William Koch

In 1992, when the San Diego Yacht Club won the America’s Cup, team captain Bill Koch said, “This is a triumph for America, for American technology, and American teamwork.” But the real triumph that year appeared on his personal income tax return, which included a $10 million charitable contribution toward that victory.

Funding for the whole team totaled $64 million, so not only did he get a deduction for that $10 million, but he also contributed another $44 million from foundations he controlled, which was presumably also a charitable deduction for him at some point. So why does Koch get to write off his incredibly expensive hobby and you can’t?

Fortunately for him, Section 170(c) of the Internal Revenue Code explicitly defines a charitable contribution to include organizations operated, “to foster national or international amateur sports competition,” which would include yachting. So while it may not seem fair, it’s 100% within the law. So maybe you just need to find a more expensive hobby.

Josh Norris
Roger Goodell

In 2015, the National Football League gave up its tax-exempt status, which it had held since 1966. This move seemingly should have been a watershed moment that triggered a hefty annual tax bill and negatively impacted the NFL’s finances, right? Wrong.

Most of the NFL’s income is passed on to the individual teams, leaving very little for the organization itself. So, while the NFL’s income is now taxable, there’s none remaining within the organization to tax. The teams are, of course, still highly profitable and will continue to be taxed. But little has changed for the NFL.

So why, after all this time, would the NFL give up its tax-exempt status? For one, it’s a good headline, and the NFL can use all the positive press it can get. At first glance, it appears that a large, profitable entity is voluntarily paying taxes. But as previously explained, that’s hardly the case.

But the kicker is that non-profits must report executive compensation to the IRS, which then makes that information publicly available. So while we know that Roger Goodell made $44 million in 2012 and $35 million in 2013, that information is no longer reported a private, “tax-paying” entity. Well played, Roger. Well played.

Josh Norris
Martha Stewart

You know her for cookbooks, craft making, and insider trading. But Marth Stewart has also had her fair share of tax troubles—in 2002, she was ordered to pay over $200k in back taxes and penalties to the state of New York. The dispute in question: her New York state residency.

Stewart claimed she spent little time in the state and therefore had no residency. After all, New York has extremely high state income taxes, which is why so many New Yorkers try to spend over half the year in Florida, which has no state income taxes at all.

The issue went to court, and unfortunately for her, the judge found that Stewart did not have “credible testimony.” Why you may ask? Well, apparently, she commented in one of her cookbooks about the summer home she keeps in the Hamptons, and you can’t have it both ways. So the judge ruled in favor of the State of New York.

Lying became a theme for Stewart when just two short years later in 2004, a jury found her guilty of conspiracy, obstruction of justice, and two counts of making false statements to a federal investigator in the ImClone insider trading case. Stewart famously spent five months in jail for these charges.

However, she seems to have learned her lesson and rehabilitated both her outlook and career.

Josh Norris
John Paulson

John Paulson was one of the few winners during the 2008 financial crisis. A couple of years prior, he saw the housing bubble coming and started buying derivatives that would profit when mortgages began to default. And when they finally did, he earned an astounding $15 billion for his fund and $4 billion for himself personally.

Of course, a big payday also comes with a commensurately large tax bill, but Paulson took advantage of a provision that at the time allowed him to defer taxes on that gain until 2018. But the time has come, and this past April he paid a total of $1.5 billion in federal income taxes, which is probably one of the largest personal tax bills in history.

As you can imagine, the logistics of paying a sum that large can be challenging: On top of choosing which assets to liquidate, the actual transfer of possession to the Treasury can also be tricky. He could simply wire the money, but then he would forgo interest on the time it takes the government to process his payment.

On the surface, that may seem like a silly concern. But consider this—even assuming a modest interest rate (1%) over a short process period (3 days), Paulson could accrue over $80,000 in interest. He may be a billionaire, but eighty grand is still eighty grand. And if there is a way to pay a bill while simultaneously earning that much money, you do it.

The other almost laughable concern is physically having enough space on the check to write the amount due—after all, that’s a lot of zeros. And apparently, the IRS won’t accept checks greater than $100 million. So it looks like Paulson may be writing several checks for $99,999,999.

He’s paying his fair share, but leave it to a tax hero to get a ten-year deferment and somehow make money off paying the IRS.

Josh Norris
Joseph Nunan

Over sixty years later, he’s just an ironic blip in American history, but in 1952, it was big news that former IRS Commissioner Joseph Nunan was convicted of tax evasion. That’s right—the country’s primary tax law enforcer was a tax cheat.

Over several years in the 1940s, he hid over $90,000 of income, $1,800 of which he won from a bet that Harry Truman would win the 1948 presidential election. He destroyed evidence and dodged investigators, but ultimately, the government prevailed in its case against Nunan. As a result, he spent five years in jail and paid $15,000 in fines.

But a deeper dive past the irony reveals something even more sinister. Apparently, much of the hidden income came from fees paid by tax litigants for phone calls on their behalf to the IRS. As former commissioner, Nunan still had pull within the Service to make tax problems go away. So he was convicted of tax evasion, but he was guilty of far more than that.

Josh Norris