Vanity Fair has released its list of the top 40 Hollywood earners in 2009. CNN has the entire list but here’s a peek at the top 10:

1. Michael Bay, producer-director ($125 million)
2. Steven Spielberg, producer-director ($85 million)
3. Roland Emmerich, producer-director ($70 million)
4. James Cameron, producer-director ($50 million)
5. Todd Phillips, director ($44 million) – no relation, sadly
6. Daniel Radcliffe, actor ($41 million)
7. Ben Stiller, actor ($40 million)
8. Tom Hanks, actor ($36 million)
9. J. J. Abrams, producer-director ($36 million)
10. Jerry Bruckheimer, producer ($35.5 million)

(And no, it didn’t go unnoticed that none of the top ten are women. Just sayin’.)

Looking at the list, I thought it would be fun to figure some of the estimated tax bills. Of course, I don’t know what kind of expenses they have or how they arrange their affairs – whether they have losses, huge mortgages, business expenses, etc. I just took the basics (married or not, income, kids) and tried them out on a tax calculator. TurboTax has a fun one – it actually handles income estimates in the hundreds of millions of dollars – so I used that one for most of my calculations. Here are the results:

Michael Bay is, so far as I can tell from his bios, single. He grossed $125 million last year at the age of 44. Using the standard deduction, his taxable income would be $124,991,867, resulting in a tax of $43,724,837. After paying about 35% in taxes, he’d walk away with about $81,275,163.

Steven Spielberg is a different story. He’s married to Kate Capshaw and has seven children: Theo Spielberg, who was adopted by Kate Capshaw before their marriage and later adopted by Spielberg (21), Sasha Spielberg (19), Sawyer Spielberg (17), their adopted daughter Mikaela George Spielberg (13), Destry Allen Spielberg (13), Jessica Capshaw, (33) and Max Spielberg (24). Spielberg was age 63 in 2009 and his wife was 56. I assume that all of the children under the age of 24 were treated as dependents. That means that Spielberg’s taxable income would be $84,971,569. His tax bill would be $29,710,411, or 35% – same as Michael Bay. The result? He pockets about $55,289,589.

James Cameron is similarly situated. He was 55 in 2009 – and married (for the 5th time). He has four children, the oldest is 16. His taxable income would be $49,981,301. His tax bite would be $17,463,417 leaving him with $32,536,583.

You’ll notice that all three producers paid a marginal rate of 35% whether they made $125 million or less than half of that. The same rate applies at $1 million. And half a million. The 35% rate kicks in at $372,950, making even the cast of many reality shows in the same tax bracket as Bay, Spielberg and Cameron.

Nothing earth shattering here, just some fun facts for the weekend.Similar Posts:

• Lights, Cameras, Tax Burden Shifting

Update: We have a winner! It’s Marc! For the answer, see the comments!

It’s our last tax trivia question for the giveaway! Thanks to CCH Complete Tax for the free software!

For the chance to win the last prize, answer the following question:

Everybody knows that the feds finally got Al Capone for tax evasion. He was convicted and spent more than 7 years in prison. He also paid nearly $300,000 in back taxes, fines and costs (in today’s dollars, that’s more than $4.2 million). In addition to getting Capone off of the streets, what collateral benefit did the high profile conviction provide?

The first correct answer wins free CCH tax prep software. I’m looking for a specific answer on this one: my answer is final.

Remember that you have to comment on the actual post, not on email, Twitter or Facebook, in order to win (though feel free to comment that way for fun). You can read the rules for the giveaway and more about the prizes here.

What’s your guess?

Similar Posts:

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If People magazine is to be believed, Nicolas Cage’s tax woes just doubled. The entertainment web site is reporting that another federal lien has been filed against Cage to the tune of $6,712,821.99 in unpaid taxes for 2008. This brings Cage’s total federal tax liens to $13,330,372.83.

To put that into perspective, let’s assume that the average person works 45 years in his or her adult life. According to the latest information from the Census, the average income for men working full time is $45,113 and for women, it’s $35,102. So, let’s split the difference and call it $40,000. That means that the average US worker makes about $1.8 million during his or her lifetime. It would take more than 7 full time average US workers toiling their entire adult lives just to equal the amount of federal tax liens owed by Nicolas Cage.

No wonder that Cage has described his own financial state as “catastrophic.”Similar Posts:

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A federal judge has declined Bradley Birkenfeld’s request for leniency. Birkenfeld must report to prison on Friday, January 8, as scheduled, to serve his 40-month prison term.

Birkenfeld pleaded guilty last year to helping many of his clients, including billionaire Igor Olenicoff, evade taxes. Olenicoff pleaded guilty in 2007 to filing a false tax return; he got two years probation and paid $52 million in back taxes, fines and penalties. Olenicoff is said to be worth a whopping $1.6 billion.

Birkenfeld claims that the IRS would have never gotten Birkenfeld – or any other UBS clients – without him. On Sunday, he appeared on CBS’ 60 Minutes, claiming, “I gave them the biggest tax fraud case in the world. I exposed 19,000 international criminals. And I’m going to jail for that?”

Well maybe he did a little more than that. Here’s a bit of his interview:

For his trouble, he’s looking for 30% of the take from the IRS. Who says that crime doesn’t pay?Similar Posts:

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Two lawyers had their licenses suspended last week for a failing to pay taxes. The two had been under investigation since last year.

The lawyers, John J.P. Howley, the former head of pro bono at Kaye Scholer, and Ronald A. Goldman, a partner at Manning Raab Dealy & Sturm, had previously pleaded guilty to the charges of failing to file tax returns. Howley had been under investigation since last year; he was eventually forced to step down as Trustee of his alma mater, Skidmore College. In addition to fines, the two faced disciplinary consequences.

Howley was initially to be suspended six months for failing to file or pay personal income taxes for more than 10 years in New York (where Howley worked), New Jersey (where Howley lived) or the IRS. Yes, 10 years. Howley’s eventual payment agreement with the IRS worked out to $2.4 million in back taxes but he did not comply with the agreement.

Goldman faced suspension for 7 months for failing to file with New York or the IRS. He failed to pay taxes while gambling; his tax bill was considerable lower than Howley’s. He owed about $346,000 to the feds and the state.

However, the suspensions of both were eventually lengthened to a year in an appellate decision. Howley’s lavish lifestyle was cited in the decision, including the fact that he owned a vacation home in Florida and a number of luxury cars. In addition, he lied to his wife about his finances and failed to notify his law firm about the investigation. The investigation eventually lead to his resignation from the Skidmore College Board of Trustees; he had been slated to become the next Chairman of the Board.

Goldman did not maintain a similar lifestyle, but the panel noted his failure to comply with a court order to establish a payment plan for about a year. You can read the Goldman decision here.

Of course, both lawyers claimed that the punishment was too harsh. They wanted a public slap on the wrist. They didn’t get it.Similar Posts:

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It sounds like something right out of Hollywood: a lawyer takes a kickback in exchange for setting up wealthy clients in a multi-billion dollar tax loss-generating scheme. He then applies for a false passport using an assumed name – which passport is found, along with crystal meth, date-rape drugs and horse tranquilizers, inside his home.

In fact, it is out of Hollywood – only it’s not a movie. It’s real life and Hollywood tax attorney Matthew Krane is center stage. Krane has pleaded guilty last Thursday to evading tax by failing to claim $36 million in undeclared income. As part of his plea, he’s agreed to cooperate with the feds as part of an ongoing investigation. As a result, he’ll serve no more than five years in prison for the tax evasion charge, as well as a charge of attempting to obtain a false passport, ostensibly to flee the country after his participation in the scheme was discovered.

Krane will testify against Jeffrey Greenstein and former tax attorney Charles Wilk, who were the alleged masterminds behind a tax shelter referred to as the Portfolio Optimized Investment Transaction, or POINT. Six investors, including Robert Wood Johnson IV (heir to the Johnson & Johnson fortune) and Haim Saban, contributed more than $1.5 billion to the tax shelter, which generated false losses.

If the name Saban rings a bell, it’s because he has aligned himself with such politicos as Shimon Peres and was, at one time, the Democratic Party’s biggest individual donor (interestingly, though, he supported Bush’s re-election in 2004 on national security issues and only “grudgingly supported” Obama in 2008). He has consistently been ranked by Forbes magazine as one of the richest people in America for the past few years.

Saban, Johnson and the other investors were eventually found to be on the hook for more than $400 million in back taxes, penalties and interest; Saban alone was said to owe $250 million. The six investors will not face criminal charges.

Greenstein and Wilk were indicted in June 2009 as part of an ongoing government investigation into Point. Greenstein faces 18 counts of conspiracy, fraud and tax evasion. He is the former chief executive and a co-founder of the Quellos Group. Quellos was considered one of the world’s largest managers of mutual funds made up of hedge funds: the funds portion of the company was sold to BlackRock in 2007 for $1.7 billion. BlackRock is not part of the investigation.

Dechert’s Andrew J. Levander, Greenstein’s lawyer, has stated that his client “adamantly denies the allegations in the indictment and looks forward to clearing his name at trial.” Wilk is being representing by John Keker of Keker & Van Nest.

Greenstein and Wilk have apparently rested their defense on the idea that the POINT plan was reviewed and blessed by outside firms, including, reportedly, mega-firms Cravath and Bryan Cave. Their trial is scheduled for September 2010.Similar Posts:

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For the most part, I’ve tried to avoid blogging the Tiger Woods scandal. I mean, you can pretty much turn on any channel at any time and hear all about it. And, except for the potential prenup/divorce issues, it has zippo to do with tax. And this is a tax blog. And even I have standards.

Except. Well. Er. C’mon – hookers and forms 1099? I.am.powerless.to.stop.blogging.it.

Michelle Braun, who allegedly made at least $8.5 million from her job as a madam, was eventually busted by the feds for charges related to a prostitution ring. She operated a high end call girl service which catered to Hollywood actors and royalty (if the name rings a bell, think Charlie Sheen).

Interestingly, she always paid her taxes – smart woman!

Braun has told TMZ that two of the women who have claimed to have relationships with Tiger Woods, Jamie Jungers and Holly Joy Sampson, were active in her escort service. Braun paid the women for their services out of Global Travel Network, her escort front. And she issued them forms 1099.

I know!

Tiger or no Tiger, the best part of this story is the whole “upstanding tax citizen” bit. Braun was apparently properly issuing forms 1099 for “non-employee compensation.” Remember, according to the Tax Code, even compensation received for illegal activities is subject to tax. Clearly, this woman had some pretty savvy tax pros at her side.

(And see how good I was there? Nary an off color comment!)

You can view the alleged tax forms here.Similar Posts:

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In case you’ve been in Baywatch withdrawal:

Pamela Anderson hit with a pair of tax liens

I’m fairly sure that the Hof would be devastated.

(Note: Good grief, it was hard to find a safe for work photo for this post!)Similar Posts:

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I don’t play golf. Despite growing up in a town with no actual supermarket for years – and yet, three golf courses – I never really moved beyond mini golf.

My father-in-law and my husband, however, like to play golf. I won’t speculate on how well they do – but I will note that there is occasionally swearing and drinking involved. My understanding is those are a significant part of the game for all involved.

As a result, I’ve seen more than one afternoon pro golf game on TV. So, I’ve become more than a little familiar with Mickelson, Furyk, Toms, Els – and of course, Tiger Woods.

The Tiger Woods scandal has, I’ll admit, fascinated me – for much the same reasons as it has gripped most of America. I think we all put Tiger on a pedestal – perhaps, in part, because of the some of the mystery in his life. Following a disastrous and controversial 1997 GQ interview, Tiger hasn’t revealed much about his private life. We have gleaned what we know about Tiger from his tight camp of PR handlers. So, on the night of the accident, I was shocked – shocked! – to learn… that he doesn’t really drive a Buick (my first car was a Buick Regal).

But the press, rather than focus on Tiger’s love affair with his Cadillac Escalade, has been sucked into the soap opera that is Tiger’s quite obviously rocky marriage. A fourth alleged mistress has come forward and now, questions have arisen about whether Tiger’s wife will “stand by her man” a la Hillary Clinton.

The notoriously private golfer is now reportedly negotiating a $5 million payout to his wife, Elin Nordegren, to induce her to stick around and an additional $55 million more to stay married for two more years. Why so much? To keep the prenup intact.

Which brings us to the question on everyone’s mind: what are the tax consequences??

It’s a bit unclear what the tax consequences of the current negotiations would be since we don’t know how Tiger and his wife arrange their finances.

But the whole thing got me thinking: are payments to your spouse during marriage considered a gift or a settlement? Usually, because of the relationship, money that changes hands between spouses during the course of a marriage is considered a gift. In that event, for purposes of gift tax, there is an unlimited exclusion for gifts to a spouse, assuming that the spouse is a US citizen (that came in handy for Kobe). That’s assuming that Elin is a US citizen. If not, the noncitizen rules would apply: a US citizen can only gift his or her non-US citizen spouse up to $133,000 in tax year 2009 without tax consequences.

But what if it’s memorialized as something more than a gift? It’s clear that payments made during a marriage – even if part of an anticipated separation or divorce – cannot be considered alimony. But can payments made as part of a settlement agreement, even if they’re really hush money, be taxable to the recipient?

They certainly can be outside of a marriage if it can be characterized as payment for services – for example, if I pay you to show up at public appearances, etc. And in certain circumstances, there is an argument that the payment for nonperformance of services could be considered taxable – for example, if I pay you not to come to work anymore.

But as between spouses, I’m really not sure. I guess the bigger question is if you can you pay someone to remain your spouse, is it taxable if you file a joint return? It is good fodder for speculation (and all comments welcome!).

What is much more clear are the tax consequences of a divorce.

For federal purposes, spousal support (alimony) is as an above-the-line deduction for the taxpayer making the payment (check out line 31a of your form 1040). That means that the payer may take the deduction even if he or she does not otherwise itemize. (Hmm, I wonder who came up with that rule?)

On the other side, qualified alimony payments are considered taxable to the recipient.

Not all payments made to a spouse as a result of a divorce or separation qualifies as alimony for the purposes of federal income tax. For payments to qualify, a certain number of things need to happen:

1. The divorced or separated couple must not file a joint return with each other;
2. The spousal support payments need to be made in cash or cash equivalent (payments of real or tangible property does not qualify);
3. The decree of divorce or separate maintenance requires the payment and does not otherwise say that the payment is not alimony (voluntary payments do not qualify as alimony for federal income tax purposes);
4. If legally separated under a decree of divorce or separate maintenance, the couple must not be members of the same household at the time of the payment;
5. There is no liability to make the payment after the death of a spouse or former spouse; and
6. The payment is clearly not child support.

With respect to child support, as indicated just the other day, it is not taxable to the recipient or deductible to the person making the payment.

And of course, legal fees for purposes of a divorce cannot be deducted since those fees are considered a personal expense. However, to the extent that legal or other professional fees may be considered tax advice for the purpose of collecting taxable income (for example, some alimony), those fees may be tax deductible as miscellaneous itemized tax deduction.

Of course, that’s just the federal tax consequences. The treatment of divorce may vary from state to state. Tiger is currently a resident of Florida (where the infamous accident occurred), so those laws would apply. He reputedly left California for Florida for more favorable tax treatment (though it’s my understanding that the divorce laws are more onerous). Though he’s clearly still subject to state and local taxes earned outside of Florida when he plays in tournaments, his endorsement deals (like the one with Buick for $40 million) and other income would be subject to the income tax-free rules in the state of Florida.

It’s all fun and games to speculate about what could happen on the tax side – that is, after all, what I do. At the end of the day, dollars are just dollars. But it’s also important to keep in mind that this is a real person with a real family – there are small children involved. Let’s hope that whatever deal gets worked out reflects that first.

(Hat Tip to Ava George Stewart)Similar Posts:

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I start the week off with an apology: I have missed many of your collective parties, happy hours and other social occasions. I was under the impression that I needed to be invited to these events in order to attend. Thank goodness for Tareq and Michaele Salahi, to set me straight.

The Salahis are, as you probably know by now, the infamous “White House party crashers.” The Virginia couple have been accused of attending President Obama’s first White House state dinner without an invitation. It’s not the first accusation that’s been hurled their way: they’ve been named in at least 16 different civil suits in Virginia. The lawsuits include unpaid bills from the couple’s elaborate wedding (self-dubbed the “wedding of the century”) and on ongoing family feud over the Oasis Winery.

Ah, the winery. The winery is thought to be the source of the Salahi’s alleged wealth. However, it hasn’t been doing so well. According to CNN, the winery has been the subject of two bankruptcy filings: a Chapter 11 (reorg) under Tareq’s parents’ leadership and a more recent Chapter 7 under Tareq’s leadership.

For the most recent bankruptcy, the company claims about $335,000 in assets and $965,000 in liabilities, though that number for liabilities could go much higher. The IRS is listed as a creditor, though exactly how much has not been determined, as the company has not filed corporate taxes since tax year 2006 (yes, if you’re making a timeline, the due date would have been in the year that Tareq and Michaele took over from his parents).

Though the filings indicate that the winery operated at a loss, the company is said to have grossed $1.7 million in 2007 (reports are that the gross was $35,000 in 2008).

It doesn’t stop at the feds. In 2008, at least one tax lien was filed against Oasis Winery by the Commonwealth of Virginia. That lien, according to court records, has since been released. It has not been disclosed whether state and local tax returns were otherwise timely filed (my guess: no).

It’s still up in the air as to whether the Salahis have actually broken the law by attending the White House dinner without an invitation. That’s between the Secret Service and the Salahis (or their attorneys).

And I don’t think any resolved tax liens account for much. It just makes for good copy.

But what is disconcerting is how much access these folks seem to have to… well… everything… when they’re not even filing their taxes. While they assert that the winery was operating at a loss, they have been spending like it hasn’t been, even buying up luxury skyboxes to see the Redskins (one hopes that they are familiar with the IRS limitations on skybox deductions) and spending tens of thousands of dollars on (unpaid) credit card charges. It will be interesting to see whether the IRS challenges the legitimacy of any of what, I’m assuming, will be characterized as deductions once the returns are filed. But again, that’s yet to be determined as the returns have not even been filed.

Also questionable? Tareq Salahi’s charitable organization, Journey for the Cure. There has been a lot written about how Tareq may have spent funds related to the organization (including the possibility that funds may have been directed to a political campaign). On the tax side, however, there’s nothing more damning than this warning directly from the Virginia Department of Agricultural and Consumer Services:

The Virginia Department of Agriculture and Consumer Services’ Office of Consumer Affairs cautions consumers that Journey for the Cure Foundation, 14141 Hume Road, Hume, Virginia, has solicited contributions from Virginia citizens for allegedly charitable purposes. However, as of May 13, 2009, this organization has not registered with or been granted the appropriate exempt status by the Commissioner as required by law. Therefore, contributors are cautioned that their contributions to such organization may be used for non-charitable purposes.

Since the state posted that statement, an extension has been requested; that extension expired on November 15, 2009. The Commonwealth of Virginia has not indicated that an update is available.

So, not filing returns and operating a questionable charitable organization is apparently the ticket to meeting the powers that be at the White House. See, you and I have been going about it all wrong…

Even so, I am having a holiday party shortly. I will not be checking invites at the door – but the dog will be there to perform a smell test.Similar Posts:

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