Tax Planning

Mastering Tax Breaks

This weekend's Masters golf tournament featured the usual perfect weather, gorgeous scenery, and competitive play that fans have loved for so long. Tiger Woods came into the tournament as the betting favorite based on his win at last month's Arnold Palmer Invitational — his first tour victory in nearly three years. But Tiger's performance disappointed his fans yet again — in fact, he even hit a spectator on Saturday. And in the end, Bubba Watson became only the third leftie in history to don the coveted green jacket.

It turns out Tiger isn't the only one having trouble on the course. Our good friends at the IRS have also "sliced into the rough" over the question deducting conservation easements for golf courses. A "conservation easement" is a gift of a partial interest in real estate you make to a publicly-supported charity or government. If you own a historic townhouse, for example, you might donate the right to make changes to the facade, to ensure it keeps its historic character. If you own a farm at the edge of the city, you might donate development rights, to ensure it remains green space. You’ll need an appraisal to support the value of your gift, as the IRS is cracking down on inflated conservation easement deductions. If your gift exceeds 50% of that year’s adjusted gross income, you can carry forward the excess for up to 15 years (rather than the usual five year limit for all other charitable gifts).

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March Madness and the IRS

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The NCAA's college basketball tournament — "March Madness" — has become an unofficial national holiday. Fan-in-Chief Barack Obama kicked off this year's action by flying to Dayton (with British Prime Minister David Cameron!) for this year's "First Four" tipoff games. And even people who don't like basketball enjoy watching the tournament. This year's top seeds — Kentucky, Syracuse, UNC, and Michigan State — will probably dominate coverage. But every year features at least one Cinderella team, waltzing up through the brackets with little more than heart. Who will it be this year? Creighton? Virginia Commonwealth? Or maybe #6 seed Cincinnati?

We all know college hoopsters don't actually get "paid" (wink, wink). So the players don't run up the score for the IRS — at least, not until they hit the NBA, where the average salary tops $5.15 million. (That suggests an average tax bill of a million and a half!)

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IL-eagle Assets?

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Our estate tax system is quite different from our income tax system. The income tax, as its name implies, focuses on how much money individuals, trusts, and business entities make. The estate tax system, in contrast, focuses on how much assets are worth. Most assets aren't hard to value. Stocks, bonds, mutual funds, and similar assets are valued at their publicly-traded fair market value (FMV) as of the date of death (or the executor can choose an "alternate valuation date" nine months later). But some assets are a little harder. Real estate, for example, is also valued at its FMV — but who's to say what a unique or expensive property is really "worth," especially in today's volatile market? Closely-held businesses can be even harder to appraise. And high-end collectibles, like the kind of art and antiques that usually sell at auction, can be hardest of all.

These issues make estate-tax enforcement a different challenge from income-tax enforcement. For fiscal year 2010, the IRS received 42,366 estate tax returns, and audited 4,288, or 10.1%. But just as income tax audits go up as your income rises, estate-tax audits go up as your assets go up. For that same year, the IRS received 3,013 estate tax returns reporting assets of $10 million or more — and audited 928 of them, or 30.8%!

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Can't Buy Me Love

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Heiress Huguette Clark, who was born in 1906 and died last May at 104, was America's last living link to the 1890s "Gilded Age." Her father, William A. Clark, was Montana's "Copper King" and, according to her New York Times obituary, "once bought himself a United States Senate seat as casually as another man might buy a pair of shoes." Huguette grew up in a 121-room mansion, at the corner of New York's Fifth Avenue and 77th Street, that cost three times as much as Yankee Stadium. But her life soon took an odd turn. She married, for just a year at age 22, then got a quickie Reno divorce. (Her husband claimed they never even consummated the marriage.) Then she and her mother withdrew almost completely from view. The last known photograph of her was taken in 1930, and she rarely appeared in public after her mother's death in 1963.

Clark may have been shy, but she was no miser. She spent most of her life in a 42-room coop at Fifth Avenue and 72nd Street, said to be the largest park-view apartment in the city, and worth

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IRS Goes Where The Money Is

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The outlaw Willie Sutton stole an estimated $2 million over a 40-year career robbing banks — and scored the ultimate "success" in his business, living long enough to die of natural causes. Sutton always carried a pistol or Tommy gun with him on jobs, declaring "you can't rob a bank on charm and personality." But the gun was never loaded, because, as he said, someone might have gotten hurt! And he became legendary, ironically, for something he never actually said. According to the story, Sutton was asked why he robbed banks — and replied "because that's where the money is." But in his 1976 autobiography, Where the Money Was: The Memoirs of a Bank Robber, he confessed that credit for the line belongs to "some enterprising reporter who apparently felt a need to fill out his copy."

What does a depression-era bank robber have to do with taxes? Well, the IRS estimates that outlaw taxpayers cost the Treasury $385 billion per year in uncollected taxes — roughly 15% of the amount

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IRS Strikes Out

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Next week marks Major League Baseball's 2011 "Midsummer Classic" — the All-Star Game between fan favorites from the rival National and American leagues. Baseball is making the usual headlines on the field this year, with tight races in most divisions. And it's making headlines off the field, too — especially in Los Angeles, where Dodgers owners Frank McCourt and his wife Jamie are contesting an especially bitter divorce.

Frank McCourt is decidedly behind the count in this at-bat. He's accused of borrowing more than he could afford to buy the team in the first place, then using the team as a personal ATM to finance an extravagant lifestyle. That lifestyle included seven homes costing just over $99 million — two houses on Cape Cod, two houses next door to each other on Malibu's famed "Millionaire's Beach," two more houses next door to each other in LA's affluent Holmby Hills neighborhood (right down the street from the Playboy Mansion), and a $6 million condo in Vail.