Archive for Gary Heald

FATCA Historical (R)evolution:  The War On U.S. Criminals With Foreign Bank Accounts; A Subsidiary Of The Wars On Everything Else (i.e., Terror, Drugs, etc.) Part II

In FACTA Part I, I argued that in light of the Joint Committee on Taxation (JCTX-5-10),[1] Congress failed to engage in the necessary due-diligence to reasonably relate FATCA to the collection of tax revenue lost through “tax schemes” and “tax evasion” by U.S. persons with foreign financial institution accounts.  Congress operates as America’s legislative fact-finder.  They are charged with determining whether relevant and reliable evidence negates the underlying policy-purpose for a particular law, when presented with evidence to that effect.  JCTX-5-10 was directly relevant because it offered a direct answer to the question of “how much” FATCA revenue.  As for reliability, the Joint Committee on Taxation produces some of the most reliable evidence on The Hill, and this was no exception to that general rule.  Congress knew FATCA would collect less than one-half of one-percent of what was sworn to during the Ways and Means hearing estimates.[2]  They also knew that even after ten-years, FATCA would not fully-fund the Hiring Incentives To Restore Employment (HIRE) Act (and that does not take into account the costs for implementation and renewed requests for additional expansion and implementation funding).

In Part II, I want to touch on three related areas of concern.  First, and as has been discussed by more than a few other people, the $10B that the IRS collected between 2009 and 2016 included a disproportionately low amount of tax revenue coupled with a substantial amount of penalties associated with FBAR.  Further, alongside a disproportionate amount of penalties, FATCA and Offshore Voluntary Disclosure Programs (OVDP) illegally filled the gap left by Qualified Intermediaries (QI) pooling, forcing foreign financial institutions to report on the account value of U.S. persons in violation of their own law, and if reproduced domestically, in violation of our own laws as well.[3]  Finally, FATCA has become a continuation of the IRS war on FBAR perpetrated by Treasury’s Financial Crimes Enforcement Network (FinCEN), federal law enforcement and the intelligence community all of which sought to curtail the use of secret foreign bank accounts for illegal purposes (e.g., tax evasion as well as securities manipulation, insider trading, evasion of Federal Reserve margin limitations, storing and laundering funds from illegal activities, and acquiring control of U.S. industries without detection by the SEC) [4] by establishing a worldwide-financial-industry informant system.[5]

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FATCA Historical (R)Evolution: Legislative History Reveals That FATCA Had Little To Do With Collecting Tax Revenue From U.S. Persons Evading Tax Through Offshore Bank Accounts (Part I)

Prior to the enactment of FATCA, Congress and the Executive were in possession of concrete-evidence revealing FATCA would fail to collect any meaningful amount of tax-revenue from U.S. persons evading tax through offshore financial center holdings.  Congress should have halted enactment of HIRE – if in fact, FATCA’s purpose was to collect tax-revenue from offshore tax evasion by U.S. persons.

The United States Congress used estimates from the Joint Committee on Taxation (JCT) as the foundation for supporting the Foreign Account Tax Compliance Act (FATCA), contained in the Hiring Incentives to Restore Employment Act (HIRE).

HIRE was a tax expenditure designed to encourage U.S. small business to hire new employees.  HIRE included two tax expenditures of note: a payroll tax exemption to employers and a one-thousand dollar tax credit for employers hiring employees between February of 2010 and January of 2011.[1]  FATCA was included in HIRE because the tax revenue collected from FATCA was supposed to offset the tax expenditures authorized by HIRE.[2]  The tax revenue FATCA was said to be targeting was from U.S. persons with foreign bank accounts who were evading tax.

In July of 2008, and around the time of the UBS scandal and the Global Financial Crisis the U.S. Senate Permanent Subcommittee on Investigations held a hearing and issued a report entitled “Tax Haven Banks and U.S. Tax Compliance”.[3]  The underlying justification for FATCA as a substantial revenue raiser rested on a single statement found in a footnote in the 2008 hearing report:  “Each year, the United States loses an estimated $100B in tax revenue due to offshore tax abuses.”[4]  In a 2009 follow-up report, the Ways and Means’ Subcommittee on Select Revenue Measures held a hearing entitled:  Banking Secrecy Practices and Wealthy Americans.  During this hearing, the Senate increased the U.S. tax revenue loss-estimate by 50 percent stating: “Contributing to the annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150B each year.”[5]  The estimates entered into the record during these hearings measured the offshore tax gap, or the amount of tax revenue[6] that would be collected if offshore tax evasion by U.S. persons holding foreign bank accounts was ended.  One month, before HIRE was signed into law by President Obama, new evidence revealed the offshore tax gap was nowhere near as large as previously thought.

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South Dakota V. Wayfair:  What Constitutes Substantial Nexus?

Gary Heald, South Dakota V. Wayfair

Historically, online retailers needed to be physically present in a state in order to be compelled by a state to collect state sales tax.  The physical presence requirement resulted in an inefficient “online sales tax loophole.”  In a 5/4 split the Court determined that the “anachronistic” Quill physical presence standard was impractical and effectively discriminated against in-state sellers.  Requiring physical presence gave out-of-state retailers an advantage – consumers would purchase goods from them at an overall discount, because the retailer could not be compelled to collect the sales tax.  Now, with a more fair economic nexus rule, the Court has leveled the playing field as physical presence is no longer necessary to meet the nexus standard or full-test established in Complete Auto Transit v. Brady.

Now, states can require remote sellers to collect state sales tax, as long as the Complete Auto Transit test is met.  The test requires that:  (1) the tax applies to an activity with a substantial nexus with the taxing state; (2) whether the tax is fairly apportioned; (3) whether the tax discriminates against interstate commerce; or (4) whether the tax is fairly related to services provided by the state.[1]

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Separately Incorporating Your Brand: The Case For An Intellectual Property Holding Company (Part II)

This is the second-post in a two part series dealing with the income tax imposed on professional athlete earnings.  This post reveals potential benefits of using an Intellectual Property Holding Company to manage the brand of an athlete. To read first part of series go to this link.

Here Is The Hypothetical

I am an athlete.  I have spent my life training and building my brand.  I recognize endorsement and advertising opportunities as well as franchising will likely account for a substantial portion of my future earnings.  Without my brand, my current and future economic potential diminish.  I need a way to market myself and at the same time, protect my brand from infringement, fraud, lawsuits and maybe even save a little tax money in the process?

Greg Norman’s “Shark” is an iconic logo and part of the Greg Norman Company which he leads as the Chairman and CEO.  I will admit, I do not know how his various product lines and services are structured, but each division of his company from his clothing line, eyewear brand, luxury estates, golf course design firm or restaurant (the Australian Grille) uses the “Greg Norman” name, the term “The Shark” or his “Shark” logo to promote, advertise and endorse their products or services.  It is absolutely clear:  his endorsement can make a business thrive — to the tune of hundreds of millions of dollars in fact.  In his case, and in many others, using an Intellectual Property Holding Company (IPHC) to manage the brand, could procure a number of potential benefits.

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Reducing The Tax Liability Of Professional Athletes: Fairness In Apportionment (Part I)

This is the first-post in a two-post series dealing with the income tax imposed on professional athlete earnings.  This post is reveals the value in questioning and sometimes challenging the apportionment formula methodologies employed by states and municipalities in application to non-resident professional athletes.

Here Is The Hypothetical:

I am a professional athlete, live in Florida and travel for games.  When I travel to another state or municipality for work, they frequently impose an income tax on my earnings.  I’m neither afforded an exemption nor is there an applicable reciprocal agreement between my state and the places I visit.  What can I do to reduce my SALT exposure in these foreign jurisdictions?

All but nine states impose an income tax on wage earnings.[1]  Generally, non-resident taxpayers are afforded an exemption[2] from those taxes (or fly under the audit radar), but professional athletes receive special attention from the taxing authorities. Publicized high-salaries and travel schedules reveal to tax authorities a professional athlete’s travel schedule and earnings, making it easy to determine whether they’ve accurately reported.  Since the players are audit targets, every traveling-member of a team including coaches, trainers, broadcasters and referees are targets as well.[3]  Making the issue worse for professional athletes, the Tax Cuts and Jobs Act now limits the itemized deduction for state and local taxes to $10,000.00.  Without question, tax planning for athletes is necessary to avoid overpaying on both the federal and state and local levels.  Now that the SALT deduction is capped, professional athletes and team members should examine and if possible, further reduce their SALT exposure.

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