• The music industry has changed drastically, with artists now having more control over their careers and revenue streams beyond deals with record labels. 
• Artists today need to view themselves as enterprises with diverse income opportunities including live shows, merchandising, licensing deals, streaming royalties, content creation, and catalog sales. 
• To fully capitalize on these opportunities, artists must surround themselves with a team of expert advisors to help navigate all the financial, accounting, and business intricacies involved.

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The journey to success in the music industry is no longer a straight line. While the path to earning substantial revenue previously only had one route — through a major label — those days are gone. The digital age has ushered in a new era, where artists have many direct pathways to their fans and an array of new revenue opportunities. 

But with new opportunities comes new challenges. Today’s artists have to figure out how to navigate, manage, and optimize numerous complex revenue streams with little guidance. This is why having a trusted team of advisors is essential to ensure you are getting the most from your artistic output — both in terms of building your fan base and your financial future. 

Here’s how working with a top advisor can help you transform from artist to enterprise, adept at building diverse income streams and overcoming any associated financial hurdles.

1. Live Performances: Looking Beyond the Spotlight

Live performances and touring remain pivotal for musicians to generate income. However, the financial success of a tour is not just about what you’re getting paid; it’s also about what you’re spending. That’s why meticulous planning is essential. From production costs to transportation, a trusted advisor ensures every dollar is accounted for before signing any contracts. Artists can also leverage performances for additional revenue through avenues like live streaming, behind-the-scenes access, or even concert films (i.e., Taylor Swift’s Eras Tour film). Advisors can help structure those deals to optimize the highest take-home payout.

2. Merchandising: Capitalizing on Brand Appeal

Merchandising offers a lucrative avenue to capitalize on an artist’s brand and deepen fan connections. Advisors can guide artists through various merchandising paths — from direct sales to brand collaborations to affiliations — to help them determine the best financial option. While direct sales may seem the most appealing on paper (where you might see numbers like “90% profit”), the associated responsibilities, such as sales tax management and warehousing, shipping, and staffing considerations, need careful evaluation. A seasoned advisor helps strike the right balance between profit and practicality.

3. Licensing and Sponsorships: Negotiating the Right Deal

Licensing and sponsorships have become integral to the music industry, with brands using music to sell everything from cars and sneakers to movies and fast food. Advisors play a crucial role in evaluating and negotiating these deals — ensuring you are getting fairly compensated for your name and image, and the opportunity aligns with your brand and goals. The evolving licensing landscape—with artists now able to self-publish and go through Spotify, Apple, and other platforms—has made getting licensing deals done easier. One independent artist we work with got a six-figure deal when a network went to TuneCore looking for music to use in a TV show.

4. Streaming Revenue: Making the Most of Royalties

Music streaming platforms dominate the music consumption landscape today. While streaming royalties may be lower than what an artist receives from radio spins, terrestrial radio cannot touch the real-time data streaming provides (providing demographics of who is listening to your music, where they are listening, etc.). When it comes to managing streaming royalties, it pays to have a trusted advisor to track your royalties across all platforms — analyzing streaming data and royalty statements to ensure proper payment and identifying any discrepancies. Advisors also can strategize royalty planning, including estimated tax payments on royalties to avoid penalties, and help negotiate more favorable distribution deals with streaming platforms, exploring creative arrangements and exclusive partnerships.

5. Creator Content: Creating a Consistent Revenue Driver

In today’s creator economy, valued at over $100 billion, creating content is a powerful revenue stream. Many music artists are augmenting their income to the tune of six-to-nine figures a year by creating content for TikTok, YouTube, podcasts, NFTs, as well as a variety of other media and platforms. Advisors can guide you in navigating the challenges that arise from managing online content revenue — which often trickles, and then floods in, from multiple sources, and can quickly become unwieldy without a system in place to manage it. Proper financial management, including tax planning and budgeting, becomes crucial as content creation becomes a more prominent income source.

6. Catalogue Monetization: Structuring Your Ideal Sale

High-profile artists like Dr. Dre and Justin Bieber have recently sold their catalogue rights for large chunks of change. Catalogue monetization is the one time you are in complete control of your asset; you can carve out whatever deal you want (10-year, 20-year, 50%, 80%, etc.). Advisors guide artists in choosing the right partners, structuring deals, and determining the extent of the catalogue to sell. Your advisor will also help you weigh the tax considerations of collecting royalties versus selling all or some of your catalogue (royalties are taxed at 37%, while catalogue sales are taxed at 20%), and set up your sale in the most tax-efficient manner possible (for example, installment sale vs share sale). This one-time opportunity demands careful deliberation, and having the right team advising on nuances is paramount.

Building the Team Around Your Team

Moving from artist to enterprise means building a team to help you succeed. Your advisors are your team around your team. Much like a corporation brings in consultants, having seasoned business advisors available when you need them will help you make informed decisions to grow your brand and secure your financial future.  

How We Can Help:

Our Entertainment, Sports, and Media (ESM) practice helps music artists at all stages, from rising stars to legends, offering financial, tax, and business management services to help you build your brand and maximize opportunities. Contact our ESM team today to learn how we can help take your music career to the next level.

• Name, image, and likeness (NIL) deals offer athletes exciting opportunities, but also potential pitfalls if not approached strategically. 
• Athletes should educate themselves on taxes, carefully review contracts, and budget with long-term security in mind. 
• With guidance on financial obligations, agreements, and smart money management, athletes can maximize NIL benefits while safeguarding their futures.

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You are a talented young athlete with a growing public profile. You’ve just been offered a Name, Image, and Likeness (NIL) deal, an opportunity that can put some extra money in your pocket or even, in some cases, make a more profound impact on your financial life. It’s an exhilarating time, but it’s also crucial to approach this new chapter with the right knowledge and mindset. 

Whether you’re a college or high-school athlete, or the trusted advisor to a young athlete, here are the three most critical actions you should take to avoid common financial pitfalls associated with NIL deals.

1. Recognize Your Tax Obligation

One of the first hurdles you’ll encounter in the world of NIL deals is taxes. It’s essential to understand that the money you earn from these deals is subject to taxation. Many young athletes overlook this, often because they’ve never had to deal with taxes before.  

To avoid potential financial trouble down the road, consider these steps: 

• Educate Yourself: Young athletes receiving payments from NIL deals are responsible for paying taxes on that income just like professional athletes. Take the time to learn about taxes, especially how they apply to your earnings. Understanding the basics of taxation will empower you to make informed decisions. 
• Consult a Tax Professional: Before signing any NIL agreement, consult with an experienced accountant, tax advisor, or business manager. They can help you calculate your tax obligations, identify potential deductions, and develop a tax strategy tailored to your situation. Along with ensuring any federal, state, and local taxes you owe are paid on time (avoiding penalties), a tax professional can also help you navigate more complex situations – such as earning income across multiple states. 
• Practice Smart Spending: Resist the urge to splurge on electronics, clothes, or cars as soon as the money starts rolling in. Create a budget that considers your future tax payments, living expenses, and financial goals. Staying disciplined with your spending is key to long-term financial success. 

2. Execute Agreements Cautiously 

Navigating NIL deals can be tricky. There are various state laws and school policies to consider, along with a number of legal “gotchas” to avoid. Here’s how you can safeguard your interests: 

• Seek Legal Advice: Before signing any NIL agreement, engage a lawyer with experience negotiating NIL and brand endorsements for athletes. An attorney with expertise in sports contracts can help you navigate the important terms in an NIL deal, such as money, exclusivity, length of the agreement, how the brand can use your name, image, and likeness, and an athlete’s delivery requirements. An experienced attorney will help you spot potential pitfalls and ensure the agreement aligns with your long-term goals. 
• Beware of “Standard” or Simplistic Agreements: When someone refers to a contract as “standard” or provides an overly simplified agreement, that should throw up a red flag. All it takes is the slightest language in your agreement to give a company unfettered rights to use your name, likeness and image in ways you never intended.  
• Follow Regulations: An experienced advisor will help you navigate specific laws and policies set by your state, school, and the NCAA regarding NIL deals. For example, you cannot share photos or videos in your team uniform with logos from other brands without first getting permission from your school or the brands. 

3. Budget Wisely for the Long Term 

While newfound wealth can be exhilarating, it’s crucial to manage your finances wisely: 

• Prioritize Needs Over Wants: When it comes to spending, prioritize essential needs over extravagant wants. Understand this financial windfall may be a one-time occurrence, so focus on building a secure future rather than indulging in immediate gratification. 
• Future-Proof Your Earnings: Instead of assuming this is a continuous stream of income, treat each deal as if it were your last. Create a budget that accounts for potential future earnings and uncertainties, ensuring you’re prepared for any scenario. 
• Explore Tax Mitigation Strategies: Consider tax mitigation strategies, such as retirement planning and deferral opportunities, to minimize your tax burden. Consulting a financial advisor can help you explore these options. 

Make the Most of Your NIL Opportunities

The legalization of NIL in college and high school sports represents an exciting shift for young athletes. It can offer game-changing money, enabling you to take care of your financial needs, along with building your brand for future growth. But with great success also comes great responsibility. Even professional athletes who’ve reached the highest pinnacles of their respective sports can end up without the financial resources they need if they don’t plan ahead. 

The good news is by recognizing the potential pitfalls and seeking professional guidance early in your NIL journey, you can better position yourself for long-term financial success. Remember, it’s not just about profiting from your name, image, and likeness today, but also securing your financial future for tomorrow. 

How We Can Help:

Our Entertainment, Sports, and Media practice understands the unique challenges athletes face at all stages of their financial journey. Whether you need assistance with tax planning, contract negotiations, or financial strategy, we’re here to guide you toward a successful future in the world of sports and NIL deals. 

This article was co-authored by Leron E. Rogers, Partner at Fox Rothschild LLP.

• Whether you want to sell all or a portion of your music catalog, doing so can be very lucrative as you seek to achieve short- and long-term financial goals.
• Some factors to consider include your catalog decay, future album aspirations, and potential collaborations with other artists, as well as the fan-artist relationship.
• There is a four-step process to deciding to sell: determine the details, know your goals, be realistic, and reach out to the professionals for guidance.

Almost weekly, we’re hearing news of artists, songwriters, and producers selling all or part of the rights to their catalogs – and for big numbers:

• Justin Bieber: $200 million
• Dr. Dre: $200 million
• Stevie Nicks $100 million
• Future: $75 million
• Metro Boomin: $70 million

Some of these sales represent entire bodies of work. Others cover portions of work over a period of years and exclude high revenue-producing albums and tracks that will continue to generate wealth for years to come.

As a CPA, CGMA, and a veteran of the music industry, my Entertainment, Sports, and Media team and I can help you understand your options and determine the best way forward for you, right where you are in your career.

You may be thinking about selling all or a portion of your catalog for any number of reasons. We work with clients who have been motivated by the financial setbacks they experienced from tour cancellations due to COVID-19 restrictions, others who have new albums or tours they will be able to fund with lump sum payouts, and those who are ready to retire and enjoy the benefits of their life’s work.

The market is still good right now for investible music rights

Whether you act on it now or consider it as an option for the future, this is a good time to give it some thought and make a realistic assessment.

Radio airplay and sync licensing, as well as streaming on Spotify, Pandora, Apple Music, and other platforms, has the potential to drive significant revenue for artists. This is especially true for the top 1% who command about 90% of the revenue generated from the platforms. It is a long game for many artists who want to achieve wealth through these channels. Artist-fan relationships that can stand the test of time and drive ticket sales, merchandise sales, and album downloads have become even more critical to long-term success.

Should you sell?

At the right level, the kind of payout a catalog sale provides can be life-changing and even have a generational impact.

If you need liquidity fast, and without strings or ties to investors, selling your catalog can be a great way to get it. You can benefit from that money all at once, and from a tax standpoint, you’re going to pay a maximum tax rate of 20% on any proceeds (capital gains tax) you make from the sale. By contrast, if you keep your catalog in place and assume you’d earn revenue on all of it via streaming, you would have those assets taxed as income at a much higher rate. It can be as high as 37% based on your income level, year-after-year.

However, sync licensing, streaming popularity, and playlist rotations don’t last forever. Music and catalogs experience “catalog decay,” or the rate at which your music declines in consumption over time. Selling while the current value is up can be a wise choice. There are exceptions, as we saw last year with Kate Bush when her 80s hit “Running Up That Hill” became the most streamed song on Spotify globally, fueled by a sync licensing deal with the hot Netflix series Stranger Things. It is impossible to predict when one of those gems will hit, but in the event of a sale, the purchaser would have benefited from those royalties.

Honestly appraise where you are in your career and your album activity

Every artist is unique with a unique set of circumstances. Let’s look at the examples mentioned above:

• Dr. Dre is 58 and his sale worth $200MM+ gave him a huge influx of cash from royalties from two of his solo albums and his share of N.W.A. artist royalties, but he still has other revenue-producing assets and is currently on tour and has years of touring and album productivity ahead.
• Metro Boomin is 29 years old and has years of creative time ahead of him with $70MM from his catalog sale.
• Future is 39 years old, and with his $75MM in catalog sales of 612 songs from 2004-2020, this still leaves him with plenty of streaming revenue from smash hits and Grammy Award winners from 2021 and into the future.
• Stevie Nicks is 74 and is now $100MM wealthier from an 80% sale of her catalog in 2020. She is still actively touring, but she has wealth if she decides to slow down and still maintains 20% of her catalog for ongoing revenue.
• Justin Bieber is 29 years old but just cancelled the international leg of his tour due to his neurological health diagnosis; he now has $200MM he can count on for life and generational financial planning regardless of how he decides to, or is able to, proceed with his music career.

Evaluate how many albums and collab projects you are interested in pursuing as well as how many tours you think you have ahead of you. If you work with other artists, or crossover into different genres, you can cultivate larger audiences and grow your fanbase beyond its current limits.

If you’re considering selling your music rights, look at this four-step process:

Step 1: Determine the details.

What rights do you actually own? How much money have those rights made you in the last three years? Knowing this could help you determine how much they’d be worth if you sold them today and it will help you place a valuation on the catalog.

Who’s the potential buyer? Is this a buy and hold type of buyer? Is this a buyer who’s going to actively work your music catalog to increase its revenue, and your popularity?  We know what questions to ask potential buyers to help you make the most informed decision.

Step 2: Know your personal and professional goals.

By doing this, you can balance them against the tax implications of selling by your catalog. It is your life, and you have your own personal and professional short- and long-term goals. Whether it’s sending your first-born to college or funding your next album or multi-media project independently, you have the power to use your assets in a meaningful way to enable you to attain your goals.

Step 3: Be realistic.

If you decide to sell, understand that not all catalog sales are going to yield the kind of sales that make Billboard magazine headlines. Level set your expectations with how successful you have been over the past few years, and how much you have been earning in publishing rights and streaming.

Step 4: Begin a conversation with us.

We know musicians. We know the industry. We know music. We know taxes. And we know there are options between selling versus leasing catalogs and choices between selling all or just portions of catalogs.

We’ve got you. MGO can be a steadfast partner through every step of this process to help you make the choice that is right for you and your family now, and for generations to come.

How we can help you reach your goals with catalog sales

Your music is your life — we get that. In the end, it’s one of the greatest legacies you’ll leave behind. Connect with our Entertainment, Sports, and Media practice to determine if monetizing your music catalog is the best move for you — and how it can help you reach both your professional and financial goals on a larger scale. 

About the author

Tony Smalls is the leader of our Entertainment, Sports, and Media (ESM) practice and helps culture-defining entertainers, athletes, and other high-net-worth individuals build and protect their wealth while maximizing growth opportunities in today’s fast-evolving media marketplace. He specializes in accounting, finance, tax strategy, financial planning, and analysis, financial reporting, and contract/deal negotiations, working heavily on prospective investments like live music tours.  

We just have one question: have you hired a Certified Divorce Financial Analyst (CDFA®) yet?

The truth of the matter is, your attorney can do a lot, but they can’t provide all the guidance you need. Read on to learn the five things you don’t know about the tax implications of a divorce — and why you should hire a CDFA for your own financial security and peace of mind.

1: Be prepared for the long haul

It’s great that you and your former spouse are on good terms now, but you want to make sure you understand the divorce’s full scope of financial impact. Splitting everything down the middle sounds easy, but things are rarely simple, and the process could take longer than anticipated — especially if you want to make sure your interests are being looked after. As soon as you’ve decided on a divorce, equip yourself with financial knowledge by hiring a CDFA. If you know your interests, you have control over how they are handled, giving you the upper hand, preventing you from being blindsided later — no matter how long the “long haul” ends up being.

2: Know your long-term tax liabilities for the assets you’re divvying up pre-divorce

Whether it is interest-free bonds, the house you raised your kids in, your retirement fund, or a timeshare to Walt Disney World, there will be tax consequences and implications for the assets you divide between the two of you.

Often, people look at the fair market value of jointly owned property instead of a property’s tax basis, assuming that this is enough to go on when divvying up. But let’s say you have two different assets you’re splitting “fairly”: stock options and undeveloped land (you never did get around to building that second home together … ). Both assets are valued at the same amount. So, naturally, it makes sense for you to get one, and your spouse to get the other. That is, until one of you sells your asset, and you get a hefty tax bill. This is considered a tax carryforward, and you should understand them before the divorce is finalized.

Tax carryforwards are important to consider when dividing assets because of the tax consequences — and planning opportunities — that could exist in the future. They include carryovers like:

• net operating loss carryovers,
• business tax credit carryovers,
• capital loss carryovers,
• excess business loss carryovers,
• investment interest expense carryovers, and
• suspended passive activity loss carryovers.

Tax regulations give you a great framework, but unfortunately, they do not tell you how these carryovers should be allocated between you and your spouse; instead, you must decide. A CPA should be leveraged to identify the tax considerations, as well as any potential impact they could have on each spouse.

3: Rely on a seasoned professional to gain the full financial picture

You don’t want to think this way, but you need to be prepared for the fact your spouse may have been getting away with unsavory tax practices you were not aware of when you were married. And if so, you need someone on your side. A CDFA can help you gain the clarity and understanding you will need to strategize so you are satisfied with the choices you make during a divorce long after the marriage is dissolved.

For example, imagine your spouse purchased a Mercedes-Benz G-Wagon SUV during the marriage. At the time, you thought everything was above board. But your analyst uncovers that the G-Wagon’s full value was written off because of the weight, thus showing a lower annual income — negatively impacting you and your likelihood of a fair division of property and income.

To combat this, your CDFA would provide a lifestyle analysis. This entails scrutinizing everything from tax returns to credit card transactions, which could uncover hidden trails of unreported income or assets in the uncovered discrepancies. The party’s liquid assets may not support their current standard of living with business class flights abroad and stays at the newest Dorchester Collection hotel. An analysis would show the warning signs.

The examinations and reports gathered by an analyst can show both you and your attorneys a clear picture of the financial matters you’re dealing with on both sides, which can contribute to an equitable resolution between parties. This applies whether you settle or go to court. If it’s the latter, your CDFA can be an invaluable witness on your “team.”

4: Conduct a financial analysis early in the divorce process

As we mentioned, projecting financial impacts for both the short- and long-term is critical to understanding how you will be affected by the divorce. Have your CDFA prepare an independent analysis of the tax consequences under different scenarios, so you know possible outcomes. This will not only create a framework for you moving forward, but it will prevent your partner from successfully sneaking around and attempting to pull the wool over your eyes. These financial analyses can also include a review of the last income tax return filed by your spouse.

5: Remember, this service pays for itself

You may be tempted to forgo a CDFA in the throes of your divorce, thinking it’s just another bill to pay. But the truth is, the service they provide does pay for itself. If fraud or misuse is identified at any point in the divorce process, you will save yourself money in the long run having prepared for these tax liability scenarios, and when it comes to figuring out your assets, you will be able to see beyond the current fair market value, so you won’t be blindsided later on.

Our perspective on hiring a CDFA for your divorce

At the end of the day, think of the financial side of your divorce like a puzzle: you need each and every piece in order to complete the picture. While you may be on good terms with your spouse now, things are rarely simple when money is involved. It is far better to see the puzzle in its entirety now instead of picking up a piece that got edged under the sofa later and discovering you’ve been misled or treated unfairly.

Hiring a CDFA purges the emotion from the situation, which is exactly what you must do to ensure your financial security.

At MGO, we can help. Our Private Client Services practice puts you and your story first.

Our values

Ideas rule

At MGO we want to know what you’re thinking. We believe ideas are the building blocks of opportunity. While other firms often focus on cookie-cutter solutions and cloned engagement teams, we focus on critical thinking and innovation. Success at MGO isn’t limited to a rigidly defined career path or job description. Our people look at challenges and see opportunities. Got an idea? We’re listening.

Build something

At MGO we don’t believe opportunity should be a narrowly defined, strictly managed roadmap for advancement. Quite the opposite. We’re creating an environment where smart, entrepreneurial people can define their own path. We offer the tools and support to identify opportunities and create solutions. There’s an opportunity for each of our people to build something of their own.

Straight talk

In an industry riddled with self-promotion and a growing expectations gap, integrity will always stand out. No gloss or polish necessary. At MGO we’re not interested in hype…or spin…or meaningless jargon – and neither are our clients. We believe in clear, concise, courageous conversations – without the embellishments and disclaimers. We know the importance of listening and the value of taking a position. Simply put, our job is to tell it like it is.

Help first

We believe the fastest way to succeed is to help others succeed. It’s a value that goes deeper than a simple commitment to teamwork. It’s about creating an environment where individuals are invested in one another. A commitment to help first – whether it’s an employee, a client, or a vendor – establishes trust and a win-win mindset that fuels performance.

Go beyond

There is one common thread that runs through every major milestone in the history of our firm: We have consistently overcome conventional expectations of what we can be – of what we can accomplish – together. Simply put, “good enough” is rarely “good enough.” We are committed to going the extra mile for our clients…our colleagues…our communities. We encourage our people to think bigger, to challenge limitations and boundaries, and to challenge ourselves. We believe our only limits are self-imposed.

Specific scams that mask as abusive or fraudulent tax avoidance strategies to be aware of include concealing assets in offshore accounts and improper reporting of digital assets, manipulation of high-income taxpayers to file their tax returns, abusive syndicated conservation easements, and abusive micro-captive insurance arrangements. Read more to round out the annual list for the 2022 filing season.

Tips for taxpayers on emerging scams

To avoid compromising yourself with these “too good to be true” schemes, taxpayers should stay wary, as these scams adopt a wide range of communication methods, including:

• Emails
• Phone calls
• Social media posts
• Targeted online advertisements

You must also consider each source before putting any of these arrangements on your tax returns — because ultimately, you are the one responsible for what is on the return, not the promoter who reached out to you and made a promise they failed to uphold. To mitigate risk, an anxious taxpayer should turn to trustworthy tax professionals to assist with their returns.

Read on to learn about these Dirty Dozen scams targeted primarily to high-net-worth individuals who may be trying to knowingly — or unknowingly — avoid filing.

Scam #9: Concealing Assets in Offshore Accounts and the Improper Reporting of Digital Assets

We hear Switzerland is beautiful this time of year … and so do some high-net-worth individuals looking to conceal their assets in offshore accounts (and yes, that does include cryptocurrency and other digital assets). As more taxpayers look to complex international tax avoidance schemes, the IRS is more determined than ever to “protect the integrity of the U.S. tax system” by enforcing tax responsibilities.

Whether it entails offshore banks, brokerage accounts, nominee entities, employee leasing schemes, foreign trusts, structured transactions, or private annuities, all are designed to hide the true owner of an account — which is illegal, considering U.S. taxpayers are taxed on all the income they make, not just what they keep in the country. But scammers know you may not want to give up some of your hard-earned assets to Uncle Sam. So, what do they do? They sell you a convincing story: you can easily evade the government and hide your assets through digital asset holdings; they claim these are “undetectable by tax authorities.” The catch? They are definitely detectable. By believing these fraudsters, you run the risk of being criminally charged or penalized, so in the end, it is better to report your assets — yes, all of them — when you file.

Scam #10: High-Income Individuals Who Don’t File Tax Returns

Believe it or not, there are some taxpayers who choose to just … not file a tax return. And believe it or not, there are scamming professionals out there aiming to convince you this is a good idea. The IRS takes this seriously. If you are considering this option, remember the Failure to File Penalty is higher than the Failure to Pay Penalty, meaning you are better off filing an accurate, timely return (and setting up a payment plan, if you are concerned about that) rather than not filing and hoping you get out of paying whatever taxes you owe.

Scam #11: Abusive Syndicated Conservation Easements

In this scam, dishonest promoters manipulate a part of the tax law that allows for conservation easements by inflating appraisals of underdeveloped land (i.e., the guise of a real estate investment) and engaging in bogus partnerships without a business purpose. These “deals” rarely help you out; instead, they benefit the promoters, who charge high fees, and clog the tax system with fraudulent tax deductions. (In the last five years, the IRS determined billions of dollars of deductions were wrongly claimed!) And if you are caught — which, you should expect to be, because the IRS takes a microscope to every single one of these “deals” — you can expect large fines and potential time in court.

Scam #12: Abusive Micro-Captive Insurance Arrangements

A high priority for the IRS, this scam sees professionals like accountants and wealth planners convince entity owners to pay for what they believe to be insurance coverage against unlikely events, events that are already being covered, or disingenuous business needs. Complete with sky-high premiums, the abusive structure does the opposite of protecting your organization’s tax safety — it opens you up to more risk as a ”micro-captive” to these “professionals” taking advantage of you. Be on the lookout for an offshore version of this too.

Consequences of falling for a Dirty Dozen scheme

It is important for taxpayers who have already taken part in transactions like these — or those who are thinking about doing so — to consult a tax professional before claiming any tax benefits they think they are owed.

Those taxpayers who have already claimed the purported tax benefits of one of these four “Dirty Dozen” arrangements on a tax return should file an amended return and go to an independent professional for guidance. If necessary, the IRS will examine the tax benefits from transactions like the ones depicted in the list and inflict penalties related to accuracy ranging from 20% to 40%, or a civil fraud penalty of 75% on any taxpayer who underpaid.

Our perspective on the latest batch of “Dirty Dozen” scams

This is not, of course, an exhaustive list of every scam the IRS has its eye on this year. But it does include some of the more common trends. The best advice we can give? If something looks too good to be true … it probably is. Consult your tax professional for guidance and know that it is in your best interest to stay aware of these nefarious arrangements, so you do not fall susceptible to additional penalties.

And remember, you cannot hide income from the IRS!

MGO’s Tax team brings more than 30 years of experience and is well versed in reviewing your return for compliance. We also stay up to date on the risks, pitfalls, and warnings issued by the IRS so you don’t have to. If you think you have been involved in or are in the process of being involved in one of the Dirty Dozen scams, we can help. Contact us today.

At a Glance…

• A professional athlete is the CEO of the brand that bears his or her name. That’s why sports stars should turn to the strategies employed by the world’s most successful entrepreneurs and executives as a playbook for long-term success. In short, they need to think like a CEO.
• Building a high-performing team is the number-one priority for growth-oriented businesses, and it’s no different for the Athlete/CEO. Drawing from the proven team-building models of the corporate world and the entertainment industry, we’ve developed the MGO Model, tailored to the unique needs of Athlete/CEOs.
• The Business Manager is the Financial Quarterback of an Athlete/CEO’s team. He or she is responsible for the daily oversight of a client’s financial affairs. That includes tax planning and compliance, establishing budgets, paying the bills, managing cash flow, and advising on major financial decisions. The Athlete/CEO should carefully vet the qualifications of anyone serving in this critical role.

Background

In the first installment of this series, we noted that the financial profile of a professional athlete more closely resembles a mid-sized, private company than a typical household. While the economics can be exceptional, an alarming number of players lack the support structure necessary to navigate the depth and complexity of their financial requirements.

A professional athlete is the CEO of the brand that bears his or her name. To ensure the long-term value of that brand, the Athlete/CEO needs to embrace that role and reimagine their future beyond the playing field. In this series, we examine the mindsets and practices of some of the world’s most effective business leaders as a model for navigating the unique challenges and opportunities facing professional athletes.

Building a Team

John Wooden said, “The main ingredient to stardom is the rest of the team.” This is just as true in the business world as it is in the world of professional sports. That’s why the world’s top CEOs make team-building their first priority. The way they approach that process serves as a valuable roadmap for Athlete/CEOs.

The Corporate Model

Most businesses share a common structural framework. While details may vary across different industries and global regions, the core elements of the Corporate Model (below) remain consistent. This framework identifies the primary business functions and areas of expertise critical to an organization’s success.

The Corporate Model has been successfully adapted to a wide variety of business categories, evolving as necessary to the unique needs of each organization’s operating environment. When working with athletes, perhaps the most relevant example is the entertainment industry.

The Hollywood Model

The Film & Television industry shares many of the traits of people working in professional sports. The quality of the product is determined largely by the quality of the talent in the spotlight – driving significant demand and high salaries for the best actors, directors, writers, etc. Over the years, Hollywood leaders recognized that many of the same principles of growth and financial governance in the corporate world apply to the financial lives of talent in Film & Television. This led to the evolution of what we call the Hollywood Model (shown below).

This model identifies the importance of each individual role in the Corporate Model, albeit by different names. For example, the Business Manager takes on the role of the Chief Financial Officer (CFO), serving as the quarterback of the client’s financial affairs.

The Sports Model

Over the past several decades, the financial lives of professional athletes have grown increasingly complex. Salaries have grown significantly, as have endorsements, appearances, other sources of income, and the demands on each player’s time and attention. However, the average player’s support system has failed to evolve at the same pace. The model below shows how the support team of a typical athlete compares to Corporate Model.

While professional athletes understand the importance of experience, expertise, and teamwork, they often lack a clearly defined model for building their own teams off-the-field. The majority of highly publicized financial failures in professional sports stem from athletes who were either (a) missing key role players on their teams, or (b) trusting important roles to inexperienced or sometimes even unscrupulous acquaintances.

The MGO Model

At MGO, we’ve been fortunate to work with some of the most successful executives and entrepreneurs in the world – as well as many of the biggest names in Sports & Entertainment. As a result, we’ve come to know the traits and practices that drive success across industries.

The MGO Sports Model was developed to be a blueprint for Athlete/CEOs as they build their own teams. It identifies and defines the roles that are critical to success, while aligning the work of leading advisors under a common vision. While each role is important, we encourage clients to begin with the person who will serve as the quarterback of their daily financial lives; the CFO Business Manager.

The Financial Quarterback

In a recent article, Variety described the role of Business Managers in the Sports & Entertainment industry, stating, “Business Managers are the personal CFOs for celebrities, executives and athletes… They put their fortunes and their day-to-day lives in the hands of these trusted advisors.”

While each member of the Athlete/CEO’s team plays a vital role, the CFO/Business Manager is the person with the most tangible daily impact on a client’s financial life. He or she is the quarterback of the financial operation – responsible for hands-on, real-time execution of the financial plan. This includes establishing budgets paying the bills and monitoring the expenditures of anyone with access to the client’s accounts or credit cards.

Additionally, Business Managers serve as on-call financial advisors, working closely with clients on many of their most important financial decisions including family estates and trusts, tax planning, major purchases, potential investments, and charitable contributions.

High profile athletes are sometimes targets of investment scams and unwarranted requests for financial support. When these propositions come from friends, family and former acquaintances, a Business Manager can provide an important gatekeeper function. By establishing a recognized first point-of-contact for all financial requests, the majority of questionable requests can be filtered out before reaching the athlete.

Finally, the CFO/Business Manager works closely with the entire roundtable of advisors, ensuring that everyone is aligned and working together to implement a common strategy.

Selecting a CFO/Business Manager

Despite the critical role played by Business Managers in the financial lives of their clients, most states require no credentials to use the title Business Manager. As a result, there are people with little or no accounting experience using that title today.

Many of the highly publicized financial challenges in Sports & Entertainment have stemmed from unqualified and/or unethical advisors serving in the role of Business Manager for high profile clients. That’s why we suggest doing your own due diligence before hiring the quarterback of your financial team.

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Lately, on social media we’ve been seeing a lot of posts urging people to not have goals during their time at home, not to try and achieve things, and to just sit and dwell on the situation we all find ourselves in. It’s true when these same memes say “you don’t have to write the great American novel, lose a ton of weight, become the most amazing artist anyone has seen, etc…” However, you do have to focus on keeping your body and mind healthy under difficult circumstances and someone giving you permission to stay on the couch, be depressed, and not engage with anyone or anything is simply bad advice.

Don’t listen to influencers and others about “quarantine fat”

Let’s start at the beginning and address the thing we are seeing most from influencers and on social media in general… the fearmongering and bullying posts about “quarantine fat.” All of these posts and messages are of the same sort that you would find in a beauty magazine. These are wretched, tired fear tactics and they really create an ugly mob mentality toward body weight and health. Should you be exercising in your isolation? Well, yes. That means get out and take a walk. Get some fresh air. Get some sunshine. Go for a run if you feel so inclined. It’s just a good idea to take breaks from your home and get outside. You can even develop a home workout program if you have the space and tools (and even video assistance). But don’t get bogged down thinking that you absolutely have to come out of this “a thinner, better you.” How about we just focus on staying healthy and surviving?

How do you stay engaged on a day to day basis at home?

We’ve addressed physical health, but what about maintaining a healthy state of mind? There’s a lot of different medical sites you can go to for professional help, and many of them have their own sets of suggestions and ideas to keep you going.

The important thing to focus on is self-care. That’s it. No big secret there. Keep yourself going and then you can worry about others in your home (if you are isolating with roommates or family). Start with the basics. Establish a normal routine for yourself, even though you don’t have a work schedule. Set your times of day you go to bed and when you get up. Maintain good personal hygiene; just the same as you would getting up and putting yourself together to go to work. Take your meals at roughly the same time that you normally would. Humans are creatures of habit and it really helps to have a kind of mental map of what your basic routines are each day.

Connect with others

Make sure to connect with friends, relatives, and loved ones on a regular basis. Social distancing and isolation don’t mean that you cut yourself off from people who care about you and support you. Set up call times and online conference meetings with others as you can. Laughter is the best medicine and seeing people’s faces helps you remember that we’re all in this together. You’re never truly alone as long as you have folks to reach out to.

Make sure your mind is stimulated

Engage your mind. Find something that stimulates you. Start reading more books. Pick up that incredibly daunting novel that makes your wrists ache from holding it because it’s so many pages! Revisit favorite movies, movie series (the Marvel Cinematic Universe is a great one for taking up a lot of time with stimulating visuals), and television shows. You can spend time online, but it’s important to limit that time and not fall down an obsessive rabbit hole of negative news about politics, the pandemic, or anything else that can cause you stress or worry. Un-plug. Give yourself a big break from social media and online in general and take a deep breath in the real world.

Keep your personal world a positive place

Make sure that if you are sheltering with others that you all feed positivity to each other! Get rid of negativity in your living space and make it a place where positive feelings and a positive outlook towards when things get better are the predominant themes.

Celebrate “me time”

Take some time for you. It’s OK if having people in your immediate space all the time gets on your nerves. It’s only natural. Stop, take a beat, and give yourself some you time to relax, be meditative, and have just a smidge of quiet time that we all need and usually have in our day to day lives.

So there you go. There’s some pretty straight forward and simple ways to engage your mind and body and keep yourself in a more positive headspace and positive living environment. Also, don’t be afraid to try new things. If you want to write. Then just sit down and write. If you want to be artistic and do DIY projects, do it. There’s no judges around you. Find things that make you happy and make them a part of your everyday routine. Again, we’re all in the same boat. You are not alone. We WILL get through this, and the world will return to its normally scheduled programs already in progress!

Embrace telecommunication and socialize digitally

Start hosting video conference parties with your friends. Set them up as a cocktail hour, or crazy hat day, or whatever theme you want. Host a sing-a-long if you want; there’s videos out there already showing choirs giving performances over video conferences (since they couldn’t perform the concert in person).

Access unique content

There’s also a HUGE world of content out there that is being created live and fresh from the comfort of people’s homes. Celebrities, writers, dancers, musicians, and everyday people are putting content out into the worlds of social media to help humans stay in, stay safe, and feel more connected with one another. Sir Patrick Stewart is reading one Shakespeare sonnet a day, “Jurassic Park” actor Sam Neill performs covers of famous songs on his ukulele and occasionally reads poetry and drinks wine, Chrissy Teigen keeps things real and wacky on her social feed- including trading banana bread for lettuce, and Madonna has been posting a series of very interesting quarantine diaries. There are a host of celebrities reading stories for children or hosting karaoke style live feeds and sing-a-longs; and the list just seems to keep growing day by day. Of course, that’s just scratching the surface, but the point is there are a HUGE collection of celebs staying home and encouraging others to do so as well. We’re all in this together.

Go back to school

During the early period of people being put under “safe at home” orders, award-winning comic book writer Gail Simone created an online Comic School that involved a 5-day course. Absolutely anyone was invited to participate and the attendees were given a shortened course on what it is like to work in the comic book industry. The school was such a success that many of today’s top creators are continuing to put out new content for fans new and old alike as we all stay in.

Take part in special same-time around-the-world viewings

Russell T. Davies and Stephen Moffat, two show runners who have been an integral part of “Doctor Who” since it returned television screens in 2005, joined Twitter for special “Who” themed live events and created new readable content that was available as well as new video content. Both the text and the videos were available the days/ nights of the worldwide episode viewings and are still on the BBC website. There are more episode viewings coming up with more additional newly created bonus content, all you have to do is follow the show runners on Instagram and they post the time and dates.

Watch new versions of your favorite talk shows

Rosie O’Donnel hosted a special at home revival of the “Rosie O’Donnell Show” that was a benefit for The Actors Fund to support members of the entertainment industry in need during the COVID-19. The special lasted over 3 hours, and can still be viewed on YouTube.

Late Night Hosts Jimmy Kimmel, Jimmy Fallon, Stephen Colbert, and James Corden are all doing various forms of broadcast from home shows. The guests are interviewed via video conferencing, and everyone is still able to participate from the comfort of their homes. Corden hosted a “Homefest” special that had a myriad of music and celebrity guests, again all conferencing from their homes.

Break a sweat

And if you’re looking for something more physical, Mark Kanemura (a former Lady Gaga backup dancer who has become a social media celebrity with his crazy and fantastic dance videos) has been hosting live dance parties. Kanemura encourages everyone to drop their inhibitions and cut loose, and it certainly looks like a good way to burn off stress and connect with others in a truly unique way!

So many people are coming up with very creative and fun content to keep you feeling connect with the rest of the world during these difficult times; it’s just up to you to connect and engage. Dance with a free-spirit, enjoy live readings and music, and host video conferences with your friends. It’s your social distancing experience, but it doesn’t have to be a lonely one.

To combat the spread of COVID-19, a growing number of cities, counties, and even states, in the U.S. have issued variations of “Stay at Home” orders. These decrees are aimed at limiting the number and size of groups of individuals meeting and interacting: a prime agent for the spread of COVID-19.

It is important to note, at this point, that these decrees are in no way meant to limit personal freedoms or indicate we are living in a “police state.” Across the globe, communities that have effectively curbed the virus’ spread have done so through extreme social distancing policies. Staying “safe at home” is the best way everyday folks – those not fighting the virus in the frontlines, like doctors and nurses – can do their part in halting the spread of COVID-19.

While the details vary from locale to locale, and order to order, the overall point is to cancel all non-essential outdoor activities. We recommend double-checking with local guidelines to confirm, but following are a couple points to keep in mind.

No matter what: keep your distance

While the specifications of what you can and cannot do vary from jurisdiction to jurisdiction, there are two consistent directives:

• Keep a distance of at least six feet from other people when not safe at home
• Do not engage in group activities outside the home

If you keep to those two rules, you, your loved ones, and your community will be safer.

Essential businesses remain open

Throughout the U.S., any business providing “essential services” remains open, likely with altered operating hours. Therefore employees of said businesses can, and should, freely commute to their place of employment. What has been deemed “essential” depends on your area, but typically include:

• Grocery stores
• Restaurants providing take-out or delivery services
• Healthcare institutions, like hospitals and urgent care centers
• Drug stores/pharmacies (and cannabis dispensaries in many places)

Are you allowed to go outside?

Yes, certainly. “Stay at Home” orders are not as drastic as a “Shelter in Place” or lockdown measures. You can leave the house to perform essential functions, which can include:

• Picking up groceries
• Picking up take-out food orders
• Providing care to a loved one

What about going outside for “fun”?

In many circumstances this is not only allowed, but recommended. The majority of “Safe at Home” orders have specific provisions that consider certain activities “essential”, including:

• Going for a walk
• Taking pets out
• Going for a bike ride
• Engaging in other forms of outdoor exercise

It is important to note that in all of the allowed activities above, the same restrictions must be followed. Specifically, everyone should maintain a distance of at least six feet from anyone they encounter, and there should be no gathering in groups.

At this time, getting some outdoor time and exercise will be essential to maintaining both mental and physical health as we, as a society, do our best to overcome these unprecedented circumstances.

Rules by state

Again, please check with your local city or state guidelines as to what is permitted in your area, and please everyone: stay safe, stay in, and stay smart. We can beat this working together.

Below are links to the specific guidelines issued by some city and state governments:

• California
• Connecticut
• Delaware
• Illinois
• Indiana
• Los Angeles
• New York
• Vermont
• Washington