Month: August 2013

Not Only Will The NSA Store All Our Data In Bluffdale, Utah, Now They’ll Get A Tax Break On Their Electricity Too

Not Only Will The NSA Store All Our Data In Bluffdale, Utah, Now They'll Get A Tax Break On Their Electricity Too (via Techdirt)

By now, I assume many of you are quite familiar with the NSA’s new data center in Bluffdale, Utah. Among other features, part of the site’s claim to fame was the amount of electricity it would need — leading local power company Rocky Mountain Power…

Continue reading “Not Only Will The NSA Store All Our Data In Bluffdale, Utah, Now They’ll Get A Tax Break On Their Electricity Too”

Bill Davidson’s $2.8 Billion Estate Tax Bill

Estate Tax Bill the Size of a Small Nation’s GDP

 

Estate Tax
Estate taxes tend to be a bit more

The estate of billionaire Bill Davidson is suing the IRS. Their beef: a $2.8 billion tax deficiency notice. That’s in the neighborhood of GDP for small nations like Greenland and the Cayman Islands! A private man, most would know Mr. Davidson for owning the Detroit Pistons sports franchise. He financed the purchase of his beloved Pistons through a personal fortune amassed running the family business of glass manufacturing, Guardian Industries. Forbes estimated his wealth at $3.5 billion when he passed in 2009.

The heart of this tax dispute focuses on tax planning strategies and accounting methods Mr. Davidson employed prior to his death. The sheer magnitude of the financial dispute is rare, but the techniques his estate used are not uncommon when managing wealth. The IRS’ laundry list of complaints include:

  • Transfers of wealth to family.  

Lawyers drafted several trusts on behalf of Mr. Davidson, months before his death, for his children and grand-children. Each trust is valued at tens of millions of dollars and are funded by Guardian Industries stock. The IRS claims, however, that accountants undervalued each stock by up to $1,500. Davidson’s lawyers counter that the IRS’ accounting does not consider a free fall in automotive and construction stocks occurring in late 2008 and 2009 when valuing the stocks.

  • Self-Cancelling Installment Loans (SCIN’s).

Mr. Davidson also transferred wealth to his heirs through a series of “self-cancelling installment notes” (SCIN’s). SCIN’s operate like a loan or mortgage. Mr. Davidson gave certain assets (e.g. homes, boats, cars) to his heirs. The heirs, in turn, had to make regular payments on the gifting of these assets. The big difference between typical loans and SCIN’s, however, kicked in when Mr. Davidson died. The debt his heirs owed owed on the gifted assets evaporated and they owned the assets free and clear. The IRS claims the payments on these SCIN’s should have been higher. These low payments, therefore, qualify the assets as “taxable gifts.” Morbidly, the IRS’ assertion that the payments were too low is because it believes a 5 year life expectancy for Mr. Davidson was too long when lawyers drafted the SCIN’s.

  • Transfers of wealth to his spouse.

Not to be left out of the fun, the IRS argues that Mr. Davidson made taxable gifts to his wife for tens of millions of dollars. His wife also used money from his fortune to build a home for her daughter and son-in-law. The IRS claims lawyers left these figures out when settling his estate.

The IRS ended up calculating Mr. Davidson’s taxable estate and gifts to be worth $4.6 billion. It arrived at the $2.8 billion tax deficiency by figuring $1.9 in estate tax and penalties, as well $900 million in other taxable gifts and back taxes. Outside groups, however, say the IRS is double-counting to come up with a $2.8 billion figure. This is likely true because the IRS cannot later add amounts it did not initially include in its deficiency notice. It would not be surprising to see a settlement or judgment that results in a figure far below the IRS’ stated deficiency.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida.

Contact us toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com.

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IRS Fresh Start Program Updates – Erasing Tax Debt

The IRS Gets Fresher with Its Tax Debt Relief Program

 

IRS Fresh Start Program Update
IRS Fresh Start Program Update

I recently had the pleasure of attending a tax seminar (hold the laughter) on updates to the IRS’ Fresh Start program. This program helps to erase tax debt. You can find out generally how the entire program works here.

The Godfather of Tax Debt Resolution, aka Robert (Bob) McKenzie, laid out the details. The following are my Top Ten changes to the program:

1.  Tax liens are no longer automatic.

Tax Liens are no longer automatic:  The IRS used to automatically file a tax lien when you were late on taxes. This tax lien creates a black mark on your credit report. Borrowing becomes more expensive, or simply not available, when a tax lien shows up.

2. The IRS is currently accepting “Offers in Compromise” (OIC) at historically high levels.

One in three OIC’s were accepted by the IRS last year alone.

3.  OIC – Reduced valuation of assets.

The IRS looks at the “Reasonable Collection Potential” (RCP) when deciding whether to accept an OIC. In shorthand, this is how much money the IRS thinks it can get from you. The RCP goes down when changing the formula that calculates the value of your assets. This in turn lowers an OIC figure that the IRS may accept.

4.  OIC – More allowable expenses.

This is another factor in calculating the RCP. The RCP goes down by also changing the formula that calculates your expenses. Of particular importance, the IRS now factors in student loan payments when adding up your expenses.

5.  OIC – Calculated future income lower.

Another change in the formula to figure your RCP. The greater your calculated future income, the greater your RCP. The IRS, however, has significantly reduced the period it uses to calculate future income. It used to calculate future income by taking your monthly income and multiplying that by 48-60 months. It now uses a 12-24 month multiplier only.

6.  Fresh Start allows more time to pay off an “Installment Agreement” (IA).

IA’s allow you to pay off your tax debt over multiple years. The maximum period to pay off an IA has increased to 6 years from 5 years.

7.  Streamlined IA – Maximum amount raised from 25K to 50K.

If your tax debt is $50,000 or less, and you follow the rules, the IRS must accept your proposed IA. This is the “streamlined” IA. The former maximum amount for streamlined IA’s was $25,000.

8.  Streamlined IA – Reduced financial records burden.

The IRS has also changed its policy on submitting detailed financial records. If your tax debt is less than $50,000, you need submit information only about your employer and bank accounts. The threshold was formerly $25,000, and you had to submit a great deal of private information to the IRS (not that it ever would be used against you).

9.  Lien thresholds increased from 5K to 10K.

Along with no more automatic tax lien, the amount to file a tax lien has been increased to $10,000. This undoubtedly provides comfort to those who can ill afford damaging credit marks.

10.  Lien withdrawal made easier with Fresh Start.

There are two main ways to get rid of a tax lien. First, a tax lien release changes your credit report to show that you no longer owe back taxes. That you once had a tax lien is still there, though. A tax lien withdrawal removes the record completely. Check with you local, friendly tax professional for more details.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida.

Contact us toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com.

The Right to Digital Public Performance

The Six Rights of Copyright – Part VI: The Right to Digital Public Performance

 

The Bundle of Rights That Make Up Copyright

 

The digital public performance right is the sixth and final part in our series on what makes a Copyright. The prior five rights reviewed are linked below. To refresh, the six parts of copyright are:

We’re individually exploring each of these rights to get behind the opaque curtain of copyright. An understanding of each right and how they operate will allow you, the creator, to be in a better position to take advantage of your copyright.

There are a couple words of caution. First, the practical effect of these exclusive rights will depend on the type of copyrighted work (literary works, musical works, motion pictures, sound recordings, etc.). Second, these are exclusive rights. The law allows the copyright holder only to exercise these rights.

VI: The Right to Digital Public Performance of Sound Recordings

 

The right to digital public performance of sound recordings is an extension of the traditional right to public performance. Copyright holders have the exclusive right to publicly perform their sound recordings–a particular recording of a musical composition (e.g. master recording, masters)–via digital transmission (e.g. internet, satellite radio). The older right to public performance specifically excludes sound recordings. This right is limited because it does not cover analog transmissions such as traditional radio or television.

Why the Right to Digital Public Performance?

 

Digital Public Performance - Webcasting
Digital Public Performance: Webcasting

Congress created this copyright protection (DPRSRA legislation) because of advances in technology. High quality digital copies of sound recordings became easy and cheap to make in the 1990’s. Suddenly, people could readily profit from this practice and artists had little legal recourse. The digital public performance right creates a partial solution for this gap in copyright law. Groups that want to legally play sound recordings via digital transmission (think Spotify and Pandora) now must pay for that right. It was perfectly legal to not pay prior to this legal update. An organization called Sound Exchange currently administers the licensing of sound recordings.

There is a three-tier system that sets the licensing fee for sound recordings. The first tier doesn’t require certain broadcasters to pay any licensing fees. The second tier requires broadcasters to pay a “statutory” licensing fee set by the Copyright Board. The third tier requires broadcasters to negotiate the licensing fee directly with the copyright holders. Much of the highly publicized dispute over fees for sound recordings is about this second tier payment structure. Artists, broadcasters, and other interested groups vehemently disagree about the correct licensing fee amount and how to calculate that fee.

Limitations on the Right to Public Display

 

The most important limitation on copyright protection for sound recordings is that it only covers digital transmission. It’s business as usual for analog broadcasters in radio and television. The details of the digital public performance right also has many more nuances. It’s a fair complaint by sound recording copyright holders that they’re treated unfairly when compared to musical composition copyright holders. It’s also safe to say that no one (artists, broadcasters, and copyright holders) is actually satisfied with this copyright protection.

Ari Good, JD LLM, is a Miami entertainment lawyer and aspiring musician himself who represents DJs, live musicians, fashion models, and other entertainers in copyright, licensing, and contract matters.

Contact us toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com.

Image by Doug Symington

10 Tax Issues and Deductions in Producing your Own Sound Recordings

Tax Issues and Decutions for the Production of Sound Recordings

 

Planning your taxes when recording music (sound recording) is likely not a priority. It is, however, a good idea. Musicians are increasingly recording their own music and money is often an issue. With that in mind, here are 10 tax issues and deductible expenses you should know when recording your own music. (These tax issues and deductions may also apply to other creative endeavors like film-making)

1. Costs for producing “sound recordings” typically must be written off over a period of years (“Capitalized”).

The IRS mandates that costs associated with the creation and production of sound recordings are written off over a period of years. This means that you cannot deduct the entire amount of a sound mixer, for example, in the year you buy it. Rather, that cost must be spread out over a number of years. The production of sound recordings, motion picture films, and video tapes are specific examples of “tangible personal property” that cannot be deducted entirely in the year of purchase or cost.

The exact method of accounting for these costs is extraordinarily complex and is best left to a tax professional when filing your taxes. The following, however, are prime examples of purchases and costs you should keep track so that your tax professional can maximize your tax savings.

2. Home Studio/Office Expenses

Tax write off for your home studio and sound recordings
Tax Write Off for your Home Studio and sound recordings

You obviously need a location for where the recording will occur. This is where expenses for a home studio or off-site studio come into play. Whether you’re stocking and preparing the home studio for a great musical environment, or renting a studio outside the home, these costs are part of the expense in producing a sound recording. If it’s from home, you may also be able to write off part of housing expenses like rent, internet, and electricity.

3. Equipment Expenses

Need to buy a laptop to create your masterpiece? This is an equipment expense for the production of sound recording. Other examples include speakers, sound systems, printers, audio systems, amplifiers, recorders. If it’s necessary for creation of the sound recording, make sure to keep track of it.

4. Software/Program Expenses

There are may pricey music programs out there make it easier to produce music (or just are simply necessary). Don’t forget to keep track of your purchase of these programs and software.

5. Instrument Expenses

This can include common examples like guitars, drums, and keyboards that put the sound in your sound recording. It can also include associated musical supplies, like picks, drum sticks, strings, as well costs in repairing and upkeep of the instruments.

6. Promotional Expenses

This is one of the categories of expenses normally associated with music production that it’s possible to deduct in the same year. The costs with connecting an audience to your sound recording fall into the realm and can include: business cards, professional photos, CD’s, DVD’s, videos, website development and hosting, or advertisement.

7. Educational Expenses

Educational expenses cover things like: voice training, purchase of musical arrangements, music downloads and CD’s, musical publications, sheet music, or other types of coaching and lessons

8. Travel Expenses

Need to travel as part of your music production? Don’t forget to keep track of those costs and and expenses

9. Professional Expenses

Legal and accounting services may be an afterthought for smaller scale music production. It also may be necessary if you want to reap the financial and artistic rewards from your creations. Other professional expenses can include costs to be part of a musical association or trade group, as well as licensing and copyright services.

10. Labor Expenses

If you need others to help you in your creation (and not good friends working for free), the cost of this “labor” is a tax write off. Just make sure that you keep records of your payments. These labor costs cover not only the technical aspects of the sound recording production, but musicians and singers.

Ari Good, JD LLM, is an experienced Miami entertainment lawyer and aspiring musician himself who represents DJs, live musicians, fashion models, and other entertainers in copyright, licensing, and contract matters. For a free and confidential consultation to discuss your legal rights, contact Ari of Good Attorneys at Law, P.A., in Miami-Dade County at (239) 216-4106 or toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com. Visit goodattorneysatlaw.com for more information. 

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