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Usain Bolt Serves the UK an Olympic Hangover

August 16th, 2012 No comments

Usain Bolt sprinted out of the United Kingdom as quickly as he sprinted in the sovereign state.

Today the Wall Street Journal is reporting that the Jamaican sprinter will forego future races in the UK in order to avoid a large tax bite on potential future winnings there.

The UK is unappealing to foreign athletes because of its tax base. Not only does the base include any winnings earned by nonresident athletes on UK soil, it also includes their worldwide endorsement earnings. Multiply the tax base by the proportion of days spent in the UK to days spent elsewhere, and that’s the tax bill.

Considering Bolt currently has a $9 million annual endorsement deal with Puma, I can’t say I blame him.

The UK tax base is not standard. Here in the States, the tax base includes endorsement earnings paid by American sponsors only. Endorsement monies paid by non-American sponsors aren’t included. France’s base mirrors that of the U.S.

This isn’t the first time we’ve seen an athlete limit appearances in the UK because of taxes. Rafael Nadal, for example, had said he would not play at the 2012 Aegon Championship at Queen’s because of its tax base formula.

I suspect Nadal had little to no reservations with his decision, as there’s an abundant number of other major opportunities to participate in each year. Not quite sure whether we can say the same about track and field. But if Bolt will continue to ink major endorsement deals without having to set foot in the UK going forward, it’s the UK’s loss in the end.

(Hat tip: TaxProf Blog)

Rory McIlroy Dominates in South Carolina

August 12th, 2012 1 comment

Northern Ireland native Rory McIlroy dominated the field this weekend to capture the 2012 PGA Championship, held at Kiawah Island, South Carolina.

McIlroy became the first player to win the Championship by at least eight strokes, breaking Jack Nickalus’ previous record of seven set in 1980.

Finishing first, McIlroy collects a cool $1,445,000. Before taxes, of course.

McIlroy may be considered a U.S. resident and thus subject to U.S. income tax on his worldwide income if he meets the substantial presence test. To have substantial presence, he must (i) spend at least 31 days in the U.S. during 2012 and (ii) have a weighted average of 183 days spent in the U.S. over 2012 and the prior two years. But, if he spends fewer than 122 days in the U.S. during 2012, then he is exempt from substantial presence.

If McIlroy is not a U.S. resident for 2012, he still must pay U.S. tax on income that is “sourced” (earned) in the United States, unless there is treaty relief.

Section 1 of Article 17 of the United States-United Kingdom Income Tax Treaty reads:

Notwithstanding the provisions of Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services), income derived by entertainers, such as theatre, motion picture, radio or television artistes, and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised, except where the amount of the gross receipts derived by an entertainer or athlete, including expenses reimbursed to him or borne on his behalf, from such activities do not exceed 15,000 United States dollars or its equivalent in pounds sterling in the tax year concerned.

(Emphasis added.)

No treaty relief for the champion. McIlroy’s $1.44 million prize is subject to U.S. income tax.

At 23 years young, McIlroy has a very promising career ahead of him. It’s not far-fetched to speculate he will receive more attention than any other professional golfer from prospective endorsers over the next five to ten years.

The taxation of endorsement winnings of nonresident golfers in the U.S. has been a heavily litigated issue. Retief Goosen took his case to tax court last year, and the parties stipulated to dismiss the appeal of that case this past February.

Another significant case regarding the endorsement earnings of a professional golfer is still pending, however. Sergio Garcia is the taxpayer. I’ll write about that decision after we learn of it.

Olympic Winnings Subject to our Worldwide Tax System

August 9th, 2012 No comments

People ask me all the time, “Why is the tax code so complicated?”

My one sentence answer: “It’s riddled with countless exceptions and exemptions.”

Sen. Marco Rubio (R-FL) has proposed the winnings earned from medals by Olympians should be exempt from federal income tax.

We often see politicians spending far too much time advocating for measures that would ultimately have at most a marginal impact on a select few. Rubio’s suggestion is a perfect example.

I’m not looking to take away from the spectacle that is the Olympics. But millions of Americans work hard for their paychecks despite knowing a large cut is going to Uncle Sam.

Standing against the proposal, the Tax Foundation points out a far more significant policy issue with the current tax code:

[W]hy is the U.S. taxing this foreign earned personal income in the first place? The United States and Eritrea stand as the only countries to enforce a world-wide taxation system for personal income.

America’s worldwide income tax system combined with increasing foreign interest reporting is why we are seeing the expatriation rate significantly increase.

Expatriation is a very involved process. So involved that this 5,000+ word blog ”Why people expatriate” is merely a starting point for those considering.

And yet, more and more of those considering are actually following through.

But Senator Rubio won’t spend time addressing the issues raised by our worldwide tax system. Those are too important too think about how to tackle.

Professional Gamblers May Be Subject to Income Tax in Australia

July 8th, 2012 No comments

David Walsh is a professional gambler from Tasmania, Australia. He invested millions of his winnings to find the Museum of Old and New Art (MONA), also located in Tasmania.

The Australian Tax Office (ATO) recently determined that Walsh’s gambling winnings are subject to income tax, retroactively for three years back to 2006, says The Australian.

Walsh approached ATO years ago about his gambling activities and was informed his income was not subject to tax because he was not engaged in a trade or business. In 2010, the ATO changed its mind, and sent Walsh a tax bill for $37.7 million (Australian), plus interest.

Walsh is not your average gambler. He is part of a syndicate that devised sophisticated computer software “to arbitrage global odds and leverage rebates for high-volume wagering.”

Walsh says if the claim isn’t dropped or reversed on appeal, the future of MONA is in jeopardy. He can’t immediately pay up, and MONA apparently has not yet turned profitable.

Perhaps ATO is seizing this opportunity to obtain authority that declares income earned by professional gamblers as taxable. If Walsh loses, he should argue for the ability to deduct gambling losses and associated business expenses as a professional.

Offshore Tax Investigations: First Switzerland, Is Israel Next?

June 19th, 2012 No comments

Maybe.

The strongest indication emerged last week when a superseding indictment was unsealed, charging three American tax preparers for assisting their clients with concealing assets and income in unidentified Israeli banks.

U.S. residents must report all income earned to the IRS. U.S. residents must report whether they have a financial interest in a foreign financial account worth more than $10,000 in a particular year.

According to the Department of Justice press release:

The superseding indictment alleges that the co-conspirators prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts. In order to conceal the clients’ ownership and control of assets and conceal the clients’ income from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank A and Bank B. Bank A is a large financial institution headquartered in Tel-Aviv, Israel, with more than 300 branches across 18 countries worldwide. Bank B is a mid-size financial institution also headquartered in Tel-Aviv, with a worldwide presence on four continents.

The federal government has aggressively pursued offshore tax evaders since 2008, when Swiss-based financial firm UBS was accused of assisting U.S. residents with committing tax evasion by shielding assets in offshore accounts. In 2009, UBS agreed to pay $780 million to the U.S. in fines, penalties, interest and restitution.

Over the four years since then, the IRS has run three offshore voluntary disclosure programs (in 2009, 2011, and 2012) to encourage taxpayers with undisclosed financial accounts to come forward and pay stiff penalties.

A benefit to participating in the program, if eligible, is that criminal charges will not be pursued against taxpayers making complete and truthful disclosures. Read more about the pros and cons of a voluntary disclosure here.

Undoubtedly the IRS and DOJ have collected a lot of information from these programs. “Enablers” such as those indicted above have not been eligible for the programs, however. It’s very possible these enablers were discovered through disclosures of their own clients.

CNBC is reporting the recent indictment may be the first of a series involving U.S. tax evasion by shielding assets in Israeli banks via “cash-transfer banking,” by which an offshore banker is set up with an American taxpayer seeking to withdraw and deposit the same amount of cash with the foreign bank:

The bankers appear in the U.S., typically at a hotel, and arrange for couriers to bring the cash to the hotel from the depositing customer, and later turn it over to the withdrawing customer, only later crediting each account for the transaction back in the foreign bank offices.

In somewhat related news, yesterday Israeli authorities arrested nine individuals and questioned fifteen more in connection with the possibly largest tax fraud scheme in Israeli history. I don’t see any connections aside from the nature and location of the crimes, however.

Hat tip: Federal Tax Crimes

Hogan Settles with Australian Tax Office

April 30th, 2012 No comments

Back in August I wrote about Paul Hogan and his ongoing spat with the Australian Tax Office. Hogan played Mick Dundee in the 1986 hit film “Crocodile” Dundee.

The Australian is reporting Hogan and artistic collaborator John Cornell have finally settled their tax dispute. “It will be nice not to talk about tax all the time,” Hogan told the local paper.

Speak for yourself, Dundee.

Kidding aside, the settlement reached will be kept in confidence.

Hogan’s lawyer did reveal the Departure Prohibition Order issued against Hogan has been revoked. In 2010, Hogan returned to his homeland to attend his mother’s funeral. While he was there, Australian authorities issued the restraining order against him in an attempt to collect on back taxes.

Hogan was among many high-profile targets of Project Wickenby, a multi-agency investigation launched in 2004 seeking to uncover offshore structures shielding large amounts of income from taxation.

Hogan has maintained his innocence. For a while, the Dundee bravado in him was on display during the investigation, as Hogan stated he’d be happy to settle if authorities paid him $10 million Australian. (Today, $1 Australian converts to $1.0425 US.)

At 72 years young, Hogan appears to have finally succumbed to pragmatism.

IRS “Reopened” Offshore Voluntary Disclosure Program: 2012-?

April 4th, 2012 1 comment

In January, the IRS announced it reopened indefinitely its offshore voluntary disclosure program.

It’s no surprise. After all, the IRS has collected more than $4.4 billion from the previous two programs than ran in 2009 and 2011.

Yes, that’s billion, as in $4,400,000,000.

While there’s a comprehensive FAQ regarding the 2011 program, I could not locate any information for the current program other than the press release linked above. Strange, I thought, considering the release said more details would be released “within the next month.” And that was in January.

So I called the offshore voluntary disclosure hotline, and left a message. Apparently, they never pick up. But that’s okay, because an IRS representative returned my message within one hour. Impressive.

He said the IRS hasn’t gotten around to posting the current program’s details yet. Great. He added, however, that the 2011 OVDI program parameters are the same as the current program, except the general miscellaneous offshore penalty is now 27.5% instead of 25%, and that the lookback period will change from 2003 through 2010 to 2004 through 2011.

Although I was pleased to receive an answer, I’m left unsatisfied. I would much rather have published IRS guidance to rely on when counseling clients than oral IRS guidance.

And in this case, it’s especially so because the terms of the program could change at any time.

That’s the lovely IRS for you. After a while, you just begin to expect these administrative inadequacies.

Comparing Form 8938 and FBAR Requirements

April 2nd, 2012 No comments

Form 8938 is a new form for the 2011 tax year. Taxpayers are required to disclose on the form “specified foreign financial assets” if the total value of the taxpayer’s interests in such assets exceeds certain thresholds.

I’ve written before about the requirements here. The Form 8938 instructions may also be helpful.

The IRS has realized Form 8938 is creating a fair bit of confusion. That’s because the FBAR (TD F 90-22.1) requirements were already in place. And they still are.

Form 8938 has not replaced the FBAR. They are two separate reporting requirements that have some similarities and some differences. To assist taxpayers with figuring it all out, the IRS recently posted a chart comparing them. View it here.

Categories: International, IRS Tags: ,

Advantage Tennis Players

March 21st, 2012 No comments

via Wikipedia

Some professional athletes do care about taxes.

The Lawn Tennis Association is the national governing body of tennis in Great Britain. Earlier today, LTA CEO Roger Draper said he was pleased that today’s Budget announcement contained an amendment to the rules governing how global sponsorship winnings of foreign (non-U.K.) players are taxed.

The amendment called for the inclusion of training days in the calculation for the proportion of endorsement winnings to tax. The tax had been based on the number of U.K. tournaments players participate in in proportion to the total number of tournaments played during the year.

Because of the previous formula, Rafael Nadal had decided to not play at the 2012 Aegon Championship at Queen’s. We should expect Nadal to appear in more U.K. tournaments going forward.

FBAR E-File Mandate Postponed

March 1st, 2012 No comments

Last July, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced it had developed an e-filing system for FBARs. Then in September, FinCEN proposed to require all FinCEN reports (including FBARs) be filed electronically as of June 30, 2012.

Last week, FinCEN announced its decision to postpone the proposed FBAR e-file mandate until July 1, 2013.

Taxpayers may still voluntarily e-file 2011 FBARs through the BSA E-Filing System. 2011 FBARs must be received by the Treasury Department no later than June 30, 2012.

Categories: International Tags:
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