Tuesday, March 18, 2008

Constructive Receipt and Charitable Contributions in the Paul McCartney v. Heather Mills Case: Judge doubts Mills' Charity Work For Lack of Documentation

The media can be voyeuristic, let's admit, because all of us are voyeuristic.  The media gives us what we want.  Ok, I admit it.  I've been reading the judge's ruling in the Paul McCartney Heather Mills divorce.  At least now, though, I can say I had good academic reasons to do so!  As I tell my sometimes slumbering students, "its all about tax!"  Figure this stuff out and you will know the meaning of life!

Anyway, one of the issues relating to how much McCartney would be required to pay Mills (he ended up having to pay her a paltry $50 million) is whether Mills was independently wealthy before she met McCartney -- don't ask me why, I don't do family law.  Anyway, Mills claimed as much but her tax returns did not support that claim.  This was largely so, according to Mills, because she routinely donated 80 to 90% of her compensation to charities.  That is, instead of accepting the money and then sending it to charity, she directed that the money be paid directly to charity, apparently reporting neither amounts on her tax return.  Sounds like constructive receipt followed by charitable contribution deductions to me!  But then, I could be wrong and in any event, the case involved British law.  McCartney is an incredible singer, I'm sure, but the judge's order (starting in paragraph 21) shows just how hard Mills worked for charities over the years.  And take a look at what happens in paragraph 23 (a section 104 event!).  Unfortunately, Mills' tax returns did not support her assertion that she was indeed wealthy, but had given all or most of her money to charity.  Here is a brief interesting excerpt (inquiring minds want to know, right?):

18. The wife, who is now 40 years old, spent much of her childhood in Northumberland. She seems to have had a rather troubled childhood. When she was 14 years old she had to move to live with her mother in London. She left her mother’s home aged 15. She took a number of jobs.

19. When she was 17 years old she started modelling. After a modelling competition she got a job presenting a TV series. More modelling jobs followed. When she was 20 years old (1988) she went to live and work in Paris.

20. In 1989 she married. The union was childless. She and her former husband ultimately divorced. She learned to ski and became an instructor. She learned to ski in Slovenia.

21. During the crisis that affected the old Yugoslavia the wife became appalled by the fighting and the terrible injuries suffered particularly by the civilian population. She became heavily involved in charitable works joining convoys of trucks taking food and clothing to Croatia. She became very conscious of the terrible injuries inflicted by landmines. She saw a number of people who had lost limbs, particularly legs.

22. In 1993 her trips to Croatia diminished as her modelling career in the UK began to prosper. At paragraph 26 of her affidavit of 30 January 2008 she says: "In early 1993 my trips to Croatia became less and less frequent, as my modelling career in the UK began to take off. I got work modelling all over the world including in the Bahamas, Malaysia, America and the Middle East. I won lucrative contracts with Marks and Spencers, River Island and Slix, the swimwear company …. I believe I was earning at that time in the region of £200,000 per annum. I do not have my tax returns although I did request the same from the Inland Revenue who informed me by letter that they are not available…."

23. On 8 August 1993 she was on a zebra crossing in London and was unfortunately hit by a police motorcyclist. Her left foot was severed above the ankle. She suffered head injuries, cracked ribs, a punctured long and multiple fractures of the pelvis. Her left leg was amputated 6 inches below the knee. In October 1993 she underwent another operation which shortened her leg still further but still below the knee.

24. The wife says that, following media enquiries, she gave interviews and earned about £180,000 in 10 days. She wrote a book "Out on a limb", the proceeds of which were donated to transport artificial limbs to Croatia. She says that thereafter she did much public speaking and her earnings were in the range of £300,000 per annum.

25. She became involved in fundraising for a number of charities – see in particular her description at paragraph 32 of her affidavit. She continued to do an enormous amount of charitable work in particular being involved in transporting artificial limbs to Croatia. She was by now, she says, an established public speaker.

26. At paragraph 45-47 of her affidavit she says: with Anne & Nick, Keanu Reeves interview, BBC TVAM, Chill Out With Heather series (where I interviewed a number of well known people), The Holiday programme, Wish You Were Here, Travelogue, First Say (after Panorama show), radio hosting, The General hospital, Richard and Judy, etc etc the list is endless. I also continued modelling. I would contribute a lot of my earnings to charity….

"After my accident in 1993, I raised money through public speaking in aid of charities. I became one of the top 10 female speakers in Europe. Between 1993 and 1999 when I met Paul my income spiralled for example in 1997 I had a modelling contract for £750,000; I wrote, with a ghost writer, a best selling autobiography called Out on a Limb and in the year prior to marrying Paul I earned $1,000,000 for 14 days work. In order to support myself and to help with my charity work, I did a lot of television presenting, for example, Good Morning

..........  The judge discusses evidence that Mills' wealth is exaggerated because her tax returns did not prove that she made such sums. 

32. The wife’s riposte is that much of her earnings, which are not included in the tax returns, were sent direct to charities of her nomination. In her evidence she told me that as much as 80% or 90% of her earnings went direct to charities. However, the wife had to accept in her cross-examination that there was no documentary evidence, for example letters from the relevant charities, that her fees were sent direct to charities. In her Answers to a Questionnaire of 6 February 2007 the wife, having been asked to set out in a schedule the income earned by her and sent direct to charities for the years 1997 and 2000 inclusive, replied that she did not have the records requested to enable her to complete a schedule. Furthermore, her assertion that she gave away to charity 80% to 90% of her earned income is inconsistent with having £2m-£3m in the bank in 1999.

Ok.  Enough of that.  Back to work.

dkj

https://lawprofessors.typepad.com/nonprofit/2008/03/constructive-re.html

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