Because There Can Be More To The Good Life, A Higher Level, A More Abundant Life -
From Mere Wealth To Prosperity
Wealth preserving economic insights make living the best of the good life prudent wealth management
Make The IRS & IRC §183 "Hobby Losses" Non Issues
Eliminate IRS Audit, Business, & Litigation Risks For Tax Payers, CPAs & Other Advisers
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Horse Hobby, Boat Business or Plane Profits
The IRS changed the rules. Step up. Save yourself & others, before it's too late.
It's so easy to go along with the crowd. The longer we go along, the easier it gets and the more difficult it is to change. Too often as a result, we end up making choices without even realizing we made them.
That's how many tax payers, CPAs, attorneys, brokers, and other advisors without realizing it - may now find they are involved in potentially multiple conspiracies to commit tax evasion and fraud, have been for a while, and are a target of an invigorated and motivated IRS.
Clearly the rules of tax enforcement by the IRS are changing. Tax payers and their advisors must change with them or risk being caught up by the new IRS.
Particularly for taxpayers, CPAs, and advisors of business activities that have not made a profit in 3 out of 5 years. As a result, they're presumed to be hobbies under Internal Revenue Code Section 183 AKA the hobby loss rules precluding any tax deductions.
And especially, for those "businesses" that involve luxury lifestyle assets such as yacht and jet charter any equine enterprise or agriculture "business" like a ranch, winery or vineyard, etc.
Taxpayers and their advisors must now stop and think before choosing to go along with the status quo- to continue to take tax deductions for activities with no profit or make a choice to make a change and actually make a profit.
The choice is not just right from wrong, but better from best. Having the courage to step up, to do what needs to be done, and the wisdom to explain it to others. In short, a profit is better than a loss.
YES is Your Economic Success, Your Easy Solution.
YES Yacht Executive Solutions provides customized proprietary strategies to protect wealth and long term net worth from the costs and consequences usually associated with living the luxury lifestyle. That certainly includes but is not limited to yachts, private jets, horses, real estate, etc., and potentially the IRS.
CPA's, brokers, and other advisors are now just as vulnerable - if not more so - to a recently invigorated IRS. Many professional advisors are likely at greater total risks; tax, business & possible litigation liability than their clients.
As such, in addition to the owners of yachts, jets, horses, etc., YES now invites CPAs, brokers & other professional advisers so they too can protect their wealth and long term net worth, secure their financial futures, and ensure they are not caught up by the new IRS.
As leading law firms explain, CPAs face potential liability for repeatedly filing tax returns with losses.
OBERHEIDEN Federal Defense, Compliance and Litigation. Over 2,000 wins.
Audits & Investigations Targeting Tax Preparers
The IRS is Using Statistical Analysis to Target Tax Preparers Suspected of Helping Taxpayers Submit Fraudulent Returns
Repeatedly Claiming Losses
Claiming losses year after year is another red flag for the IRS. If a tax preparer regularly files returns for clients claiming repeated losses, this can trigger an audit or investigation into the tax preparer’s practices. If a tax preparer does not have adequate substantiating documentation from his or her clients to support annual loss claims, the tax preparer could be at risk for civil or criminal enforcement action. (Emaphsis Added)
Odom, Davis & Hobson
Tax Preparers are a Key Target of the IRS | Criminal Tax Blog
Tax Preparers are a Key Target for the Criminal Division of the IRS
Tax Preparers a Key Target of the IRS
Tax preparation businesses have become one of the key sectors for scrutiny within the IRS. The IRS believes there is a high potential for fraud within this area. Based on the high volume of returns, the potential for recouping large losses is likewise present.
Speaking candidly, the game is up. Or it soon will be.
First, lets address the elephant in the room.
By now, most reading this are probably familiar with I.R.C Section 183 and the hobby loss rules, or should be.
Likewise, nearly everyone knows that most economic enterprises engaged in activities with luxury lifestyle assets; yachts, jets, and horses are not intended to ever make a net after tax profit, as the IRS requires for legitimate business deductions.
They are designed & operated to create tax deductions as an offset against other income to pay for the luxury asset.
In fact, the Treasury Inspector General For Tax Administration (TIGTA) reports that 88% of business taking tax deductions were not entitled to do so since they were not really engaged in a business with a true profit motive. Many have net losses for four consecutive years or more.
TIGTA estimated 20 years ago that such illegal hobby losses cost at least $2.8 Billion per year. How much more is it today?
Unfortunately it appears many industry professionals, in a conspiracy with their clients, and for many years, seem to have been perpetuating what looks very much like willful, premeditated, tax fraud. Knowingly taking business deductions, without a primary profit motive.
In fact, for many, such a criminal enterprise looks to be their primary business.
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When Fraud Becomes The Industry Norm
Tax Payers, CPAs, Brokers, & Others Are In The Same Boat- Up A Creek Without A Paddle
Standards were not always this bad, but have digressed over time.
Just because it takes a long time to get caught is not vindication. The IRS may be slow, but they're not blind, or stupid.
In 2010, the IRS audit rate of the wealthiest was 21.2%. That’s an expectation of an audit of about once every 4 -5 years. By 2019, the audit rate of the wealthy dropped to only 1.4%. That’s only about once every 70 years.
Over the years, many wealthy and their advisors became sloppy and exploited the lax IRS enforcement. Lax enforcement may be an explanation, but it's no excuse.
It's what everyone knows but has been reluctant to speak out loud, since most were privately benefiting from the fees, commissions, and other perks as a result of these illegal deductions.
The brokers, and industry professionals sold, managed, and maintained these yachts and jets, in a entity referred to as a charter "business" but no one involved ever had any intention of making a net profit. To the contrary. All most owners want to do is reap some tax benefits and generate some income to help defray the costs of their luxury lifestyle.
The brokers and charter managers continue to perpetuate the fraud as a way to justify a sale and to obtain inventory to charter and manage. It's become so ubiquitous, the industry is largely built upon it.
Look at how many yacht brokers offer "tax advice" on line. Anything for a commission. What's the quality of the advice? How often do they even mention the term "profit"?
Clearly making a net profit is not on anyone's mind - and certainly not a priority - neither the buyer nor the seller.
Both parties are simply looking to manufacture a sale. By fabricating fraudulent tax deductions, the plan is to find a way to help justify the cost and expense of the extravagant expense of the luxury lifestyle .
Until you've seen and heard it for yourself, it's hard to imagine what is passed as " tax advice" by "professionals" in private with a potential yacht or jet sale - and commissions- at play.
And then there are the CPA's, attorneys, and other professional enablers that continue to perpetuate the fraud by turning a blind eye if not out right directing it.
It would be different is it was an isolated case, for a few owners in a year or two. But this is ubiquitous within the industry - year in and year out for years.
Each passing year of losses, especially when doing the same things with the same"people" and without making changes to create a profit, further proves the primary purpose of purchasing the luxury asses was never to make a profit but the personal pleasure of the owner.
For most of these long term losing luxury asset activities, there is no legitimate horse business, or charter business. The only business being conducted on a continuous and regular basis is the manufacture of illegal tax deductions and tax fraud.
Could that be a premeditated criminal enterprise, a conspiracy to commit fraud?
CPA Due Diligence Requirements:
A Little Grace, But No "Get Out Of Jail Free Card"
Due Diligence Requirements for Tax Return Preparers, written by the tax attorney Paul M. Budd, formerly of Meadows, Collier now with Chamberlain Hrdlicka for Today’sCPA is an excellent piece every CPA and their clients should probably read.
Mr. Budd explains;
"This article summarizes the due diligence requirements for federal tax return preparers. It discusses diligence measures practitioners are expected to take to avoid careless mistakes. It also explains how the proper diligence measures, if taken, can help shield a preparer from penalties even when he/she makes a mistake. Finally, it illustrates the due diligence requirements with a few examples."
Adequately addresses relevant issues as outlined:
1. Preparer Penalties under the Internal Revenue Code
2. The Due Diligence Exception: Good Faith and Reasonable Cause
3. Six Factors for Reasonable Cause and Good Faith
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Nature of the Error
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Frequency of the Error
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Materiality of the Error
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Tax Return Preparer’s Normal Office Practice
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Good Faith Reliance on Advice of Others
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Reliance on Generally Accepted Administrative or Industry Practice
4. Good Faith Reliance on Information or Advice
5. Examples of Good Faith and Reasonable Cause
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Duty to Make Reasonable Inquires
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Reasonable Reliance on Information in Previously Filed Tax Return.
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Reasonable Reliance on Taxpayer Information.
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Failure to Make Appropriate Inquires.
6. Relying on Expertise and Judgment
He closes with an excellent piece of advice for CPAs and other tax professionals,
"As a general rule, if a preparer is unsure whether more due diligence is necessary, then more due diligence is necessary. The minimal cost of performing a little extra diligence is heavily outweighed by the potential benefit of precluding liability for costly preparer penalties".
Failure To Make Appropriate Inquires
Mr Budd provides an example where the preparer will likely be assessed preparer penalties.
One where the preparer now has a reasonable basis to doubt the taxpayer’s assertion that the taxpayer has what is necessary to take the deductions - substantiating records or for our discussions - the primary business motive of earning a net profit.
The preparer knows of the prior year’s losses and what actions were taken or not, and what if any expenditures were undertaken to improve profitability.
Thus without additional inquiry and due diligence, the preparer’s inquiry in this example may likely prove insufficient and unreasonable.
The preparer’s knowledge from past experience requires the preparer to make further inquiries to determine whether the taxpayer actually has what is necessary to take the deductions: whether that be required records or the necessary business intent where earning a net profit is the primary motive for the activities.
In this example, and in countless others, the preparer did not perform reasonably sufficient due diligence and therefore does not qualify for the reasonable cause and good faith exception to penalties.
CPAs, Brokers, & Advisors Risk More Than Their Wealthy Clients
The risks to an audited entrepreneur's team of advisers; brokers, CPAs, Captains, etc can't be overstated. The risk to the advisers are much broader and deeper than they are to the actual taxpayer / luxury lifestyle client.
It's just human nature for entrepreneurs being audited by the IRS - facing additional taxes, penalties, and maybe even fraud and incarceration - to attempt to shift the responsibility to others:
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"My CPA said it was ok,"
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"My broker that sold me the yacht / jet explained to me how to do it,"
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"My charter manager told me they have been doing it this way for years without any IRS issues."
Who do you think the IRS wants to talk to next?
The CPA, the yacht / jet broker and the charter manager. For it would probably be a safe bet that these advisers gave the same inadequate tax advice to others that should probably also be audited.
At least three risks to advisors beyond that of the taxpaying client seem obvious.
First, depending on the sums involved, number of violations, how long such advisers gave such inadequate tax advice, an adviser or broker could be responsible directly to the IRS - with all that may entail.
A single tax payer will only have to account for his own sins, but his CPA, broker and advisors may likely have to account for all the others that they gave similar advice. Where any one tax payer may have one count, an advisor may well have multiple counts.
Second, audited entrepreneurs may want to litigate to recover the damages, taxes, and penalties caused by any inadequate tax advice, breach of fiduciary duty, fraud, etc.
Third, many of these entrepreneurs are in industries that are relatively small, tightly knit, highly competitive, where gossip travels quickly. For example, if the clients of one yacht broker start being audited by the IRS, how long until it becomes known that if you use that broker, you're likely to get audited by the IRS?
Or how about a CPA?
Do you think any competing yacht or jet brokers, or CPA would use it to achieve a competitive advantage?
How long, if ever, do you think it would take to recover from such reputational damage? Especially once on line or social media?
Consequently, it's to every professional's personal and professional benefit to do what ever they can to protect their clients from being audited by the IRS.
So What's The Secret To Making The IRS & Section 183 Non Issues
Thee secret is not so much what to do, but rather how do do it.
The what to do is simple - make a consistent, substantial net after tax profit. Or at least 3 out of 5 years.
Keep in mind that all IRS related Section 183 problems go away, for everyone; taxpayer, CPA, attorneys, brokers, captains, etc with a consistent profit. Even the IRS is happy!
The question how?
How to earn a consistent net after tax profit in such as way that satisfies everyone's many objectives.
Most importantly - that satisfying the priories of the tax paying owner of the luxury asset. An owner that probably is already wealthy with sufficient discretionary income to want to buy the luxury asset for maximizing personal enjoyment of the luxury lifestyle.
They probably are not primarily motivated by making more money or maximizing profit to be derived by the asset but by other things. Personal time spent using the asset with friends and family for example.
The plan to - or even the possibility of - allowing strangers to utilize the asset and even with possibility of strangers having priority before the owner and their family and friends flies in the face of the owner and largely nullifying the reason for the asset purchase in the first place.
The Profitable Alternative To Traditional Charter
By combining strategies originally created for problem banking assets with LBO / private equity, tax and other financial strategies, without any traditional charter, YES expects to generate superior risk adjusted returns - safe, secure, and predictable five (5) year IRRs averaging between 20% and 40% but with reasonable assurances that much greater IRRs should be relatively common.
Without divulging proprietary and confidential details, competitive advantages, or trade secrets as to how yields are achieved, consider four (4) vastly differing base case scenarios for five (5) year IRRs:
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A $10,000,000 yacht purchase by an owner with a combined tax burden of 47% producing an IRR of 71%
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A $5,000,000 yacht purchase by a foreign owner with no US or Canadian tax producing an IRR of 20%.
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.A $1,000,000 yacht purchase by an owner with a combined tax burden of 28% producing an IRR of 36%,
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A $300,000 partial interest purchased by an owner with a tax burden of 18% producing an IRR of 29%.
These yields are achieved with NO charter or any other yacht related income, NO charter tax benefits, but with annual average operating expenses averaging 10% of the yacht’s value. Obviously, each owner's interest is uniquely structured to the objectives of each client / owner / partner and include other confidential and propriety strategies we can’t prudently divulge herein.
Nevertheless, expected yields from future operations should greatly exceed the base case without necessarily including any traditional charter income. To charter or not, or to what extent is always an option. Yields may be further enhanced if a partner currently owns a yacht of which they would like to profitably dispose.
Not All Charter Is Equal
Smarter Charter for yacht and jet owners is an enhanced proprietary management protocol that allows owners with yachts and jets in charter to significantly reduce their costs of ownership and operations while maximizing profits.
Can you maximize net profits by chartering less? YES. Sometimes less, can be more, especially comparing the short term versus the long term.
Smarter Charter is not about working harder or longer or putting more wear and tear on your asset.
Initially it may seem counter intuitive. To make more by chartering less. And it certainly helps to have the right kind of charter clientele.
But by leveraging our unique competitive advantages to work smarter, charter owners can be much more profitable in both the short and long term.
The right question is not - can yacht charter be profitable - but how profitable do you want to be?Which leads to perhaps the most important question. How does the IRS view your "charter activities"? Business or hobby?
That if your current advisors knew, surely they'd have told you already- wouldn't they?