According to Collins English Dictionary, altruism is defined as “the principle or practice of unselfish concern for the welfare of others”. Simplistically, this would include gifts from one person to another where there is no reciprocity. In many cases, the underlying reason for the gifts will be unintelligible to the average person on the street.
In professional life, it is rare but not completely unknown for such gifts to pass and they can cause great problems for the recipient when the taxman (or woman) comes calling.
Personally, in business life I have never knowingly made an altruistic gift, nor received one. If I have taken clients to the theatre, the intention was to generate further business. In the same way, if they have bought me lunch, they clearly believe that there is a direct benefit in doing so.
There have been situations where entertainment in either direction has probably been justified as much by the pleasure in someone’s company and their conversation as anything else but, once again, this is perceived to be a benefit by the person spending the money.
This article was triggered by the news that Donald Trump’s personal attorney inexplicably spent $130,000 (not far short of £100,000) of his own money to pay off a blue movie star with the splendidly appropriate stage name of Stormy Daniels.
If both the lawyer, Michael Cohen and Mr Trump are to be believed, this payment was entirely altruistic ie Mr Cohen derived no benefit from his action.
Over the years, a handful of colleagues have requested advice in connection with HMRC investigations into seemingly random payments received by clients. It is worth considering the two most significant cases to expand readers’ understanding of both altruism and tax law. The facts have been changed minimally to strengthen anonymity.
In the first, a young lady had received a sum far in excess of the amount paid to Michael Cohen from a Gulf Prince of a very different vintage. The lady was adamant that, while she knew the gentleman, she could think of no reason for him to have made the payment. Eventually, after years of enquiry, HMRC accepted that this was a pure gift and no tax was due.
The second case was very different. It involved a highly respected accountant who had provided services to one of his most valued billionaire clients over a couple of decades. While, over the period when the gifts were made, the accountant was not directly working for the gentleman, there was every prospect that his support would be called upon in connection with a lengthy court case that had been in preparation for years.
Mysteriously, and both parties denied any deep personal connection (if you know what I mean), the (former) client’s wife made a series of transfers totalling millions of pounds into the bank account of the accountant. To compound the issue, HMRC discovered a document relating to payment of a specific sum in return for a piece of work. The exact sum was paid but our client denied that it related to the project, claiming nothing more than coincidence.
Once again, very reasonably some might say, HMRC launched a full-scale investigation on the basis that these payments must have been for services rendered and formed part of the profit of the accountant’s business.
Given the amount involved, the accountant retained the services of a top QC, for which it was hinted that the fees would be settled by the (former) client, and the parties were heading for a showdown in court at the time that I moved on from that practice. Given the need for confidentiality, I never discovered the outcome of the case. However, based on the information available, HMRC seemed unlikely to back down. Having said that, history and rumour inform us that, far too often in cases of this type, rather than going for the jugular the taxing authority is happy to settle for a small proportion of the outstanding sums.
Altruism does exist, although it is generally only seen in connection with charities. It will be interesting to find out whether the best investigative journalists that American money can buy eventually discover the underlying reason for Mr Cohen’s generosity and confirm that rather than a charity, he wished to make a purely altruistic, no strings attached, six-figure donation to an actress who can count 'Lust on the Prairie' and 'Space Nuts' as part of her body of work.