Author: Luis Rodriguez Jr.

Assistant Professor of Law and Taxation, Alfred University, rodriguez@alfred.edu

Tax Exemptions

 

This week I covered tax exclusions with students in my personal income tax class, and I think that concept is extraordinary given the broad mandate of §61 of the Internal Revenue Code:

. . .Except as otherwise provided in this subtitle, gross income means all income from whatever source derived. . . .

Exclusions speak to what this county holds dear, what it places a great value on over and above collecting revenue.  Exclusions are preferences that shifts the tax burden away from those who are the subject of that benefit onto the general taxpaying public.  The question becomes, whether that those who benefit are worthy, and if so then whether the mechanism is effective.

For example, §103 generally provides that interest received from state and local bonds are exempt from taxation, irrespective on the financing purpose.  Should sport stadium financing qualify?

For example, §121 provides that the first $250,000 of gain from the sale of the taxpayer’s principal residence ($500, 000 if Married Filing Jointly) is excluded from taxation (with any remainder generally taxed at capital gain rates), irrespective of the total gain from the sale or of the income of the taxpayer.  Should the first $250,000/$500,000 be exempt from the sale of a multi-million dollar home, or if the Adjusted Gross Income of the selling taxpayer is in a generally high tax bracket?

Maybe, these and other tax exclusions should be reconsidered, or at least fine tuned, especially if the remainder of the taxpaying public have to foot the bill for these preferences.  Insist that tax exempt municipal financing be limited to certain projects.  Insist that those able to pay additional amounts of capital gain do so, or that the exclusion amount is indexed to regional economics.

The additional amounts collected may well be de minimus in the grand scheme of things, but that’s not the point to those who have to foot the bill.  Let’s see the forest and the trees.

DOL Guest Speaker: Shequeila Birdsong

 

Mrs. Shequeila Birdsong of the US Department of Labor visited Alfred University and spoke on Wage and Hour issues, and various other labor laws.

Mrs. Birdsong is the Community Outreach and Planning Specialist for the Federal Department of Labor’s Wage and Hour Division.  She began her federal service with the Internal Revenue Service (IRS) where she spent a decade working in various positions.  Her final position at the IRS was as a Taxpayer Advocate.

Smart Data Science LLC: Big Data Analytics

 

On September 9, 2016 management of Smart Data Science LLC spoke to potential investors, their advisors, and our students by teleconference about their firm’s business prospects.

smart-data

The company uses big data analytics for comprehensive risk management. This helps prepare governments, businesses and communities for the increasing number of shocks, stresses and disasters caused by man-made or natural factors. This data is incorporated into the strategic and operational decisions, credit ratings, investors reporting, regulatory filings, budget use and employee and public communications. FEMA now requires all state and local governments to have updated hazard Mitigation Plans. The SEC and EU mandate that companies report more data on ESG (environmental, societal and governance) risks and mitigation.

Currently, risk assessment and resiliency planning is usually done by expensive consulting firms that leave big studies that quickly go out of date. Smart Data Science LLC, based in New York, produces a digital risk management tool that brings continually updated big data analytics, machine learning & intelligent automation to this $5B+ fast-growing global market opportunity.

Its SaaS product offering was developed closely working with the World Bank and its pilot implementations include World Bank internal departments and its clients such as governments of Saudi Arabia and Djibouti.

FTC Guest Speaker – Carol Kando-Pineda

 

Carol Kando-Pineda of the FTC spoke to AU students today.  She is Counsel in the FTC’s Division of Consumer and Business Education where she leads teams to create free print materials, websites, and videos to help people avoid scams, manage their money and make wise buys. Carol began her FTC career as a staff attorney bringing false advertising cases; she then became the agency’s Legislative Counsel, serving for several years as a liaison between the FTC and Congress.

US Olympians Who Win Medals May Face Major Tax Obligations

 

The Olympics should be a time for excitement and great honor. But for the US Olympians who win medals, it’s a time for major tax obligations.

For winning a gold, silver or bronze medal, the Olympians get paid $25,000, $15,000 and $10,000 respectively. This, of course, is income and will be taxed as such under §74 Prizes and Awards which provides:

“prizes and awards, other than certain types of fellowship grants and scholarships and limited employee achievement awards, are generally includible in gross income.”

The Olympians also get taxed on the fair market value of the medals as well. The medal is valued when it is earned, not after, so the Olympians were lucky this year in Rio since the value of medal is lower than recent years. The value of the medals is $564 for gold, $305 for silver and close to nothing for the bronze. Putting the Olympians in the top tax bracket would mean a 39.6% tax on their winnings:

  • Gold = $9,900
  • Silver = $5,940
  • Bronze = $3,960

In recent months and with the Rio 2016 Olympics having just occurred, the Senate has passed a bill that was introduced by Senator Schumer to exempt the Olympian winners from taxation. However, since July, the House has not moved on the bill.

Nonetheless, most athletes can deduct the cost of training, travel and their equipment from their taxes, if they consider this job their business. Under §162 Trade or Business Expenses it states that deduction is allowed for necessary expenses paid during the tax year, which includes the training and travel that the athletes must endure in order to be successful. Athletes, like Simone Biles, who won four gold medals and a bronze, could face around a $44,000 tax bill. However, her endorsements and many other athletes like her such as Michael Phelps and Kevin Durant who are millionaires, can afford these taxes. Although this seems like a crazy concept to tax our Olympians on their accomplishments, it makes sense to since these are prizes and awards and the medals are worth actual money.

By: Rachel Winter, Alfred University, MBA Accounting 2017