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Thursday
Nov132014

Alibaba: The New Chinese Internet Marketing Phenomenon

Alibaba has burst into the world’s consciousness in a big way. The Chinese Internet company is a bit like Amazon and a bit like eBay, but more profitable than either one. Tax attorney Rob Wood discusses this interesting new business in this report and in his Forbes article “Alibaba Is The New Amazon In Taxes (Just Ask Yahoo).”

 

Wood explains that Alibaba is like Amazon in some ways, especially in the early days of Amazon before it started collecting and remitting sales taxes, as it now does for 23 states. Alibaba is different from Amazon in several other ways, among them that it has no warehouses. It is an entity that serves to connect buyers and sellers. It is a Cayman Islands company, but its primary place of business is China.

Alibaba has been incredibly profitable. One beneficiary of that profit-making capacity has been Yahoo, which invested $1 billion in Alibaba in 2005. It presently appears that Yahoo’s profit is somewhere between $8.3 billion and $9 billion.

Wood notes that this profit situation leads to some interesting speculation about what Yahoo will do with the money and how it might try to shield the money from taxes. If it does nothing to shield the profit, it would presumably pay taxes at the U.S. rate of 35%. Wood points out that many corporations have worked on shielding profits by strategies like the “double Irish,” offshore income, licensing, patent boxes, and other strategies.

Alibaba’s forte is putting people together, and they make a great profit doing so. Also, Alibaba is putting the world in touch with Chinese buyers and sellers. Wood suggests that the Chinese connection is one of the things that makes its stock so attractive.

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.

Monday
Nov102014

IRS Seizes Grandmother’s Bank Account on Account of No Crime?

 

In 2013, the IRS seized the bank account of Carole Hinders, a small business owner in Iowa, not because of any crime, but because she made relatively small, cash-only deposits in her bank account. A New York Times story provides details of the seizure. Tax attorney Rob Wood discusses this unusual IRS tactic.

 

As Wood explains, the IRS seized the bank account because the deposits made by the business owner were all less than $10,000. This seems like a strange occurrence because, as a rule, a taxpayer must do something strange to attract attention from the IRS. There is a special form that must be filled out when more than $10,000 is involved.

Wood points out that a deposit of more than $10,000 triggers a reporting form. Since this article appeared, there has been a fair amount of attention paid to the seizure procedure the IRS has used. “Big banks file lots of these forms.” Wood suggests that a lot of depositors intentionally use smaller deposits to avoid the forms.

The theory of the seizure procedure is to catch drug traffickers and other law breakers who would seek to stay under the IRS’s radar by making only small cash deposits. In this case, however, there is no suggestion that Ms. Hinders is suspected of any crime. The IRS simply seized the money and will not give it back unless she is able to prove somehow that she is innocent—a sharp reversal of usual practice in the U.S. Contesting an IRS seizure can be very costly and may not work at all.

People like Ms. Hinders may feel that they are helping out the bank by making small deposits so that the bank is not required to fill out the forms. But the IRS may view the making of small deposits as “structuring,” a criminal effort to hide from the IRS and avoid paying taxes. Wood notes that the IRS is suspicious of cash transactions. He recounts a tale of an IRS sting of buying cars in San Francisco for cash only, trying to catch car dealers failing to report the cash deals.

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.

Monday
Oct272014

Ireland Will End the "Double Irish" But Add the "Patent Box" to Its Corporate Tax Provisions

Ireland has recently announced some changes to its tax structure that would eliminate the “double Irish” tax deals that have attracted companies such as Apple and that were the subject of an earlier LBN report. Tax attorney Rob Wood discusses the changes and the effects they will have on companies that were attracted to Ireland’s corporate tax structure. The changes are also the subject of Wood’s Forbes article “Ireland Corks Double Irish Tax Deal, Closing Time For Apple, Google, Twitter, Facebook.”

 

Wood notes that there have been attacks from the U.S. and the EU on Ireland’s system of letting companies funnel money through Ireland and becoming a new tax haven. Companies have been able to use the Irish system and reduce their tax rates to well below the official Irish corporate tax rate of 12.5%.

Wood points out that there is no retroactive aspect to Ireland’s move. For new companies coming in, the cut-off date on taking advantage of the present system is January 1, 2015. As to existing structures, they will not work after December 31, 2020. It’s business as usual until that latter cut-off date. This will allow companies to phase out their tax structures to minimize the financial loss.

Wood explains that Ireland is adding a new “patent box” plan in Ireland to allow certain specific kinds of companies to be taxed at a lower rate by using the patent box to keep their intellectual property based in Ireland.

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.

Monday
Oct132014

Derek Jeter’s Retirement Gifts Are Taxable

Derek Jeter received many fine gifts on the occasion of his retirement from baseball. As tax attorney Rob Wood points out in this report and in his Forbes article “Derek Jeter's Big Tax Bill On 'Gifts' That Really Aren't Gifts,” Jeter will owe some taxes on these gifts.

 

Jeter earned about $265 million during his baseball career. As he left baseball, he received a number of gifts from the Yankees and from other baseball teams. Wood notes that most of us assume, usually correctly, that a gift is not income. However, things are not always what one might expect. “The question is, are these gifts the way you give a child or family member a Christmas gift” or are they promotional items? Wood says that these gifts are business gifts, and the baseball clubs are deducting them as expenses. That makes them taxable to Jeter.

Wood notes that the gifts received by Jeter include golf clubs, wine, vacation packages, cowboy boots, a kayak, framed jerseys autographed by the two captains of the Cincinnati Reds, photos of the day Jeter was named captain, a massage therapy machine, a 10-day trip to Italy, Waterford Crystal, a seat from the Kingdome (where Jeter made his major-league debut), and a $34,000 watch.

There is also a distinction between gifts given to an employee to encourage him to stay and gifts like these. There are valuation issues, Wood says, but these gifts will be taxable. The amount due will be about $16,000. Wood notes that Jeter will have no trouble coming up with the money. Situations like this are the reason celebrities and sports stars need to have tax advisors.

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.

 

Monday
Oct132014

IRS Falls Short in Collecting Unpaid Taxes

The IRS, which already has more problems than it needs, has gotten another black eye, this time from the Treasury Inspector General for Tax Administration (TIGTA), for failing to collect unpaid taxes. Tax attorney Rob Wood discusses the TIGTA audit in this report and in his Forbes article “IRS Flubs 57% Of Tax Collections, Says Audit Of IRS.”

 

The report finds that the IRS has been doing a bad job of collecting taxes owed to them. As Wood points out, anyone who has had a bad experience with vigorous tax collection efforts by the IRS will be put off by reading that many others are getting away with nonpayment of taxes owed.

TIGTA’s report finds that the agency is not following its own rules on collecting taxes and “is leaving a lot of money on the table.” The amount not collected is about $6.7 billion, a considerable sum to ignore. Wood believes that it is hard for the IRS to follow its own rules, but it is essential that the IRS do a better job than this.

Wood explains that the “overwhelming majority of the US tax system is based on self-assessment.” That’s why it is so critical for Americans to believe in the system and to believe that everyone is being treated the same. Wood says that apparently most of the uncollected taxes result from taxpayers who did self-assessment, who can’t pay the full balance, and who send in what they can. The problem is that the IRS has not followed up in these situations.

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.

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