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Monthly Archives: July 2013

Who Knew that Golf was such a Taxing Sport?

On Tuesday, March 19, 2013 we posted Professional Golfer Sergio Garcia "Whiffs" Tax Case regarding US Tax on "Image Rights" which discusses that the US Tax Court has ordered professional golfer Sergio Garcia to pay tax on endorsement income he had claimed was tax-free under the US-Switzerland tax treaty.
The court decided Garcia's contract with his sponsor TaylorMade had attributed too much of the money to royalty payments for image rights, which the treaty exempts from US tax.  p http://i.forbesimg.com t Move down

Mickelson capped a dominant fortnight in Scotland by shooting a final round 66 to come from behind and win The Open Championship. He also won the Scottish Open the previous week. For his two weeks of play, earned £1,445,000, or about $2,167,500. 

The United Kingdom, which has authority to set Scotland’s tax rate until 2016, graduates to a 40% tax rate when income hits £32,010 then 45% when it reaches £150,000. Mickelson will pay £636,069 ($954,000, or 44.02%) on his Scottish earnings. 

But that’s not all. The UK will tax a portion of his endorsement income for the two weeks he was in Scotland. It will also tax any bonuses he receives for winning these tournaments as well as a portion of the ranking bonuses he will receive at the end of the year, all at 45%.  

The good news for Mickelson is that he can take a foreign tax credit on his US return so he is not double-taxed at the federal level on this income. The bad news is that the credit does not cover self-employment taxes (2.9%) or the new Medicare surtax (0.9%). Additionally, California does not have a foreign tax credit so he will have to fork out 13.3% there as well. Although he receives federal deductions for his California tax and half of his self-employment tax, these deductions do not benefit him on this income because as they reduce his federal tax they reduce his foreign tax credit. 

Without considering expenses, Mickelson will pay 61.12% taxes on his winnings, bringing his net take-home winnings to about $842,700. When expenses are considered (10% to caddy Jim “Bones” Mackay, airfare, hotel, meals, agent fees on endorsement income/bonuses—all tax deductible here and in the UK), his take-home will fall closer to 30%.
Professional Golfers & Athlete's Need Professional Tax Advice!
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IRS Releases 2010 Form 8805 -Foreign Partner's Information Statistics.

Under the Tax Reform Act of 1986, U.S. partnerships are required to withhold income tax on "effectively connected taxable income" deemed allocable to foreign partners.

The U.S. partnership must file a Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, to show the amount of effectively connected taxable income and the total tax credit allocable to the foreign partner for the partnership's tax year.

Foreign partners must attach this form to their U.S. income tax returns to claim a withholding credit for their shares of the Section 1446 tax withheld by the partnership.

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IRS Issue Number:    2013 - 9

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Rodriguez, et al. v. Commissioner – Section 951 Inclusions Not Qualified Dividend Income.

Petitioner challenged the IRS's determination that the gross income petitioners reported in 2003 and 2004 based on their ownership of a controlled foreign corporation should have been taxed at the rate of petitioners' ordinary income rather than the lower tax rate they had claimed.

At issue was whether amounts included in petitioners' gross income for 2003 and 2004 pursuant to 26 U.S.C. 951(a)(1)(B) and 956 (collectively, "section 951 inclusions") constituted qualified dividend income under 26 U.S.C. 1(h)(11).

The court concluded that section 951 inclusions did not constitute actual dividends because actual dividends required a distribution by a corporation and receipt by a shareholder and these section 951 inclusions involved no distribution or change in ownership; Congress clearly did not intend to deem as dividends the section 951 inclusions at issue here; and petitioners' reliance on other non-binding sources were unavailing.

Accordingly, the court affirmed the judgment of the tax court. View "Rodriguez, et al. v. Commissioner of Internal Revenue" on Justia Law

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'Leaver lists' will expose more Swiss banks to US Dragnet!

Credit Suisse and Zurich Cantonal, have obtained government approval to send the US Department of Justice (USDoJ) lists of American clients who have moved assets out of their accounts to another bank.  

The so-called 'leaver lists' do not identify clients but do name the destination banks, which the USDoJ will then pursue with further disclosure notices.  

The Swiss government announced a new approach allowing banks to hand over data to U.S. authorities in a bid to solve a dispute over undeclared assets and forestall further indictments by the Department of Justice. 

The government is proposing banks apply for individual authorization to surrender records intended to yield information on Americans who cheated on their taxes, Finance Minister Eveline Widmer-Schlumpf said in the capital, Bern, Wednesday.

The government took the step in a bid to shield more banks from being charged by the U.S. after Parliament last month voted down a bill that would have enabled the transfer and established more legal protection for bank employees. The decree, dubbed plan B by politicians, comes after Wegelin & Co. pleaded guilty in January to helping Americans dodge taxes.

Client data isn’t covered by the authorization, according to the government. That information can only be handed over in response to a request for administrative assistance by the U.S. under existing double-taxation agreements, it said.

Switzerland is the biggest center for global offshore wealth with $2.2 trillion, or about 26 percent of the market, according to Boston Consulting Group.

The government has already issued similar authorizations for banks including Credit Suisse Group AG last year. The lender is among a group of at least 12 financial institutions already subject to a U.S. probe.

So-called leaver lists of clients who left for another Swiss bank can be transmitted as long as they don’t include any personalized data, Widmer-Schlumpf said.

The Swiss government recently announced it is negotiating individual agreements with each bank to allow them to pass on this information, which would otherwise be a gross breach of Swiss privacy laws. However, these agreements will not allow the banks unrestricted powers of disclosure. In particular, the so-called 'leaver lists' will not identify clients by name. But they will give details of the assets moved, and crucially they will name the destination banks.

The official reason cited for disclosing leaver analysis information to the US authorities is that it will help them assess the size of the penalties to be imposed on each bank.  

However, some observers, such as Geneva lawyer Douglas Hornung, have a different theory. They believe the USDoJ will assume that the destination banks for these asset switches have deliberately solicited them in order to help the clients keep their untaxed assets hidden. These banks will thus become new targets for so-called group disclosure requests issued by the USDoJ, and will in turn be exposed to further criminal investigations. 

In order to frame good group requests, the US authorities need to be able to identify the Swiss banks involved. 

With the leaver list information, they could identify the banks who actively promoted US tax evasion and thus who should be targets for additional group requests and perhaps even criminal prosecution in the US. 

This strategy has already worked once, when UBS was forced to yield up a leavers' list under heavy US pressure. The money trail derived from this list appears to have revealed that much of the departing funds went to Bank Wegelin, which immediately became a target for US investigators. Wegelin had to pay the US authorities a USD58 million penalty and as a result was forced to cease operations earlier this year.

Undeclared Income from a Swiss Bank Account?
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