Some of the world's most popular board games give players the chance to live out professional fantasies. Aspiring property sharks can cheat each other with the classic Monopoly. Would-be Sherlock Holmeses can track down killers with Clue. Armchair generals can settle down to an evening of Risk. But until today there's never been a game to let aspiring tax planners outwit the Internal Revenue Code. Shouldn't that be at least as much fun as figuring out it was Colonel Mustard in the Library with the candlestick?
Well, that all changes in the form of a new board game called "Transfer Pricing: The Game."
Transfer pricing is the process for setting the value of transactions between businesses under common ownership and control. Let's say Amalgamated Widgets owns a subsidiary that makes parts in, say, Macedonia, then puts them together here in the U.S. How much should the parent pay for the parts? That may sound boring and technical (because, yeah, it is). So what difference does it all make? Let's say the corporate tax rate in Macedonia is 10% and the rate here is 21%. Naturally, it makes sense to allocate as much of the profit as possible in Macedonia where the rate is lower.
Of course, tax collectors everywhere are on to the game. So you have to be able to show them you're transferring at an "arm's length" price — the same price a disinterested buyer would pay from a disinterested seller. The Organisation for Economic Cooperation and Development sets out rules for pricing all sorts of transactions, including tangible items, intellectual property, and even loans.
Now you're excited to try it yourself! Too bad you don't own a foreign subsidiary. That's where "Transfer Pricing: The Game" comes in. The publisher describes it as "the card game that decides who has the most substance. Now available, with an arm's length price of only $30." The goal? "You run a subsidiary of Orchid Enterprises and build a substantive value chain, grow income, destroy your corporate rivals, and defend your accomplishments against various Tax Authorities, legal challenges, and business pitfalls. Prove once and for all who is the greatest transfer pricing professional of all time!"
The game is designed for 2-8 players, ages 12 and up. Open the box and you'll find three sets of cards. "Function" cards represent basic business functions like marketing. "Action" cards drive game play. And "defense" cards provide power you need to defend your actions against various challenges from tax authorities. There's no board, so technically it's not a "board game," but if you're not comfortable with technicalities, this really isn't the game for you.
The contest starts when the first player draws an action card and follows the directions (like "audit an opponent"). Once you complete them, you'll draw another function card and trade it for one of your existing function cards or discard it. To finish a turn, draw a defense card and attach it to a function card or hold it for future play. Look, who are we kidding? The whole thing sounds about as much fun as a group project for an MBA class. Maybe that's why it recently ranked just #178,162 in Amazon's "Toys & Games" category.
Here's all you really need to know. Overpaying your tax is no fun, and tax planning isn't a game. So call us when you're ready to play, and get a serious plan to pay less. Then pass GO and find something fun to do with your savings!
Aretha Franklin left this world with a musical legacy for the ages. The Queen of Soul started singing for her father's "gospel carnival tours" at 12, cut her first record at 18, and scored her first hit a year later. She went on to record 112 hit singles, including 20 #1s, and won 18 Grammies. She performed for presidents and even sang for a real queen (of England). When word broke of her death last month, many questioned who on earth could possibly sing at her funeral? (Answer: Stevie Wonder, Jennifer Hudson, and many more.)
Unfortunately, Franklin didn't leave behind a will. This is especially ironic considering how rock steady she was with her money during her life — even downright paranoid! She demanded payment on the spot, in cash, then kept a handbag with stacks of hundred-dollar bills with her security team, or even right on her piano where she could see it. She had seen colleagues like Ray Charles and B.B. King get ripped off, and she was not about to join them!
Franklin died in her longtime hometown of Detroit, and had been divorced since 1984. Michigan law holds that when an unmarried person dies "intestate," or without a will, their assets go equally to their children. Franklin's four sons have stepped forward as "interested parties" in court papers and nominated Franklin's niece as the natural woman to be the estate's personal representative. But that's no guarantee that a chain of fools won't show up with their hands out, especially with an estate valued at $80 million or more. (Not bad for a tenth-grade dropout, right?)
Franklin is hardly the only music icon to spend more time planning their next performance than their financial legacy. When Prince died intestate two years ago, the bitter fighting that erupted among his six heirs set the doves crying. Last year, the estate announced a distribution deal with Universal Music Group valued at $31 million. But five months later, a Minnesota judge let Universal back out after accusing the estate's representatives of fraud. The judge himself described the situation as "personal and corporate mayhem," which is something you never want to hear a judge say about you.
Estate planning may be more important for musicians because so many die young. When Doors frontman Jim Morrison reached the end at 27, he left his estate to his common-law wife, L.A. woman Pamela Courson. She died intestate three years later, so it went to her parents. But Morrison's parents argued his will was invalid because he wasn't competent to write it. (For some reason, they thought he was under the influence of drugs. How could that be?) Oh, and Morrison had married a previous girlfriend in a pagan ritual that included walking on fire and drinking each others' blood. Shouldn't that count for something?
Even proper planning can't guarantee preventing complications down the road. Michael Jackson left a valid will and revocable living trust. But his executors are locked in a Tax Court thriller, battling the IRS over how much to value his name and likeness. The estate pegged them at $2,105, reflecting the damage Jackson had done with his generally weird and scandalous public behavior. The IRS pegs those rights at $161 million because, well, he was the "King of Pop." At least he didn't leave it all to Bubbles the Chimp!
You may not earn your money performing for the Queen. But you probably still work hard for it. So show it some respect, and don't waste anything on taxes you don't have to pay. Call us for a plan to pay less, and we'll give you something to sing about!
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!
Mother Nature knew exactly what she was doing when she made babies cute. In fact, evolutionary biologists at Oxford University recently concluded they evolved that way to survive by encouraging the rest of us to look after them. "This is the first evidence of its kind to show that cuteness helps infants to survive by eliciting care-giving, which cannot be reduced to simple, instinctual behaviours," says professor Morten Kringelbach. (And couldn't Oxford have found something less obvious to study?)
Half the fun of meeting a new baby is looking to see what features they inherit from their parents. Daddy's bright blue eyes? Mommy's adorable button-nose? (Hopefully not the next-door neighbor's goofy jug ears!) But did you know that some babies inherit more than their parents' physical features? In California, some babies inherit their parents' tax breaks!
Back in 1978, a group of Californians led by a cranky retired reporter named Howard Jarvis passed a ballot measure called Proposition 13. That law capped property taxes at 1% of a property's assessed value and limited increases to 2% per year — regardless of how much its value actually goes up — until the owner sells. The goal was to keep inflation from raising taxes so high that they pushed owners, especially retirees living on fixed incomes, out of their homes.
Eight years later, Proposition 58 juiced that break by letting parents pass along their valuations, along with their houses, to their kids. The goal was to make it possible for them to keep living in the family home. But since then, we've discovered some unintended consequences. Supreme Court Justice Harry Blackmun even said it's created "sort of a class of nobility in California." His colleague, Justice Stevens, said it “establishes a privilege of a medieval character: Two families with equal needs and equal resources are treated differently solely because of their different heritage.”
Last month, the Los Angeles Times reported how this can pay off for heirs who don't even live in their houses. In 2009, actors Jeff and Beau Bridges, along with their sister, inherited a Malibu house that their father Lloyd bought in the 1950s. And you can rent it today for the bargain price of $15,995/month! Yet the annual tax on the property, which Zillow estimates is worth $6.8 million, was just $5,700. The carryover valuation has saved the Bridges heirs more than $300,000 since they inherited it. In total, the Times reports it's cost Los Angeles County $280 million last year.
California is the only state that dangles that particular property tax goodie. But Uncle Sam offers a similar break when Mom and Dad move to that great nursing home in the sky. It's called "stepped-up basis." Let's say Mom and Dad paid $12,000 for a house in San Jose, back when you could do that. Now they're smack in the middle of Silicon Valley, and developers are salivating to pay $2 million for the place. If Mom and Dad sell today, they'll owe beaucoup tax on that gain. But if they hold it until death, you'll avoid tax on any of the run-up in value before you inherit.
There's good news here for everyone, even if you didn't inherit a house on Malibu Beach. The federal and state tax laws are full of similar deductions, credits, loopholes, and strategies to pay less. You just have to go out and find them. That's where we come in. So call us today, while there's still time to plan for 2018, and see how much you're overpaying. Than start planning for your next beach vacation!
Fall is Planning Season
John Leidy, EA
DIY Books Coach
It was the third day of the very first income tax course when I realized that it will become my mission to help people understand their taxes better to be able to make better decisions and STOP wasting money on taxes they should not have to pay.