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TaxFacts Intelligence August 16, 2021

Posted by William Byrnes on August 16, 2021


The Supreme Court upheld in June, in a unanimous decision of all nine Justices, a District Court’s injunction against the NCAA. The injunction allows the NCAA to maintain rules limiting undergraduate athletic scholarships and other compensation related to athletic performance. BUT the injunction stops as unlawful NCAA rules limiting the education-related benefits schools may make available to student-athletes.

By the way subscribers, the Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

Colleges and universities across the country have leveraged sports to bring in revenue, attract attention, boost enrollment, and raise money from alumni. That profitable enterprise relies on “amateur” student athletes who compete under horizontal restraints that restrict how the schools may compensate them for their play. The National Collegiate
Athletic Association (NCAA) issues and enforces these rules, which restrict compensation for student-athletes in various ways. These rules depress compensation for at least some student-athletes below what a competitive market would yield.

Against this backdrop, current and former student-athletes brought this antitrust lawsuit challenging the NCAA’s restrictions on compensation. Specifically, they alleged that the NCAA’s rules violate §1 of the Sherman Act, which prohibits “contract[s], combination[s], or conspirac[ies] in restraint of trade or commerce.”

The Supreme Court upheld, in a unanimous decision of all nine Justices, the District Court’s injunction against the NCAA. The injunction allows the NCAA to maintain rules limiting undergraduate athletic scholarships and other compensation related to athletic performance. BUT the injunction stops as unlawful NCAA rules limiting the education-related benefits schools may make available to student-athletes.

Regarding today’s Supreme Court decision (entire 45-page opinion is available here), first it was expected by industry analysts and court watchers after the Court’s oral arguments March 31, 2021 with a foretelling Q&A session. We are already preparing Tax Facts Intelligence and Q&A for the books/app for financial advisors to leverage the new athletics marketplace and revenue streams and best represent their clients. I know of financial advisory firms that as of Tuesday will be hanging up a ‘sports agent financial advisor shingle’ and trolling SEC high schools, especially Texas, recruiting for tomorrow’s top collegiate athletes to sign up the talent.

Why not? That is how the market already works outside the USA for soccer (what everyone else calls football) and to a lesser extent baseball (albeit not nearly as popular as soccer so we hear much less about baseball camps for Dominican rising star 12 year old players like we hear about for the 12-year-old next Brazilian Pele). 

Interaction with social media followers is the currency of this new era for young athletes and can lead to a couple of hundred thousand during college for the star players, and even millions for the SEC Heisman level types. But, not having the ultimate talent and thus top sports ranking in a field does not also mean that an interactive social media following of millions cannot be created. The Russian tennis star Anna Kournikova, case in point, though she was just a little too early for the modern social media movement. Johnny Manziel, another case in point: had this decision been in place already and had he contracted a great wealth management advisor (thus great personal agent) with social media and promotional background, his life would have been very financially comfortable before his drug abuse ruined him in the pro league (talent or not aside). He certainly could have afforded a stint at the Betty Ford clinic to sober up and cleanout.

Via the advice of a great wealth manager, a personality can be leveraged into millions of dollars before the athlete graduates university, or at least hundreds of thousands.

It is clear from the unanimous ruling and the judges questioning and opinions that this is not a restrictive ruling. NCAA proponents are trying to spin that some restriction remains allowable like direct payments to players. But all it takes is one school that has money that wants to break into the big league to beat ‘Bama and LSU. Kind to think of it, I know that school… and don’t think Bama and LSU are just going to let that happen. Let real market competition begin!

An interesting question that I think will lead to much future litigation: How this ruling plays out throughout all sports regarding Title IX (such as a school spending money on men’s football, basketball, baseball, must by federal and state law also spend an equal amount on the equivalent sports for women). I am for market opportunity and thus I think it is an exciting proposition that opportunities will open up in all sports for athletes and wealth manager advisors alike (to negotiate the optimum financial rewards for the athletes).

Also, if athletic programs, such as golf or hockey, are forced to ‘come up’ with additional dollars to attract the star players to remain competitive, will the programs themselves start to think like SEC football (the most profitable league and sport) to generate additional income to meet the demands of staying or obtaining high ranking?  After all, whether it be academics or sports, it is all about ranking. Deans and Provosts rise and fall based on academic rankings. Coaches based on league rankings and national championships. Sports rankings and academic rankings have connections via alumni fundraising as of course voter university name/brand awareness and recognition. Basketball in particular through March madness has supported the academic rankings of universities though academic and sports ranking are not directly connected in voting and evaluation scoring, the indirect connection is undeniable.

This Supreme Court decision is great news for wealth managers / financial advisors who subscribe to Tax Facts because we are well-positioned to enter the new market of clientele representation created for the high school athlete seeking to share in the value that the athlete creates for a university and for the athlete through social media leveraged revenues. Understanding that “value”, generating more of it, and ‘sharing’ in the value is the bread and butter of a holistic wealth manager’s representation of athletes and entertainers.

Texas A&M already has education in this regard for our wealth management students and JDs who focus on such emerging artist/athlete/entertainer representation. We even have a law clinic for this emerging artists run by JD students supervised by my colleague that joined me at Texas A&M from our former law school in SoCal.

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Wealth & Risk Management Degree for Industry Professionals – learn about the graduate degree here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

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TaxFacts Intelligence August 9, 2021

Posted by William Byrnes on August 9, 2021


Did Your Clients Properly Report Their Pre-Tax Reform Cryptocurrency Trading Gains? Seven years after the IRS declared cryptocurrency would be taxed as personal property under capital gains rules, it has now announced that pre-tax reform trades won’t qualify for like-kind exchange treatment under Section 1031, creating a potential tax headache for taxpayers with substantial pre-reform crypto gains. Meanwhile, challenges to the IRS’s ability to impose substantial FBAR penalties for failure to report foreign accounts continue to flare up in federal courts despite a clear consensus in both Texas and the 9th Circuit. Read on to make sure you’re up to speed.

By the way subscribers, Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

New IRS Guidance Nixes Tax-Free Exchange Treatment for Cryptocurrency Swaps.  New IRS guidance has confirmed that pre-2018 exchanges of Bitcoin, Ether and Litecoin do not qualify for Section 1031 exchange treatment.  Prior to 2018, taxpayers were permitted to defer capital gains taxes under Section 1031 for certain exchanges of personal property (1031 is now limited only to exchanges of real property).  The IRS’s rationale is that these were not exchanges of like-kind property and so were taxable even prior to tax reform.  The IRS found that Bitcoin and Ether each had special roles in cryptocurrency trading because if taxpayers wanted to trade in other types of virtual currency, they had to first exchange the other currency into or from Bitcoin or Ether.  Therefore, exchanges between Litecoin and Bitcoin/Ether did not qualify as “like kind”.  Further, the IRS identified differences in design, intended use and actual use of Bitcoin and Ether.  While this guidance currently only extends to exchanges involving Bitcoin, Ether and Litecoin, it is possible that the IRS could extend the rationale to other types of cryptocurrency.  Taxpayers who trade in cryptocurrency under current tax rules should remember that these trades are taxable events. For more information, visit Tax Facts Online. Read More

Related Questions:

7723. How does a taxpayer identify with bitcoin or other virtual currency are involved in a sale, exchange or other disposal of the virtual currency?

7725. What considerations apply when an employer pays employees or independent contractors using bitcoin or other virtual currency?

Related Questions:

559. What are the rules that allow 401(k) plan sponsors to include deferred annuities in target date funds (TDFs)?

561. Can a taxpayer combine a deferred income annuity (“longevity annuity”) with a traditional deferred annuity product?

New Challenge Posed to Federal Courts’ $10,000 Per-Year Limit on FBAR Penalties.  Several recent federal court decisions have confirmed that the total FBAR penalties that can be imposed on an individual should be limited to $10,000 per year, rather than $10,000 per financial account.  Now, a federal court in Georgia is once again hearing a similar case.  In 2018, the IRS assessed $120,000 in penalties for a three-year period for each of the foreign banks with which the taxpayer had a relationship that she failed to report via FBAR filing.  Federal courts in both Texas and California have confirmed that the IRS must limit penalties for a non-willful failure to file FBAR reports based on the year, not the number of the taxpayer’s foreign accounts.  In the current case, the taxpayer had also participated in an amnesty program where she paid back taxes on the accounts she held with banks in France, Lebanon and Monaco.  For more information on the FBAR filing requirements and penalties for noncompliance, visit Tax Facts Online. Read More

Related Questions:

980. What is the effect of a disposition of Canadian real property in respect of a U.S. citizen that is a Canadian resident for tax purposes?

981. What is the effect of a disposition of Canadian real property in respect of a U.S. individual that is not a Canadian resident for tax purposes?

IRS Extends Relief for Employee Donations of Unused Sick, Vacation & PTO.  The IRS has extended the relief provided in Notice 2020-46 to allow employees to continue to forgo, or “donate”, sick, vacation and personal leave because of the COVID-19 pandemic without adverse tax consequences through the end of the 2021 tax year.  After December 31, 2020 and before January 1, 2022, employers may make cash payments to Section 170(c) charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees gave up.  Those amounts will not be treated as compensation and the employees will not be treated as receiving the value of the leave as income.  While taxable income will not be increased, employees cannot claim a charitable deduction for the leave donated to their employer. Employers, however, may deduct these cash payments as Section 162 business expenses or Section 170 charitable contributions if the employer otherwise meets the respective requirements of either section.  For more information on the deduction for charitable contributions, visit Tax Facts Online. Read More

Related Questions:

8540. What are the income percentage ceilings that limit the income tax deduction for charitable contributions?

8541. How does the income percentage ceilings calculated if charitable contributions of money are made to both public charities and private foundations in the same tax year?

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Wealth & Risk Management Degree for Industry Professionals – learn about the graduate degree here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

Posted in Retirement Planning, Taxation | Tagged: | Leave a Comment »

TaxFacts Intelligence August 5, 2021

Posted by William Byrnes on August 5, 2021


It’s been another busy week for the IRS and DOL.  Both agencies have responded to taxpayer questions on various issues–the DOL, by providing helpful clarifications on plan sponsors’ obligations under the new SECURE Act lifetime income disclosure rules, and the IRS by expanding the availability of tax credits for employers who offer paid leave to encourage COVID-19 vaccination.  On another note, the IRS reminds taxpayers: remember your substantiation when claiming reimbursement from tax-preferred health savings accounts!

By the way subscribers, Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

A Reminder for Clients: IRS Emphasizes Need for Health FSA Substantiation

Recent IRS activity indicates that the agency is paying attention to whether or not clients are properly substantiating items reimbursed through tax-preferred health savings accounts.  In IRS Information Letter 2021-13, the IRS restated that flexible spending account (FSA) items paid using an FSA debit card must have substantiation containing all of the information required for claims submitted through other means.  A simple receipt is usually not sufficient.  Substantiation from a third-party must include: (1) the name of the person receiving the services, (2) the date the service was provided, (3) a description of the service or item purchased, (4) the name of the provider or merchant and (5) the claim amount.  The only exception is for certain merchants and providers that can be automatically substantiated by the Merchant Category Code (MCC) on the provider’s debit card machine and the actual item/service via identification by an Inventory Information Approval System (IIAS) from non-healthcare providers.  For more information on the health FSA rules, visit Tax Facts Online. Read More

Related Questions:

8888. What is a dependent care flexible spending arrangement (FSA)?

DOL Releases FAQ on SECURE Act Lifetime Income Illustrations

The DOL issued a temporary set of FAQ to implement the interim final rule on the SECURE Act lifetime income illustration provisions.  Under the SECURE Act, plan sponsors must disclose a participant’s account balance as both a single life annuity and joint and survivor annuity income stream.  Plans must furnish lifetime income illustrations annually (or more frequently).  The FAQ clarifies that the earliest statement for which the illustrations are required is a statement for a quarter ending within 12 months of the rule’s effective date (September 18, 2021) if the plan issues quarterly statements.  Therefore, the illustrations can be incorporated into any quarterly statement up to the second calendar quarter of 2022.  For non-participant-directed plans, the lifetime income illustrations must be included on the statement for the first plan year ending on or after September 19, 2021 (or, no later than October 15, 2022, which is the last day for filing the annual return for a calendar year plan that year).  The FAQ also clarifies that plans are permitted to provide additional lifetime income illustrations as long as the required illustrations are also provided, recognizing that some plans have been including illustrations for many years.  For more information on the lifetime income disclosure rules, visit Tax Facts Online. Read More

Related Questions:

559. What are the rules that allow 401(k) plan sponsors to include deferred annuities in target date funds (TDFs)?

561. Can a taxpayer combine a deferred income annuity (“longevity annuity”) with a traditional deferred annuity product?

IRS Updates FAQ on ARPA Paid Sick and Family Leave Tax Credits

The IRS updated its frequently asked questions on the American Rescue Plan Act (ARPA) paid sick and family leave credits.  Now, employers are entitled to claim the tax credits if they provide paid leave for employees to accompany family, household members and certain others to obtain a COVID-19 vaccine or to care for someone recovering from immunization.  The new eligibility requirement also applies to self-employed taxpayers.  Generally, employers are no longer obligated to provide employees with paid sick and family leave.  However, those who choose to offer paid leave for qualifying reasons may claim a tax credit for wages paid.  To date, the tax credits for leave have been extended through September 30, 2021.  For more information on the FFCRA paid leave tax credits for sick and family leave, visit Tax Facts Online. Read More

Related Questions:

768. What initial guidance has the Department of Labor (DOL) provided to help employers and employees understand their rights and duties under the Families First Coronavirus Response Act (FFCRA)?

769. What documentation should employers request and keep with respect to the Families First Coronavirus Response Act (FFCRA) COVID-19 paid leave? Are there any reporting requirements? How does the employee request leave?

$1.2 Trillion Infrastructure Bill

The 2,702-page bi-partisan “Infrastructure Investment and Jobs Act of 2021” has been released by the Senate. The bill may be downloaded from the U.S. Senate website here. The bill contains approximately $550 billion of new project spending and carries over an additional $650 billion from previously funded projects for a total of over $1.2 trillion in infrastructure spending that will begin in 2021 and most end in 2026.

But the bill contains many energy provisions and excise taxes as well as fees that will impact all segments of the energy industry. These provisions include billions of dollars for the industry for expenditure and incentives for carbon capture; clean hydrogen R&D; nuclear; among others. By example, $500,000,000 is provided for clean hydrogen technology R&D (see page 1550 at section 40314). The excise taxes and fees include the extensions of the highway-related taxes, superfund excise taxes, and customs user fees.

The major tax reform provisions addressing estate and gift tax, capital gains, carried interests, real estate exchanges, retirement plans, and high-income earners have been reserved to the forthcoming yet-to-be-agreed/released Democratic reconciliation bill. However, the Infrastructure Investment and Jobs Act of 2021 contains some new tax provisions including:

  • Sec. 80501. Modification of automatic extension of certain deadlines in the case of taxpayers affected by Federally declared disasters.
  • Sec. 80502. Modifications of rules for postponing certain acts by reason of service in combat zone or contingency operation.
  • Sec. 80503. Tolling of time for filing a petition with the tax court.
  • Sec. 80504. Authority to postpone certain tax deadlines by reason of significant fires.
  • Sec. 80601. Modification of tax treatment of contributions to the capital of a corporation.
  • Sec. 80602. Extension of interest rate stabilization.
  • Sec. 80603. Information reporting for brokers and digital assets.
  • Sec. 80604. Termination of employee retention credit for employers subject to closure due to COVID–19.

The automatic extension for certain tax deadlines for Federally declared disasters addresses the situation of multiple declarations relating to a disaster area which are issued within a 60-day period. A separate 60-day period shall be determined with respect to each such declaration pursuant to the bill’s language.

The bill will resurrect energy industry-related tax credits (expired IRC Section 48C) worth up to 30 percent of expenditure for converting fossil energy production into green energy production. Senator Joe Manchin is doing his job of representing his West Virginia coal industry constituency!

The bill’s cryptocurrency reporting regime (Sec. 80603. Information reporting for brokers and digital assets) is marked to raise $28 billion from current non-compliance and tax evasion regarding taxpayers’ either ignorance or purposeful oversight of including gross income derived from investments or trading digital currency. The reporting threshold will only be lowered to $10,000 which is still rather high in our personal opinion. It creates a potential perspective (or perhaps incentive among cheaters) that only digital currency income of at least $10,000 is reportable for gross income. On the other hand, it is often better to build out first then and scale up an operation, tweaking it. For example, the $10,000 reporting amount will capture a substantial pool of taxpayers, and that threshold can be lowered in the future (with grossly overstated estimates of the ‘evasion’ income it will bring in to pay for an extension or some new program in next year’s budget bills).

The bill contains hundreds of not-obvious federal grants and contract opportunities for business. By the example of one provision related to education and training of workers, section 401513 includes $10 million dollars for FY2022 for government grants of 50 percent of the cost to provide ‘career skills training’ to identify and involve in training programs target populations of individuals who would benefit from training and be actively involved in activities relating to energy efficiency and renewable energy industries; and the ability to help individuals achieve economic self-sufficiency. The program students must concurrently receive classroom instruction and on-the-job training for the purpose of obtaining an industry-related certification to install energy-efficient buildings.

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Wealth & Risk Management Studies for Industry Professionals

Check out the graduate program here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

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