Tax rebate offer over class action compensation

Last June, when compensation cheques were issued to those who had bought and sold in North America, many were surprised to see that the US Federal tax authorities had deducted a withholding tax from the awards.

The levy of around 30 per cent was raised by US Federal Tax on the grounds that the partial repayment of buyers’ and sellers’ premiums constituted earning in the United States.

The awards are unrelated to the European side of the settlement that is still ongoing.

At the time it was suggested by LAPADA that the money could be recovered as part of the double taxation agreement that exists between the US and the UK, but this subsequently proved not to be the case.

However, Chicago Clearing Corporation, whose representatives visited the UK last year to buy the vendors’ certificates that made up part of the compensation awards, are offering to help non-US citizen claim the money back through the US Internal Revenue Service.

To that end they will shortly post letters to 10,000 addresses offering their retrieval services to European dealers and collectors.

James Tharin, chief operating officer of CCC, says his company have consulted with more than 50 dealers before coming up with the proposal.

The US accounting firm Blackman Kallick Bartelstein will manage the process of retrieving the tax refund (a process the IRS changed recently) charging a fee of 15 per cent of the total recovery up to a ceiling of $2500. Half of this fee is payable in advance, the remaining balance due when the IRS issues the tax refund.

The prospective US tax refund is the amount listed on Line 7 of the so-called 1042-S form(s) that was attached to the letter(s) sent with any award cheques last year.

The BADA are supporting the initiative although they point out that the process, albeit a complicated one, can be undertaken by dealers on their own or with the help of their accountant. Mr Tharin told the Gazette last week that his company have purchased over $15m worth of unwanted vendors’ certificates since June at the market price.

CCC have resold $8m worth of certificates ($6m of them to businessman-turned-adventurer Steve Fossett, who recently circumnavigated the globe in a hot air balloon), but they remain keen to promote an inventive rebate programme that gives vendors discounts off consignment fees. CCC want vendors (who do not own certificates) to provide them with a copy of their Sotheby’s or Christie’s commission charges and permission to settle the account using their large holding of class action certificates. In return they will pay 10 per cent of those charges.