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Tuesday
Aug262014

Some Big Companies Avoid Taxes—Here’s How It’s Done

Further to the recent reports of corporations that are avoiding taxes, tax attorney Rob Wood has written an article for Forbes entitled “Forget Inversions, These 20 Huge, Profitable Companies Already Pay Zero Tax.” He discusses his article in this report.

 

Wood says that there isn’t one single factor that makes this possible. Especially considering the size and complexity of the tax code. On factor to consider is that taxes are levied on net profits, not on gross income. A corporation with a great many deductions—actual payments and other things, like depreciation—may end up with no net taxable income. Another avoidance technique, used by Apple, is to maintain offshore units that have no tax home, creating so-called “stateless income.”

Corporate transactions like inversions—much discussed in the last few months—are one type of transaction structured to avoid future taxes. Wood says that all of these things invite a discussion of the questions, “What kinds of entities should be paying taxes?” and “How many layers of taxation do we want?” There is a debate of long-standing in this country whether dividends should be taxed, given that corporate profits have already been taxed.

Wood suggests that, on one level, all of these things are shocking. The discussions will surely continue. The Taxation Law Channel discussed corporate inversions in this report.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Saturday
Aug232014

Nonprofits Owe Almost A Billion Dollars in Taxes?

 

A recent report from the Treasury Inspector General for Tax Administration says that nonprofits in the U.S. owe $875 million in taxes to the IRS. Tax attorney Rob Wood discusses this issue, covered in his Forbes article “Shocking Report Says Nonprofits Owe $875 Million In Taxes To IRS.”

 

Wood points out that every employer has to deal with meeting payrolls and withholding taxes to be paid. The report is a shocker, says Wood, because the IRS “takes payroll taxes probably even more seriously than income taxes.” The problem arises when nonprofits pay their employees, withhold the taxes, but then don’t remit the taxes to the IRS.

When that happens, the IRS checks into the matter, and in this case, found that a huge sum of money has not been paid in. Nonprofits are probably doing the best they can, but in some instances, they don’t function the way they should. Wood notes that there has been “on-again, off-again” enforcement of collecting these taxes by the IRS.

Also, as would explains, tax attorneys and accountants have as part of their job to try to win their clients’ cases. And if they can’t win, they try at least to delay action to give clients time to get back on track.

Another issue is the misconceptions on the part of nonprofits who have a large number of volunteers working for them. These volunteers have potential liability because of their positions with nonprofits, and the liability can be 100%!

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Friday
Aug222014

You Won Millions in the Lottery—What Now?

You Won Millions in the Lottery--What Now? from Sequence Media on Vimeo.

A 24-year-old Michigan woman has turned in a lottery ticket worth $66 million. What should she do next, or what should you do if it happens to you? Tax attorney Rob Wood discusses the happy situation, also the subject of his Forbes article “Savvy 24 Year Old's $66 Million Mega Lottery Win--On Friday The 13th.”

 

One unusual feature of this story is the winner’s young age. Wood notes that the young woman has been doing planning and getting tax advice so that she doesn’t get into the dilemmas that await someone who gets a windfall.

One question every winner confronts at the outset is whether to take the lump sum payment or to go for the annuity. The winner in this case took the lump sum. Wood suggests that he, too, would probably take the lump sum. Right now, interest rates are historically low, so locking in an annuity that is based on those low rates is less attractive.

The stories of winners who end up broke within a few years make the idea of an annuity more attractive. “This is a difficult conversation to have with people,” says Wood. The winner has to make this decision almost immediately, and it is difficult choice to make for people who aren’t already rich (which is likely everyone who has ever won a lottery). Getting protection from people who want to take advantage of the windfall is another factor in favor of taking the annuity.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Thursday
Aug212014

Lionel Messi Tax Case—Does Secrecy Equal Evasion?

Lionel Messi Tax Case—Does Secrecy Equal Evasion? from Sequence Media on Vimeo.

Argentinian soccer star Lionel Messi facing a Spanish tax evasion case, and willfulness and secrecy are key elements. Tax attorney Rob Wood comments on the case, discussed in his Forbes article “For Lionel Messi Or 'Hot Lips' Kramer, Secrecy Can Spell Tax Evasion.”

 

Wood notes that, while this is a Spanish case, it is being watched by tax experts in the U.S., the U.K., and elsewhere. Increasingly, he suggests, secrecy is being viewed as “a badge of willfulness that can mean more penalties, even jail.”

For all kinds of taxpayers, celebrities or not, there are legitimate reasons for not wanting their names attached to things. Privacy concerns are running headfirst into the government’s view that it is not enough to know the name of an entity; it is necessary to know the name of the ultimate beneficial owner. As Wood points out in his Forbes article, setting up trusts or corporations can be a red flag to the I.R.S.

Wood mentions a proposal in the U.K. to require any entity, regardless of how closely held it is, to display beneficial ownership. This is probably a trend, Wood suggests, such that it will become increasingly difficult for any taxpayer to hide beneficial ownership of assets.

In the Forbes article, Wood also discusses the tax cases of Bernard Kramer and Ty Warner. The article is definitely worth a close look for anyone who has money or assets that might be considered hidden.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Friday
Aug082014

Paying In Cash? Careful, It Can Mean Jail Time

Paying for things in cash can be desirable, but it can also cause tax problems. Tax attorney Rob Wood discusses the difficulties in this report, based on his Forbes article “Paying In Cash? Careful, It Can Mean Jail.”

 

Paying in cash can be tempting to small businesses, especially. One kind of business that comes to mind, says Wood, is medical marijuana companies. These small businesses often have difficulties with banking relationships and credit card companies. These are largely cash businesses. But they still have to pay taxes.

If you pay your employees in cash, you need to remember withholding taxes. Wood points out in his article that the IRS takes employee withholding taxes very seriously. Much of the money withheld will end up in the hands of the IRS, so the agency is very sensitive on this issue.

Cash transactions make recordkeeping more difficult for the company bookkeeper. And for employees in service industries, much of their compensation comes in the form of cash tips, which need to be reported. Wood notes that people who receive cash and spend cash may be able to “live off the grid,” but it can be dangerous, and the IRS will be looking at the possibility that income is being under-reported.

Wood also points out that there are special cash reporting forms that taxpayers need to be aware of.

Cash can lead to problems where people try to engage in transactions in cash that are either under-reported or not reported at all. Wood mentions a sting operation some years back that involved car dealerships. The IRS ran the sting and succeeded in catching several dealerships.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.