A napkin says 2019 review next to a cup of coffee.
In this episode of Tax Notes Talk, Tax Notes reporters recount some of the quirkiest tax stories they encountered in 2019.
Read the podcast transcript below. This post has been edited for length and clarity.
David Stewart: Happy holidays from Tax Notes. This week, we’re continuing our annual tradition by ending the year with a few short tax stories that may be a little odd or otherwise don’t work as a full episode.
As our gift to you this holiday season, here’s our year-end collection, 2019. Joining me now in the studio is Tax Notes legal reporter William Hoke. Bill, welcome back to the podcast.
William Hoke: Glad to be here, Dave.
David Stewart: What do you have for me?
William Hoke: Well, I have a story that I worked on back in September. It’s a bit interesting. There was a woman who has been certified by the Guinness Book of World Records as having been the longest living human. She reportedly died in 1997 at the age of 122 years and 164 days.
David Stewart: That sounds a little skeptical.
William Hoke: Well, there are two Russian researchers who came to that conclusion. A guy named Valery Novoselov and Nikolay Zak, a mathematician, started to question whether this woman, Jeanne Calment, actually lived as long as she did because the next longest living person was 119 years old when she died.
After the reports that Calment died in 1997 at 122 years old, Novoselov, who is a professor of genealogy and geriatrics at the People’s Friendship University in Moscow, wrote a paper for the magazine called Rejuvenation Research in December 2018. He said effectively that the ages are out of joint.
“Whenever a new record is set, a new longevity record, the person dies several days or several weeks later, very rarely several months later. However, we are never speaking about years apart, definitely not several years,” he said.
David Stewart: I assume that because you looked into this, that there’s a tax angle.
William Hoke: Yes, there is. The tax angle was introduced by Novoselov. He said that Calment’s father and mother-in-law both died in 1931 and the family had to pay inheritance taxes of up to 35 percent at the time. “If Jeanne had actually died, her daughter Yvonne, and her husband would have had to pay a lot of money. But if Yvonne died, the family wouldn’t have had to pay,” Novoselov said.
This is where the fraud comes in. Public records in France indicated that the daughter Yvonne had died in 1934 at the age of 36. Novoselov is suggesting that the mother, Jeanne Calment, really died, but that the daughter, Yvonne, assumed her identity and kept on pretending to be her mother until her death in 1997.
David Stewart: That’s a pretty extreme measure to go to for tax avoidance.
Jeanne Calment may be the world’s oldest person. (Photo by Pascal Parrot/Sygma/Sygma via Getty … [+]
Sygma via Getty Images
William Hoke: Yes. Again, Novoselov said the reason behind that was to avoid inheritance taxes. He said that if Yvonne had died, the family wouldn’t have had to pay.
A group of French researchers published a paper in The Journals of Gerontology saying the mathematician that Novoselov had hired and sent to France to research the records — Nikolay Zak — had not done a complete job. He failed to note that Jeanne Calment’s father had given all of his property to his children in 1926 in exchange for a life annuity of FRF 5,000. Zak claimed that Yvonne had additional reasons to assume her mother’s identity. There was an annuity contract in the mother’s name with Jeanne Calment as the beneficiary that was signed before 1934 and continued in effect until 1997. The annuity would have terminated if she had really died in 1934. They also said that Jeanne Calment, who had made a declaration of assets for tax purposes in 1946, had not reported this annuity on this tax form at the time.
Of course, that begs the question of whether the daughter might have been trying to evade taxes in 1946, just as the researchers claim that she had done in 1934. The French researchers said that their mathematical models indicated that it was possible for a person to attain the age of 122 by the late 1990s. Of course, the closest was 119, so that’s quite a jump from one to another.
I talked with Marc Bornhauser, a French tax lawyer, who told me that if there was any identity fraud committed, it was more likely civil fraud rather than tax evasion. Bornhauser told me that Jeanne Calment had sold her house, but kept the right to stay, which meant that she could live there until she died.
I got various reactions about this story, one of which I thought was very interesting. This morning, I told a young acquaintance of mine about it, and she replied, “Boy, at 122 who cares if you don’t pay your taxes?”
David Stewart: It sounds like she had numerous reasons to commit this fraud — if she even did it. And being the oldest ever living human being was just kind of the icing on the cake.
William Hoke: Yes. If indeed, she was the oldest living human being.
David Stewart: I suppose we’ll never know.
William Hoke: We will never know. The French assessor refused to revise the death certificate after reading the French researchers’ report, so we’re not going to know.
David Stewart: All right, Bill. Thanks for being here.
William Hoke: You’re welcome.
A portrait of a sorrel horse.
David Stewart: Well looks like Tax Notes legal reporter Nathan Richman has moseyed into the studio, so I think he has another horse story for us. Nate, welcome back.
Nathan Richman: Thanks for having me.
David Stewart: What do you have?
Nathan Richman: What I’ve got for you is a case of Denise McMillan, who had herself a nice long career both in the horse business and in computer programming. She was involved in dressage and breeding for something like 50 years. The problem was in 2010 when she was trying to deduct about $5,000 to $6,000 worth of horse-related expenses, her last horse had been dead for two years.
In the words of Judge Mark V. Holmes, the fact that McMillan didn’t own, breed, or show any horses in 2010 “makes it impossible for her to do what a horse breeding and showing business does — breeding and showing horses. These expenses no longer being business expenses are thus not deductible.”
David Stewart: Would you say that this is a case of the IRS beating a dead horse?
Nathan Richman: Well, this was McMillan’s sixth trip to the Tax Court with regard to a horse breeding business deduction. But the horse had only been dead for two years, so at least it was alive for part of it.
One other odd part about this is that the horse that died in 2008 hadn’t earned any money for her since 1997. It had just been sent to Australia in the hopes of bimonthly $1,500 breeding attempts.
David Stewart: Did McMillan make an argument as to why she still has an ongoing horse business, even though her horse had been dead for several years?
Nathan Richman: She did have some argument that she was looking to find a new horse. Of course, that left her in the still-not-yet-in-business stage, so she was in the old-business-dead, new-business-not-yet-born stage.
David Stewart: So, you need to have a horse, of course.
Nathan Richman: Of course, of course.
David Stewart: Nate, thanks for being here. Joining me now by phone is Tax Notes reporter Paul Jones. Paul, welcome back to the podcast.
Paul Jones: Thanks. Good to be here.
David Stewart: What do you have for me?
SALT LAKE CITY, UT – JULY 05: A worker designs a Just Fly It t-shirt with the Betsy Ross flag at … [+]
Paul Jones: This is an interesting story that occurred in July in Arizona, where Nike had announced its intentions to build a factory in Goodyear, a city in the state. The governor’s administration was prepared to offer about $1 million in incentives for moving and setting up a factory there as part of their shoe production line. But then on July 2, the governor tweeted out that he felt Arizona was doing just fine without Nike and that he had instructed his administration to withdraw the $1 million they had offered the company as an incentive to move to Goodyear.
David Stewart: Why the change of heart?
Paul Jones: Well, apparently, Nike had decided to withdraw a sneaker that they had already put into production and sent to a number of stores. This shoe had on the heel a circle of 13 stars from the famous Betsy Ross flag from the early days of American history.
The reason that Nike decided to withdraw this shoe was because Colin Kaepernick, who is a spokesperson for the company, had expressed concerns that the flag was used by racist groups and also represented America at a period of time when slavery was legal. Nike decided it was going to pull that line of shoes.
Well, that didn’t play well with conservatives and Arizona’s governor, Doug Ducey, is a Republican. Ducey decided that he was going to announce that the incentives deal was scuttled and add a little insult to injury by saying that Arizona didn’t need Nike at all.
David Stewart: How did this then play out?
Paul Jones: It doesn’t appear that Ducey ever reversed his decision regarding the $1 million grant. The town of Goodyear, however, had just approved about $2 million in incentives for Nike to move. When I reached out to the town’s officials at the time, they said that they intended to continue to offer that. They also were a little worried that Ducey’s reaction might have scuttled the whole matter.
Nike, for its part, withdrew the shoe and decided to go ahead and move into Goodyear. It makes sense because I don’t think that the $1 million that the state was offering was their primary reason for considering Goodyear.
RIVERDALE, GA – NOVEMBER 16: Colin Kaepernick looks on during his NFL workout held at Charles R Drew … [+]
But two days later, Ducey was spotted wearing Nike shoes at the Fourth of July celebration, strongly suggesting that this was a bit of a culture war flash in the pan.
David Stewart: What are you hearing from observers about this?
Paul Jones: Experts said this is hardly unique and that the culture wars have occasionally intruded into tax incentive deals. Michael Lucci of the Tax Foundation told me that some of this reminded him of things that were going on in Georgia. The state passed a strict anti-abortion bill and had seen a number of entertainment industry bigwigs say that if the bill went through or was upheld, they would suspend operations in the state. Georgia has gone out of its way to attract the entertainment industry.
I also spoke with Greg LeRoy of Good Jobs First, an incentives watchdog group, who said that this reminded him of something that occurred in 1993 in Williamson County, Texas. The county had rescinded tax breaks to Apple because the tech company said it was going to provide health benefits to gay couples. The county later on approved tax breaks replacing the ones that were withdrawn after a public backlash.
Observers say this sort of thing happens on occasion, but it seems like the people involved don’t necessarily always follow through. It’s more of making gestures for public consumption.
Again, Ducey was angry enough at Nike to say that he was going to withdraw the incentives the state had offered them, but at the same time, he’s more than happy to wear their product to the Fourth of July celebration two days after the fact.
David Stewart: I guess that just goes to show there are some deals that are too good to walk away from. Paul, thanks for being here.
Paul Jones: Always a pleasure. Thanks again.
David Stewart: Tax Notes legal reporter Jennifer McLoughlin joins me now. Jennifer, welcome back.
Jennifer McLoughlin: Thank you for having me.
David Stewart: What do you have for me?
Jennifer McLoughlin: This is somewhat of a tax story. When it comes to high-profile celebrities caught trying to skirt their tax obligations, Leona Helmsley comes to mind for many people.
David Stewart: Absolutely.
Jennifer McLoughlin: Helmsley was a billionaire hotel magnate that came under investigation in the late 1980s. She was found guilty of several counts, including evading over $1 million in taxes. She did a quick stint in federal prison that lasted less than two years, which is what she’s mostly known for.
David Stewart: Didn’t she one time say “only the little people pay taxes?”
NEW YORK, NY – CIRCA 1989: Leona Helmsley circa 1989 in New York City. (Photo by PL … [+]
Jennifer McLoughlin: Yes. Helmsley was an infamous tax cheat seemingly as well known for a federal crime as she was for a lavish lifestyle and haughty reputation. She was famously callous towards people, including her employees, which earned her the moniker “Queen of Mean.” I believe it was a former housekeeper that testified during her trial that Helmsley once said, “We don’t pay taxes. Only little people pay taxes.” But it’s been a while since she’s been with us. She passed away in August of 2007, 12 years ago, and yet her name is still popping up in headlines.
This story relates to her estate, which exceeded $5 billion, most of which went to a charitable trust that was named after her and her late husband. In her will, Helmsley provided that her five executors were not going to receive statutory commissions for their work. They were going to receive reasonable compensation for their work. So the question is: What’s reasonable compensation? It was not defined in the will, but there are factors in New York law that help guide a determination of what is a reasonable compensation.
What happened was the New York attorney general took issue with the executors’ compensation a few years back. The reason was the statutory representative of the ultimate beneficiaries of that charitable trust. There’s a long history and a complicated issue in terms of the methodology to get to what was a reasonable compensation, but the long and short of it is in August, a New York court found that the five executors were right. The decision favored their determination of what their compensation was and that was collectively more than $106 million.
David Stewart: OK, that’s a lot.
Jennifer McLoughlin: There’s a lot of money. Two of the executors have passed away. One was Leona Helmsley’s brother. His estate got a smaller portion of that compensation than the others. But the remaining amount was divided equally between the three surviving executors and the estate of the other one who passed away. According to the court’s order, this amount was less than 2 percent of Helmsley’s total estate. But the amount of compensation reflected the unique and complex nature of handling this estate and the risks that the executors had to take.
David Stewart: OK. Well, Jennifer, thank you for being here.
Jennifer McLoughlin: Thank you very much for having me.