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Week In Review

By Chris Helsel

In Addition to Human Toll, Nepal Earthquake Destroys Countless Cultural Artifacts

The devastating earthquake that struck Nepal claimed the lives of over 6,200 people, with approximately 14,000 injured and thousands more not yet counted. In addition to the enormous toll the earthquake took on human life, the disaster has also destroyed countless historical cultural artifacts.

Numerous ancient temples collapsed or were critically damaged as a result of the quake. Amidst the rubble, onlookers noticed elaborately carved beams from the 17th century being used as ladders by volunteers attempting to locate and rescue those who were trapped inside destroyed buildings. The top official of the United Nations Educational, Scientific and Cultural Organization (UNESCO), Irina Bokova, said this week that she was unaware of any natural disaster that had damaged so much cultural heritage.

Compounding the problem is the rampant looting taking place amidst the chaos. On Monday, a citizen notified Nepal's department of archaeology that he or she had just thwarted an attempt to steal a bronze bell from the roof of a temple in Kathmandu. Although a notice was printed in the next day's newspaper warning that anyone taking artifacts would be punished, in this time of crisis, the country's law enforcement agencies can hardly spare the time and effort necessary to prevent looting.

The Kathmandu Valley was named a World Heritage Site by UNESCO in 1979. Its principal city, the Nepalese capital Kathmandu, was built at the intersection of two trade routes linking China and India and is renowned for its unique blend of cultural heritage sites. It contains a plethora of irreplaceable temples and monasteries, including some dating back to the 7th century.

Obviously, the foremost issue in Nepal at present is the search for survivors and the effort to recover and identify bodies from the rubble. Only after months of cleanup will the full extent of the damage done to the nation's extensive cultural heritage sites be revealed. Bhesh Narayan Dahal, who chairs the Nepalese Archaeology Department, perhaps summed it up best: "I am too much worried," he said. "How can I tell you? I am too much worried. How will we save our heritage?"


National Football League Relinquishes Tax-Exempt Nonprofit Status

The National Football League (NFL, league), which earned revenues of $327 million in 2013, has been qualified as a 501(c)(6) nonprofit since 1942. In a letter to team owners and members of Congress this week, however, NFL commissioner Roger Goodell revealed that such designation will change.

Until now, the NFL has been considered a tax-exempt nonprofit under the federal tax code because it works to promote its industry, like trade groups and business leagues, rather than earn actual profits. However, the NFL's tax-exempt status has long been questioned by the public and criticized by lawmakers, who point to the league's enormous annual revenue. The NFL has historically disputed this contention, pointing out that it is in fact the clubs, not the league itself, that generate the huge profits - and are taxed accordingly.

In his letter announcing the league's decision to relinquish its nonprofit status, Mr. Goodell called the tax exemption a "distraction" that has "been mischaracterized repeatedly", and whose end "will make no material difference to our business." The commissioner reiterated the NFL's long-standing position that "the business of the NFL has never been tax exempt. Every dollar of income generated through television rights fees, licensing agreements, sponsorships, ticket sales, and other means is earned by the 32 clubs and is taxable there."

While many lawmakers have celebrated the league's decision (Sen. Maria Cantwell of Washington called it a "victory for tax payers"), others, such as Sen. Richard Blumenthal of Connecticut, describe it as a mere PR stunt. These critics point out that if it is true that the vast majority of league revenue is produced by the (for-profit) teams and taxed accordingly, as the NFL claims, then virtually nothing will change. The only real difference is that now the NFL will no longer be required to publicly disclose details regarding its inner financial working, such as executive pay.

Among other major professional sports leagues and governing bodies, only the National Hockey League (NHL) and PGA TOUR will remain as nonprofit entities. With its decision to forgo its tax-exempt status, the NFL now joins Major League Baseball, the National Basketball Association and NASCAR among leagues that file as for-profit companies.


Property-Swap Tax Loophole Used by Buyers of High-End Art Faces Scrutiny

As the market for art as investment assets continues to grow, investors continue to find new ways to maximize profits and avoid taxes to the greatest extent possible. The most recent trend in creative tax-avoidance involves an obscure tax provision introduced in the 1920s that meant to ease the burden of farmers who wanted to swap property. Under Section 1031 of the tax code, sellers of real estate, art and other valuable collectibles can delay paying the required 28% capital gains tax by promptly reinvesting the profits into the purchase of a similar parcel or item. These so-called "like-item exchanges" allow investors to withhold tax payment for years, while inflation diminishes the effective cost of the delayed tax. There is no limit on how many times an investor can use this method to defer tax payment.

However, despite the obvious appeal of this system, investors intending to employ it must be wary. To qualify, a purchase must be strictly for investment purposes - that is, not for personal enjoyment. These purchased artworks therefore cannot be displayed, and as a result many art investors opt to store their pieces in warehouses away from their homes. Additionally, in order to qualify for the tax break, the proceeds of a sale must be reinvested in the purchase of a "like-kind" item. The sale of a painting, therefore, must be used to finance the purchase of another painting, not a sculpture or other form of art.

Critics of this system contend that the tax deferments act as nothing more than interest-free loans from the government, rewarding the wealthy and costing the country billions in tax revenue.

"What we are seeing is yet another sophisticated federal tax avoidance scheme," said Senator Ron Wyden of Oregon. "Some people are exploiting this tax provision as an estate planning tool to help them transfer wealth."

The Obama administration has taken notice of the issue, and has included in its 2016 budget a proposal to eliminate the tax break for exchanges of art and other collectibles. The proposal also calls for limitations on the tax break for swapping real estate parcels. According to the administration, these changes could bring in an additional $19.5 billion in taxes over the next 10 years. However, that number could be drastically reduced if the new tax implications stifle the art-for-investment market, as investors abandon art in favor of other investment commodities.


Financial Advisor Charged With Stealing Millions From NHL Players and Police Officers and Is the Subject of an Obstruction of Justice Probe

In 2013, following a three-year criminal investigation, former financial advisor Phil Kenner was indicted on fraud charges for allegedly stealing more than $30 million from nearly 20 former and current NHL players, as well as a handful of Long Island police officers.

Mr. Kenner is accused of soliciting funds from his clients, only to withdraw the funds from their investment accounts for his personal use. He allegedly told his clients that the money was being invested in a Mexican golf resorts, a prepaid credit card company and a "Global Settlement Fund." The settlement fund was apparently used in part to cover the cost of a lawsuit he surreptitiously filed in 2009 on behalf of 19 of his NHL clients against his former business partner, Ken Jowdy, who was developing the golf resorts.

The entire saga is highly bizarre and includes allegations from various factions of violent threats, signature forgeries, lawsuits used as diversionary tactics and illicit payments to porn stars and escorts. Mr. Jenner has been jailed in connection with the fraud charges since late 2013 after purportedly making threats against alleged victims and potential witnesses.

Jury selection in the fraud case against Mr. Kenner began this week.

Adding to Mr. Kenner's woes is this week's revelation that he is now the subject of a federal probe into obstruction of justice charges. On Wednesday, federal prosecutors revealed the existence of secretly recorded jailhouse telephone conversations they say implicate Mr. Kenner for obstruction of justice. The recordings were not broadcast in court and are subject to a protective order, but Judge Joseph Bianco of the Eastern District of New York suggested that they might be admissible in the upcoming trial.

Additionally, Mr. Kenner was informed on Tuesday night that he would be relocated from the Queens Detention Facility to the Metropolitan Detention Center in Brooklyn due to security concerns arising from the obstruction of justice probe. Mr. Kenner's attorney, Richard Haley, objected to the move because the new location would not allow Mr. Kenner to access his laptop to review thousands of pages of documents that may be introduced at trial.

"This is the most complicated criminal case I've seen in 30 years of practice," Haley said in court.


Courtney Love Sued by Memoir Co-Writer for Non-Payment

Anthony Bozza, who helped the musician Courtney Love write her memoir, has sued Ms. Love in New York federal court alleging that the singer and widow of Nirvana frontman Kurt Cobain failed to complete payment for his work. Mr. Bozza acknowledges that he received $100,000 for his contributions to the memoir, but contends that he was promised a minimum of $200,000 in addition to potential royalties from book sales.

The memoir was originally slated to be released in late 2012, but has yet to reach the shelves. Ms. Love was apparently unhappy with the manuscript delivered by Mr. Bozza in January 2014 and has been trying to "fix" the book ever since. According to Mr. Bozza, Ms. Love has already received $400,000 of a $1.2 million advance for the book from her publisher. On top of the $100,000 already received, Mr. Bozza seeks an additional $200,000 in damages to cover the $100,000 in unpaid guaranteed payment plus potential future royalties.


Dispute Over Ownership of Art Trove Amassed During Nazi Era Back in Court

Last month, a Munich court determined that the art collection of the late Cornelius Gurlitt, whose father was a Nazi-era art dealer, should go to the Kunstmuseum Bern in Switzerland as per the terms of Mr. Gurlitt's will. This week, a cousin of Mr. Gurlitt's, Uta Werner, challenged that ruling, alleging that the will is invalid due to Mr. Gurlitt's mental incapacity at the time when the will was executed.

The art trove in question was amassed by Mr. Gurlitt's father, Hildebrand, under the Nazi regime, and includes works by Matisse, Gauguin, Renoir and Otto Dix. As of this writing, three of the more than 1,000 total pieces in the collection have been verified to have been looted from their Jewish owners by the Nazis.

The Munich court said in a statement this week that it would weigh the appeal and decide whether to rule on its challenge or forward the appeal to a higher court. The court also said that the inheritance dispute would not affect the restitution agreements reached by the German government with the heirs of the works confirmed to have been stolen by the Nazis.


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This page contains a single entry from the blog posted on May 2, 2015 9:50 AM.

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