The IRS is Going for the Gold

[bb2]

The IRS is Going for the Gold

By Bob Bauman JD, Offshore and Asset Protection Editor

Dear Americans

I am a proud Marylander from the Eastern Shore, and like many Marylanders, I have been following closely Michael Phelps’s impressive performance at the London Olympic Games.

Phelps is a native of Baltimore, and I’ve been eager to watch him rack up many more medals in what he’s said will be his final Olympic Games.

As I cheered him on at home, Michael went on to claim three silver medals and one gold, making him the most decorated Olympian on record. He didn’t stop there, and by the time of his final race, he had three more golds.

When Michael returns to Baltimore, he will be met with cheering crowds, plenty of confetti and free access to the Inner Harbor, the National Aquarium and the entire Chesapeake Bay, if he’s in the mood to take another swim.

He will also have some unwanted bureaucrats waiting for him… agents of the U.S. Internal Revenue Service.

Advertisement

The Safest Way to Benefit from Emerging Market Growth

As the U.S. economy sags and the dollar faces a grim future, emerging markets around the world are booming. New consumers with money to spend are driving incredible growth. For a simple, safe way to take your money out of the U.S. dollar and take advantage of these stronger markets, we’ve secured exclusive access for our Sovereign Investor readers to EverBank’s MarketSafe Emerging Market CD. To be one of the first to take advantage of this incredible opportunity, click here to join the priority access list.

Tax the Gold, Silver and Bronze

It seems the U.S. Internal Revenue Service has its greedy eyes on every winning American athlete in London. That’s because a gold medal, worth about $650 at current gold prices, could cost athletes about $236 in taxes. While a bronze medal, which is worth $5, could only cost an athlete $2 in taxes.

As of this morning, U.S. athletes have won 30 gold, 19 silver and 22 bronze medals, for a total of 71, just behind China with 74 and ahead of the host United Kingdom with 48.

The real bite, however, is not medals, but the taxes to be taken out of Olympians' cash bonuses. The U.S. Olympic Organizing Committee awards 2012 U.S. champions $25,000 for a gold medal, $15,000 for silver and $10,000 for bringing home a bronze.

For example, Allison Schmitt swam a sizzling final leg to lead the U.S. to a gold medal in the 4x200 freestyle relay. Congratulations, Allison. You now owe the IRS $26,679. Michael Phelps, with his stunning performance, owes somewhere in the range of $45,000 for his 2012 victories.

At a 35% income tax rate, for each medal, bronze medalists will owe the IRS a total of $3,500, silver medalists will owe $5,250 and top finishers will be liable for $8,750, according to calculations by Americans for Tax Reform.

Rubio’s Reform

U.S. athletes are effectively being punished for their success, argues Florida Senator Marco Rubio, who introduced a bill earlier this week that would eliminate tax on Olympic medals and prize money. (]President Obama agreed with him!) Rubio said this tax is another example of the “madness” of the U.S. tax system, which he called a “complicated and burdensome mess.”

No argument from us, senator. We’ve been saying that for years.

Our friend, Dan Mitchell of the Cato Institute, points out that it’s important to understand that the senator’s bill isn’t a feel-good effort to create a special tax break. Instead, Senator Rubio is seeking to take a small step in the direction of better tax policy.

More specifically, Senator Rubio agrees with The Sovereign Society that we should end the current U.S. system of “worldwide” taxation and shift to “territorial” taxation, the common sense idea of sovereignty applied to taxes. If income is earned inside a nation’s borders, that nation gets to decide how and when it is taxed.

Continuing Battle for Tax Freedom

The Olympics have exposed a continuation of the global battle between conservative and libertarian advocates of source-based (territorial) taxation on one hand, and those high-tax leftists who want residence-based (worldwide) taxation, on the other.

President Obama, the Democratic Party, the Organization for Economic and Community Development (OECD) and their kooky Left allies, such as the so-called "Tax Justice Network," avidly support worldwide taxation that allows their big spending government to collect tax on any income taxpayers earn worldwide. That, unfortunately, is current U.S. tax law.

But, to tax income earned outside their borders, government’s tax collection agency, such as the IRS, must be aware of the income; thus the PATRIOT Act, the demand to eliminate all financial privacy, the bullying of governments such as Switzerland, the attempt to impose FATCA on every bank in the world.

In contrast, under the territorial method of taxation, countries such as Panama and Uruguay, for example, reserve the right to tax the income earned inside their borders, regardless of who earns the money; but they do not assert the right to tax income earned in other countries.

While this may seem to be a rather obscure debate, known or understood by few, the eventual outcome has profound implications for all of us, as Americans have just discovered about their suddenly taxed Olympic medalists in London.

As Dan Mitchell points out, radical leftists like Michigan Senator Carl Levin prefer worldwide taxation because it undermines tax competition among counties removing individuals’ and companies’ ability to escape high taxes by shifting activity to jurisdictions with better tax policy.

Indeed, this is why politicians from high-tax nations, like Levin and Obama, are so fixated on trying to shut down so-called tax havens. It’s difficult to enforce bad tax policy, after all, if some nations have strong human rights policies on privacy.

Hope and Change

Unfortunately for American Olympians, U.S. taxes follow them wherever they earn and wherever they go.

Fortunately for us, there are still ways to safely and legally move your assets to nations with more progressive low-tax policies. Uruguay, for example, has a secure banking system and offers interest yields far better than we can find here at home.

While it might be too late for our returning Olympic champions, there is still time for you to take steps to protect yourself from America’s draconian tax laws.

Until next time,

Bob Bauman

P.S. Until our politicians fix our broken tax system – which seems incredibly unlikely – people will continue to look for ways to protect their wealth from the greedy hands of an overreaching government. Since 2007, more than 800,000 millionaires have vanished from America doing exactly that. To find out where they’ve gone – and how you can join them – click here for my latest special report.

Edited August 9, 2012 by TexasGranny
removed solicitation links

[desimo]

Technically, since the medals were won and the value gained in a foreign country is the IRS really able to touch them?

[jaman]

Technically, since the medals were won and the value gained in a foreign country is the IRS really able to touch them?

don't you remember....they are going after the off shore accounts

....

[markb57]

The value in the medals is what they're paid by the USOC. Each gold medal earns $25,000.00, each silver, $15,000.00 and bronze is $10,000.00. All of course, isn't taxed till they get home..

http://wiki.answers.com/Q/Does_IOC_pay_olympic_medal_winners_money

[Adam Montana]

Taxing success... the US Government Way!

Disgusting.

don't you remember....they are going after the off shore accounts

No, they are going after the illegal offshore accounts. It is still 100% legal to have offshore accounts, own foreign corporations, hold a second passport, etc.

A lot of people get their undies in a bunch every time they hear the term "FATCA" or read a jazzy headline stating "IRS to crack down on offshore blah blah blah"... don't forget to use your noodle and understand that there is a huge difference between walking the line and crossing the line.

Technically, since the medals were won and the value gained in a foreign country is the IRS really able to touch them?

Technically - yes. The US taxes it's citizens on money earned anywhere in the world.

Our OSI members know that the only way to avoid taking huge hits is to not earn the income as a US Citizen.

[jaman]

Taxing success... the US Government Way!

Disgusting.

[/left][/size][/font]

No, they are going after the illegal offshore accounts. It is still 100% legal to have offshore accounts, own foreign corporations, hold a second passport, etc.

A lot of people get their undies in a bunch every time they hear the term "FATCA" or read a jazzy headline stating "IRS to crack down on offshore blah blah blah"... don't forget to use your noodle and understand that there is a huge difference between walking the line and crossing the line.

Technically - yes. The US taxes it's citizens on money earned anywhere in the world.

Our OSI members know that the only way to avoid taking huge hits is to not earn the income as a US Citizen.

thanks Adam, still naive about off shore accounts,what makes it illegal or leagal

[Adam Montana]

thanks Adam, still naive about off shore accounts,what makes it illegal or leagal

It's illegal if you are evading taxes, laundering money, or involved in terrorism.

Otherwise they are no different than an account at your local bank, other than the fact that your assets may be a whole lot more secure outside the reach of our Greedy Uncle!

If it's something you are interested in, I would strongly recommend joining my VIP group. With the 20% discount (code "newsletter20" at this link: http://iqd.me/l/order ) you will get 90 days access at less than 50 cents per day, and you will be given information that will easily cost you thousands anywhere else.

[jaman]

thanks Adam,wow quick response..I've learned alot here and thank you for this format,I've pondered joining VIP with work slowing down I have to tighten down the belt,with all this great information here,I'm stupid for not joining,

thank you again

[rockfl9]

All Olympic medals all start out as a bronze blank. silver and gold plated on. Metal value of the gold maybe $200! I dont know how customs values them.. Have no monetary value so probably declared as a "personal item" I also think the Wiki. ask reference is WRONG contestants are NOT paid by IOC, that would be against the Olympic Charter , but it is rumored some countries "honor " winners in some way.

[429]

Since 2007, more than 800,000 millionaires have vanished from America doing exactly that. To find out where they’ve gone – and how you can join them – click here for my latest special report.

Gosh, how do I join them?

(Granny, where's that sarcasm icon? )

[PartyTime]

Did Obama report the value of his gold chain that Saudi King gave him as a gift?

[yota691]

And another article bb2 Thanks +1 Do Olympic medalists owe up to $9,000 to the IRS?

Share this story:

Will the tax man come for a bite of the Olympic medals?

With Americans paying close attention to the London Olympics, two leading figures in the conservative movement -- Grover Norquist and Marco Rubio -- have launched an effort to lighten the tax burden for athletes who win medals.

A July 31, 2012, blog post on the website of Norquist’s group, Americans for Tax Reform, had the headline, "Win Olympic Gold, Pay the IRS: U.S. Olympic medal winners will owe up to $9,000 to the IRS."

The ATR blog post continued, "American medalists face a top income tax rate of 35 percent," ATR wrote. "Under U.S. tax law, they must add the value of their Olympic medals and prizes to their taxable income. … At today’s commodity prices, the value of a gold medal is about $675. A silver medal is worth about $385 while a bronze medal is worth under $5. There are also cash prizes that accompany each medal: $25,000 for gold, $15,000 for silver, and $10,000 for bronze." These prizes are given by the U.S. Olympic Committee.

ATR went on to offer calculations of what medal winners might owe the IRS, using that 35 percent tax rate. A gold-medal winner would owe $8,986, while a silver-medal winner would owe $5,385 and a bronze winner would owe $3,502.

These calculations were widely noted in the blogosphere. The following day, Aug. 1, Sen. Marco Rubio, R-Fla., introduced the Olympic Tax Elimination Act, which would "exempt U.S. Olympic medal winners from paying taxes on their hard-earned medals."

Rubio’s news release said the U.S. tax code "is a complicated and burdensome mess that too often punishes success, and the tax imposed on Olympic medal winners is a classic example of this madness. Athletes representing our nation overseas in the Olympics shouldn’t have to worry about an extra tax bill waiting for them back home." (A new Olympics tax exemption might make the tax code more complicated, but we digress.)

After a reader notified us of this developing issue, we decided to fact-check ATR’s specific claim that "U.S. Olympic medal winners will owe up to $9,000 to the IRS."

We checked with accountants who specialize in representing athletes and they agreed that the bonus would almost certainly be taxable. Our experts diverged somewhat over whether and how the medal would be treated for tax purposes, but we’ll assume for the purposes of our analysis that it is subject to taxation.

We will also note that ATR said "winners will owe up to $9,000" -- a phrase that gives the group leeway for its estimates.

Still, the experts we spoke to suggested that a $9,000 tax payment was unrealistically high. For most athletes, the payment will be less, and possibly quite a bit less. Here’s why:

Business expenses

An athlete who wins a medal bonus would be free to deduct any unreimbursed expenses from the bonus, lowering -- or maybe even eliminating -- their tax hit. In fact, accountants say an athlete would be crazy not to.

"Anything used for the production of income is deductible," said Brad Bell, a partner with BGBC Partners LLP in Indianapolis who specializes in accounting for athletes.

Greg Shafer, an accountant in Colorado Springs, Colo., added that "if they were my client and had to pay that kind of tax, I would say, ‘Well, what are your ordinary and necessary expenses?’ That could be travel, uniforms, cell phone use." The U.S. Olympic Committee is based in Colorado Springs, and Shafer said he has provided accounting services to athletes.

So expenses for gymnasts might include tumbling classes, payments to coaches and travel costs to international meets. Cyclists would pay for new bikes and maintenance. An Olympian fencer told Forbes.com that her expenses for equipment and competitions run around $20,000 per year.

Not every athlete earns as much as Michael Phelps

The way the U.S. tax system is constructed, income is taxed at higher rates the higher your income goes. So the full 35 percent rate (known as the marginal rate) only kicks in on income earned after you pass a threshold of about $380,000. Below that level, income is taxed at lower tax rates.

So even someone earning well into the six figures will likely see an overall (or "effective") tax rate quite a bit lower than 35 percent -- even before you take into account exemptions and deductions.

When we contacted ATR, Ryan Ellis, the group’s tax policy director, defended the calculations. He said that when you’re isolating a specific element of someone’s income, it’s actually more appropriate to use marginal tax rates rather than effective tax rates, because in the calculation, the medal is the essentially the last piece of income being considered, and thus gets taxed at the highest marginal income rate.

He added that while athletes may scrape by in low tax brackets in non-Olympic years, the Olympic year is the one in which they would have a reasonable shot of getting into a higher tax bracket -- if not 35 percent, then perhaps 33 percent or 28 percent, a rate that would still produce a high tax bill.

Still, while some world-class athletes come into the Olympics as international superstars with lucrative endorsement deals, many athletes earn less. Though the data is incomplete, we did find one study conducted by the Track & Field Athletes Association that found that about half of track and field athletes who ranked in the top 10 in the U.S. in their event made less than $15,000 annually from the sport in sponsorship, grants and prize money. About 20 percent of such athletes made more than $50,000 annually. And beyond marquee athletes such as sprinters, milers and distance runners it's toughest of all, the study found.

There’s anecdotal evidence as well. Marathoner Brian Sell, who made the 2008 U.S. Olympic team, told CNNMoney that it took years of struggle, including three years earning less than $25,000, before he made significant money from running. "It's a small percentage of people who make a real living in this sport," he told CNNMoney. "And if you didn't run well, you didn't get paid."

An athlete earning the same $25,000 a year that Sell earned for three straight years would pay about 15 percent on gold medal winnings. That would be $3,851 -- before accounting for any allowable expenses.

We should also note that there is nothing special or "extra" about the taxes levied on income derived from Olympic victories. They are the same taxes laid on any kind of income, whether that’s from wages or lottery winnings.

Our ruling

Americans for Tax Reform is correct that gold medalists’ winnings are taxable, and it provides some leeway by saying that U.S. winners could be taxed up to $9,000.

Still, it’s not likely that anyone would pay that much per medal in taxes -- even if the winner was fortunate enough to have annual income well over $380,000 and refused to deduct any business expenses on their winnings. Any accountant worth their salt should be able to get the rate of tax on medal winnings much below $9,000, and maybe even to zero. We rate the statement Mostly False. http://www.politifact.com/truth-o-meter/statements/2012/aug/01/americans-tax-reform/do-olympic-medalists-owe-9000-irs/

Edited August 10, 2012 by yota691