent off their check on April 18 if they go to the web site’s Offers section and sign up for emails to receive a coupon.
  • Hard Rock Cafe: Sing your favorite song on stage on April 18 and your reward is a free Legendary Burger.
  • Bruegger’s Bagels: From April 15 to 18, a bundle including 13 bagels and two tubs of cream cheese costs $10.40, a savings of about $3.50 off the normal price.
  • Sonic Drive-In: Cheeseburgers are half-price on Tax Day.
Services
  • Office Depot & Office Max: At Office Depot and Office Max, download a coupon from their website and get five pounds of bulk bin shredding now through April 23. Staples is offering the same deal, but on April 18 only.
  • Planet Fitness: Guests 18 or older qualify for a free HydroMassage from April 18 to 22 at more than 1,000 of the fitness chain’s locations. Coupons can be downloaded from the Planet Fitness web site starting April 18.

 

Founded in 1989, Talley & Company is the premier consulting and financial services firm dedicated to advising high net worth individuals and their closely held entities with the strategic business solutions that deliver meaningful results.

 

Erin Andrews recently was awarded a $55 million verdict in her peephole lawsuit, but unsurprisingly, the IRS may be the real winner in the case. The perpetrator, Michael Barrett is on the hook for $28 million whereas the Marriot franchisee and operator, West End Hotel Partners LLC and Windsor Capital Group Inc., face the remaining balance of $27 million.  Though the verdict will likely face an appeal by the hotel franchisee and operator and the perpetrator will unlikely have the funds to pay up, taxes may be the biggest thing standing between her and a big pay day.
The IRS treats damages for physical injuries (e.g. broken bones from an auto accident) as tax-free. So are damages for physical sickness. But since 1996, your injury must be “physical” to be tax-free. The IRS says your injuries must be visible, so Ms. Andrews may have trouble treating the damages awarded to her as tax-free. She was understandably humiliated and clearly suffered emotional distress. But without being able to argue something considerably more ‘physical,’ it is all subject to tax.
Ms. Andrews may have more tax-mitigating options available by choosing to settle out of court. In a settlement both parties can attempt to iron out the tax issues and tax reporting, with varying amounts of success. 
Attorney fees can be a tax trap, too. If you are the plaintiff and use a contingent fee lawyer, you’ll usually be treated (for tax purposes) as receiving 100% of the money recovered by you and your attorney, even if the defendant pays your lawyer directly.
Ms. Andrews did the right thing and showed an enormous amount of courage by standing up for herself in court. From a financial viewpoint, her case presents an excellent example of the significant tax implications revolving around settlements/judgments that not everyone is aware of.
Last week the IRS warned that email and texting scams aiming to trick U.S. taxpayers into providing personal data have surged 400% in 2016 so far. The schemes involve phishing (“fishing” for information and “hooking” victims) messages designed to trick taxpayers into believing the emails and texts represent official communications from the IRS, tax software companies or others in the tax industry. Here’s what you need to know.
What to Look For in These Scams
You may receive an official-looking email or text message from what appears to be an official source, whether the IRS or someone in the tax industry. The messages typically ask for data related to tax refunds, filing status, or seek confirmation of personal information, including ordering IRS transcripts or verification of IRS Personal Identification Numbers.
When you click on the links (which you shouldn’t be doing), you are sent to what appear to be government websites that ask for Social Security numbers and other personal information that identity thieves can profit from filing false tax returns. The sites may also contain malware that infect taxpayers’ computers and enable cyber-thieves to gain access to files or track consumers’ keystrokes to get personal data.
It is important to keep in mind the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
Also Note That the IRS Will Never:
  • text/email you demanding immediate payment, nor will the agency call about taxes owed without first having mailed you a bill;
  • demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe;
  • require you to use a specific payment method for your taxes, such as a prepaid debit card;
  • ask for credit or debit card numbers over email/text/phone; or
  • threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
Accounting Today recently released a summary of the IRS’ “Dirty Dozen” list of the top tax scams for 2016. You can view it here.

 

Talley & Company

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