Category: Other Tax

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.

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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So You Want to Remove a Federal Tax Lien

The IRS routinely issues federal tax liens against people who have unpaid tax debts.

Federal Tax Lien
Federal Tax Lien

This tax lien, in real life, is actually paperwork that the IRS files with your local government. That paperwork lets the public know that you owe the IRS, and it has a right to your property. This claim attaches to real property (land, houses, and other buildings) and personal property (cars, TVs, and furniture). Under a federal tax lien, the profits of any sale of your property must go towards paying off your tax debt. A tax lien also makes it difficult to borrow and can seriously damage your credit.

Anyone who has a federal tax lien naturally wants to get rid of it. But how is that done? Fortunately, there are a number of options to remove a tax lien. It’s important to understand the problem, however, before getting to the solution.

How a federal tax lien happens:

The IRS first assesses your tax liability. This is fancy language for the IRS figuring out how much you owe them, including interest and penalties. It can occur whether or not you’ve filed your tax returns. Once your tax liability is calculated, the IRS will then send a bill. This bill states the amount you owe and a demand for payment. The IRS does not take kindly to any refusal or neglect in answering its demand. A failure to pay inevitably ends up with the IRS filing a tax lien.

A tax lien is NOT a tax levy:

A tax lien is a matter of public record. It makes everyone aware that you owe the IRS and that profits from the sale of your property must go towards paying off your tax debt. This lien gives the IRS the power to block the sale of your home if the profits are not enough to pay off the mortgage and the lien in full. A tax levy, on the other hand, means the IRS is coming to take your property to satisfy an unpaid tax debt. The IRS can seize your home or car and sell it when it has issued a tax levy.

There are three primary ways to deal with a federal tax lien:

1. Prevent a federal tax lien.

This is the best option and is easier than you may think. After the IRS sends you a bill for your tax debt, but before it files a tax lien, there is a window of opportunity. Anyone who gets a bill from the IRS with a huge number attached probably thinks their battleship is sunk. There are, however, a number of ways to get back into the IRS’ good graces regardless of your financial situation with the Fresh Start Program. If you’re short on cash, you can agree to pay your tax debt off over several years or even pay off an amount less than you owe. You can also request that the IRS wait to take action against you because your financial situation is so bad. If you’re on firmer financial footing, you can make an offer to the IRS. This is bargain between you and the IRS to pay less than what you owe in exchange for the IRS forgiving the balance. Refer to this article for details on how to settle a tax debt.

2. Release of federal tax lien.

A release of your federal tax lien means the IRS has updated the public record and no longer has a right to your property. The original tax lien is still public record, however, and can cause credit problems. You can pay off the tax debt in full to get a release, but there are other ways to obtain it without this nuclear financial option. Under the IRS’ Fresh Start Program, just getting the balance under $25,000 and entering into a payment agreement may be a way out. You can also try to get the IRS to agree that it is in their best interest to release the lien so you can pay the tax debt. The IRS may agree to discharge certain property from the tax lien so you can sell it then pay them (see IRS Publication 783). The IRS may also agree to subordinate its claim (a complex area of law requiring professional assistance) (see IRS Publication 784).

The IRS releases a tax lien 30 days after you make suitable arrangements.

3. Withdrawal of federal tax lien.

A withdrawal of your federal tax lien means the IRS releases the lien and removes the public record. This usually occurs when the IRS filed the tax lien in error and you prove it to them. The Fresh Start Program, under certain criteria, also makes a withdrawal possible after the IRS releases your tax lien.

The new IRS policies give you many options to remove a tax lien. Smart choices and knowing these options can make the process of removing a tax lien much less painful than it was just a few years ago.

Feel free to ask questions about your specific situation.

 

Ari Good, Esq.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. Ari Mr. Good received his BA, With Distinction, from the University of Michigan in 1993. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida. Ari represents DJs, live musicians, fashion models and other entertainers in copyright, licensing and contract matters.

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