This is a gift that keeps on giving.
I hear Cancun is nice
The peculiar payment scheme behind U.S. Sen. Ted Cruz’s popular podcast has raised ethical questions and drawn complaints about election law violations.
Now tax experts say the deal involving a massive radio network that picked up the “Verdict with Ted Cruz” podcast in 2022 and a super PAC supporting the Texas Republican’s reelection effort could also raise red flags for the IRS.
While Cruz says he makes no money off the hosting gig, iHeartMedia has sent more than $630,000 in ad revenue from the podcast to the Truth and Courage PAC, which produces the show and says it owns it. The exact terms of the arrangement are unclear, and no parties involved have been willing to disclose them.
But tax experts say Cruz may still need to report income on his tax forms, even if he isn’t pocketing any cash. That’s because the law requires income to be taxed to the person who does the work. In this case, they say, that would be Cruz serving as the host of his podcast.
“It’s still going to be his income, because he’s the one who ‘earned it,’” said Brian Galle, a tax law professor at Georgetown University. “This isn’t like a charity that auctions off one hour of free accountant time or something. … This was a payment for a series of appearances by Ted Cruz and not by anybody else.”
Galle, a former federal prosecutor in the Department of Justice’s tax division, said the arrangement is similar to a nun who works in a hospital and sends their pay back to the church because they have taken a vow of poverty. The nun is entitled to a salary for her services, even if she doesn’t collect it. The IRS has said the nun still has taxable income, Galle said.
“You can’t tell the government it’s not my money if you’re the one who earned it,” he said. “It doesn’t matter where the money goes.”
[…]
At least one tax expert was less sure Cruz would be on the hook for any tax liability from the show. Andy Grewal, an income tax law professor at the University of Iowa, said it would only be a violation if Cruz was entitled to a payment for the podcast and told iHeart to pay the super PAC instead.
“If he’s just showing up, I don’t see it,” Grewal said.
And without seeing the actual agreements behind the podcasting deal, or how the money is being reported to the IRS, it is impossible to know if there have been any violations, he said.
But Calvin Johnson, a tax professor at the University of Texas at Austin, said the arrangement appears to allow Cruz to shift payments “from one pocket to another pocket.” While he isn’t taking personal compensation, he is still benefiting from the money going to the PAC that is already running ads supporting his reelection efforts. Cruz is running for a third term and faces U.S. Rep. Colin Allred, a Dallas area Democrat, in the November election.
“The tax statute is perfectly clear that transfers in connection with performance of services — and that’s what this is — get taxed to the services,” Johnson said, meaning Cruz.
See here, here, and here for the background. I was not ready to see Ted Crux be compared to a nun, I’ll say that much. I assume the way to test the hypothesis of whether he owes those taxes or not is for someone to file an IRS complaint and let them sort it out. I trust someone is looking into that. And I maintain the simplest way to resolve all of this is for Cruz to step down from the Senate and podcast fulltime. No pesky ethics issues, the payment model is clear, and it’s clearly what he really wants to do. Take that step, Ted, you can do it. Reform Austin and the Current have more.