Never Lose Sight of Survival

Movie fans, quick: what do you get when you combine Night of the Living Dead, Deliverance, and The Mist — with just a hint of Sophie's Choice? It probably looks a lot like like Netflix's newest hit, Bird Box. The movie imagines a shattered future where an unknown presence has driven everyone who sees it to suicide, and follows Sandra Bullock and two five-year-old children on a desperate blindfolded gauntlet down a raging river in search of safe haven.

Netflix dropped Bird Box on December 21 — a time when they shrewdly calculated most Americans would be fed up with Elf and Christmas cheer, and grateful for the sweet release of post-apocalyptic chaos. Critics generally said "meh." But that didn't stop the "disappointingly clunky waste of a star-studded cast" from attracting record views. The show has also spawned memes like the #BirdBoxChallenge, where people who wouldn't survive five minutes in a real apocalypse bid for internet fame by posting videos of themselves pulling stupid stunts while blindfolded.

Now, we may be biased here, but we assume that at least of few of those millions of viewers wondered what would happen to income taxes after civilization collapses. (We sure did.) And we know you'll be pleased to discover that our friends at the IRS have planned for that sort of disaster and more!

The first level of IRS emergency preparedness deals with garden-variety disasters like hurricanes and earthquakes. These focus on helping taxpayers manage their obligations until things return to normal. They include predictable tips like taking advantage of paperless recordkeeping for tax files, documenting valuables and equipment, checking fiduciary bonds (to protect yourself if your payroll processor goes bust), and updating emergency plans. They also include policies extending due dates to give taxpayers living in disaster zones time to recover.

But the real action for IRS preppers involves "continuity planning" for existential threats like biological warfare, nuclear winter, or alien invasion. (Aliens from space, not across the border.) Official IRS documents outline several proposals, dating back to the earliest days of the Cold War, to help re-start collections. These include government economists holed up in the usual "undisclosed locations" dispensing cash to restart the economy, deciding when to forget about trying to collect pre-disaster taxes, and probably ditching income taxes altogether in favor of a 20-30% sales tax.

As for our friends at Netflix, word on the street has it that Bird Box producers are readying a sequel called Cat Box, where survivors escape death, not by covering their eyes, but by plugging their noses. (Trust us, you don't want to take on that monster.) And they've created even more buzz now with Bandersnatch, an interactive episode of their Black Mirror series where the bottom border of the screen periodically pops up to let you make choices for the characters and "write your own ending."

But we can't see why Bandersnatch is such a big deal, simply because we've been doing that for years. Just like television dramas follow a basic structure built around plot, characters, and similar elements, so does a life fueled by money. Lots of people want access to your money pool, and for most Americans, the biggest slice goes to government. But no one else is using tax planning to script your financial life, with lower taxes as your central character. That's why you need to call us now, to avoid tax apocalypse with your eyes wide open!

Floating Palace, Indeed!

This week's story is a briny chowder of petty vandalism, tax avoidance, partisan posturing, and flat-out misinformation. There's probably something in here to offend everyone. So buckle your seat belts and get ready for a ride!

Education Secretary Betsy DeVos has been one of Donald Trump's most controversial cabinet officials since barely surviving Senate confirmation thanks to the Vice-President's tie-breaker. It doesn't help that she's also one of Trump's wealthiest appointees. She and her husband Dick, son of Amway founder Richard DeVos, are worth an estimated $1.3 billion. And the DeVos clan, befitting their place on the Forbes 400 list, enjoy the usual collections of homes, jets, and ten (ten!) yachts that you would expect a family of billionaires to maintain.

Last month, news broke that someone had untied Betsy's 164-foot yacht Seaquest from its dock on Lake Erie. That's maybe newsworthy on its own — the vessel cost $40 million, which means damage could have been significant, and Lake Erie isn't exactly known for random drifting superyachts. But what really drew fire was the news that DeVos, who of course serves a President dedicated to "America First," was flying a Cayman Islands flag on her vessel. The partisan outrage machine instantly kicked into gear, howling that DeVos had avoided over $2 million in tax with the move.

Why would a Michigan billionaire, whose husband actually ran for Governor of that state, register her floating palace on a tiny flyspeck of an island 1,700 miles away? If she registers Seaquest in Michigan, she's potentially subject to the Wolverine State's 6% use tax, or $2.4 million. She's subject to U.S. safety and inspection standards. And her crew is subject to U.S. labor requirements. Registering the yacht in the Caymans lets her meet a considerably less-demanding set of standards. (Think "island time," but apply that concept to maritime rules and regulations.)

So DeVos is a high-class hypocrite, right, exploiting loopholes to save millions and cheat the kids she's sworn to serve? Well, if so, she's hardly alone. Sailing under a "flag of convenience" has a long and sometimes-even-honorable history. Early American merchantmen flew under the British flag to avoid Barbary pirates. And if you've ever taken a cruise, you've done it yourself. Take Royal Caribbean's brand-new $1.4 billion Symphony of the Seas. She's the world's largest cruise ship, with robot bartenders, 22 restaurants, 24 swimming pools. And she sails under a Bahamas flag.

What's more, it turns out the headlines blaming Betsy for registering "a fleet of yachts" outside the country are, to use a loaded term, fake news. For one thing, it turns out Seaquest isn't even Betsy's boat. It's actually owned by a company called R.D.V. International Marine, a subsidiary of the DeVos family office. And the family's other nine yachts — the Blue Sky, Quantum Racing, Delta Victor, Reflection, Attitude, Sterling, Windquest, Zorro, and De Lus — are registered to ports in Michigan, Delaware, and Florida.

What's our bottom line for this week? (Besides "don't believe everything you read"?) The DeVos family may be a little showy with their money. But they didn't get to be billionaires by wasting money on taxes they didn't have to pay. So call us when you're ready to start building your fleet, and see what we can help you buy!

You're Fired!

You're Fired!

Nobody really likes paying taxes. Sometimes, even the folks who work for the IRS resent paying the taxes that go towards funding their own salaries. Usually they just grumble about it and then go on with their day. But sometimes they try a little "self help." So now let's look at what one auditor did when she wanted to minimize her taxes.

Jacynthia Quinn spent 20 years as an IRS auditor in El Monte, California. The IRS audited her and her husband for 2006 (when she claimed $23,549 in charitable deductions and $22,217 in medical expenses) and 2007 (when she claimed $24,567 in charitable deductions and $25,325 in medical expenses). The Service disallowed those charitable and medical deductions, among other writeoffs, and the case wound up in Tax Court.

You'd think an IRS auditor would be the first to know how to avoid an audit! So, how did Quinn do on the other end of the hot seat? Well, let's look at those charitable contributions first:

"Petitioner proffered 'receipts' purportedly confirming charitable contributions. They were inconsistent and unreliable. Representatives from seven different charitable organizations credibly testified that the receipts were altered or fabricated. For example, petitioner offered a receipt purportedly substantiating $12,500 of charitable contributions to a religious organization. The purported receipt, however, identified individuals other than the couple as the donors. The organization's records did not reflect any contributions made by the couple and confirmed that the other identified individuals had contributed $12,500."

Uh oh. That doesn't sound good. Bad enough if one donor testifies your receipts are faked. But seven? How about those medical deductions? Any better luck there?

"Petitioner similarly failed to substantiate the claimed medical and dental expenses. Some of her documentation also suffered from authenticity problems and appeared to have been 'doctored.' Petitioner offered three documents purportedly issued by Dr. Christopher Ajigbotafe or his staff confirming more than $9,000 in medical expenses for Mr. Quinn. Each document, however, spelled the doctor's last name differently ('Ajigohotafe,' 'Ajibotafe' and 'Ajigbotafe'). One 'statement' was dated in January 2006 and estimated expenses for the upcoming year. The amount of expenses for 2007 contained in another 'statement' was contradicted by a letter purportedly from the doctor's staff."

Keep in mind here that Quinn is an IRS auditor, with 20 years of training and experience auditing exactly these sorts of deductions! Naturally, the Tax Court didn't show her a lot of sympathy -- they sided with the IRS on every issue and even smacked her with a civil fraud penalty. In fact, the IRS Restructuring and Reform Act of 1998 requires the IRS to fire any employee who willfully understates their federal tax liability (unless they can show the understatement is due to "reasonable cause" and not "willful neglect"). Since Quinn's own "excuse" is on a par with the dog eating her homework, she's likely to lose her job as well.

It's certainly entertaining to read about cases like Jacynthia Quinn's. It's satisfying to see a cheater get her comeuppance. And it's great to see the IRS enforcing the same rules for its own employees as it does for us. But there's a valuable lesson here, even for the majority of us who don't cheat. Dotting the "i's" and crossing the "t's" is important for everyone. That's why we don't just outline strategies and concepts to help you pay less tax. We work with you to implement those strategies and document them to survive scrutiny. And remember, we're here for your family, friends, and colleagues too!

Do Skinny Cows Make Lowfat Cheese?

Do Skinny Cows Make Lowfat Cheese?

The California Milk Advisory Board is an agency of the California Department of Food and Agriculture dedicated to promoting California dairy products. You've probably never heard of the Board. But we'll bet you've seen their television spots, with their catchy slogan: "Great cheese comes from happy cows. Happy cows come from California."

Now, The Atlantic magazine reports that landowners on the other side of the country are saving millions in tax by taking advantage of "America's Dumbest Tax Loophole: The Florida Rent-a-Cow Scam." But are those Florida cows as happy as their cousins in California?

Here's how it works. Florida's "greenbelt law" aims to help preserve farmland by taxing it according to its agricultural-use value, rather than its (higher) potential development value. To qualify, you just have to file a four-page application and convince your county tax appraiser that you're using the land for "bona fide" agricultural purposes. You don't even have to make an actual income from your "farming" in order to lower the valuation on your property. Pretty sweet so far, right?

But what if you're not even really a farmer? What if you're a rich developer, with land just sitting idle that you're getting ready to build on, and you want to get in on the party? No problem! Lease your land to a nearby cattle rancher, plop a few cows in what's left of the grass, and start saving big! Some landowners let ranchers graze their cattle for free. But the tax breaks are so rich and creamy that some landowners actually pay the ranchers to graze their cows, justifying the "rent-a-cow" nickname.

At this point, you're probably scoffing this is . . . well, udderly ridiculous. Au contraire, my naive friend, au contraire!

The Miami Herald reported back in 2005 that over two-thirds of the greenbelt law's biggest beneficiaries aren't true farmers. Developer Armando Codina saved $250,273 in 2004 by grazing cattle on land he owned in northwest Miami-Dade County while he built industrial warehouses on it. Then he asked the county to declare his "ranch" to be an environmentally contaminated "brownfield," while he still had cows on the land! (That had to make the cows happy.) Developer Richard Bell saved $140,168 that same year by grazing 16 cows on a 49-acre tract where he planned to build million-dollar McMansions. Even U.S. Senator Bill Nelson got in on the act -- he keeps "about six cows" on 55 acres of property near the Indian River and saves $43,000 per year. The Herald found "skinny" and "underfed" cows eating garbage and grazing on bare, rocky land throughout the state.

Developers confess that this may not have been exactly what the Florida Legislature intended when they passed the greenbelt law back in 1959. But they argue that vacant land shouldn't be taxed at full value if it's just aging till ripeness. And they point out that once the land is developed, new homes and offices generate plenty of tax revenue.

We have no clue if the Florida cows are as happy as the California cows. Nor can we tell you if their cheese is any good. But we can tell you that you don't have to go to such ridiculous lengths to save big on your income taxes. The tax code is full of legitimate deductions, credits, and opportunities that serve legitimate public goals. And it's our job to help put all those opportunities to work for you.