Originally published on Forbes.com Sept 9th, 2014
Joan Rivers was not the most enthusiastic of taxpayers. According to this story her comment on President Obama’s tax polices was “I am also being chastised because I work 18 hours a days and make a living” and “If I work very hard, I should be able to gather the fruits of my labor.” Those are fairly commonplace sentiments and not particularly remarkable. It turns out, however, that Ms. Rivers does have a place in tax history.
The Tax Case
The case Rugby Productions v Commissioner of Internal Revenue was decided by the Tax Court in 1995. Rugby Productions, which was owned by Joan Rivers, was in the news most recently about a labor dispute with the writers of a show called “Fashion Police.” Some people were surprised to learn that the show had writers. Regardless, the Tax Court case was about a disability policy that Rugby had taken out on Ms. Rivers.
The Lloyds of London policy would have paid $75,000 per month for sixty months had Ms. Rivers become disabled. The IRS wanted to disallow the premium of $115,492. The idea is that had the policy paid, the proceeds would have been exempt income to the corporation. You cannot deduct things that are attributable to generating tax exempt income. The corporation argued that in the event the policy had paid, it would have used the cash flow to pay Ms. Rivers. That income would have been taxable to her. The Tax Court went with the IRS.
We think there is substantial merit in respondent’s section 104(a)(3)-265(a)(1) argument, since the proceeds of the Lloyd’s policy, by its terms, would have been payable to petitioner , and petitioner has not established Mrs. Rosenberg’s legal right to such proceeds. While petitioner’s officers, etc., may have intended to have petitioner pay over the proceeds to Mrs. Rosenberg, nothing would have prevented the application of these proceeds for the monetary liquidation of third-party claims against petitioner for Mrs. Rosenberg’s failure to perform in the event of her accident or sickness. The obligation to furnish Mrs. Rosenberg’s services to third parties would have been petitioner’s, not Mrs. Rosenberg’s, and the disability policy proceeds would have been the logical source of funds with which to liquidate damages accruing from petitioner’s and Mrs. Rosenberg’s failure to perform
But how you might ask does this qualify as tax history?
Why I Could Not Pass This Up
Julian Block, author of Tax Tips For Year-Round Tax Savings, got me in the habit of checking the tax history of departed celebrities, when he called me to note the passing of Tony Martin. If you had a Thomson Reuters Checkpoint Account, you’d probably do it too – or maybe it’s just me. Anyway, when I found the Rugby case, it didn’t excite me that much and I was inclined to let it pass. I sometimes feel that dead celebrity tax research has something creepy about it. Not creepy enough for me to stop doing it , but creepy enough for me to not be that thorough about it, but then I stumbled on something else. The Rugby case is actually mentioned in, here we must have a tone of reverential awe, Bittker and Eustice (i.e. Federal Income Taxation of Corporations and Shareholders by Boris Bittker and James Eustice). I learned that tone of reverential awe when I was just starting out at Joseph B. Cohan and Associates. Here is the passage:
While any corporation can own an accident or sickness policy on its shareholder-employee, this practice is perhaps more common in the case of personal service corporations. If the policy benefits are payable to the corporation, they will be tax-exempt under § 104(a)(3). If the corporation is not contractually obligated to pay such benefits over to the employee, however, it can be denied any deduction for the policy premiums under§ 265(a)(1).183
Going down to footnote 183, we find
See Rugby Prods., Ltd., 100 TC 531 (1993) (involving the comedienne Joan Rivers ).
I have to tell you being in Bittker and Eustice, even in a footnote, is making tax history.
So You Want To Impersonate A Tax Geek
If you want people to think you are a hard core tax geek, you might try this. If the subject of Joan Rivers comes up, which is still possible, since there are people even slower than me in reacting to events, put on a puzzled look. Then say something like
Joan Rivers? Oh. That’s right, There was a case in the early nineties about deducting disability insurance. Rugby productions. Somebody named Rosenberg, but I think there was something in the footnotes about her being called Joan Rivers.
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