Minnesota taxman says real musicians don't tour or let their stuff be played on public radio

Jon sez, "Minnesota Department of Revenue tells musical artist during lengthy audit: You clearly aren't interested in profit, as you've "allowed" your music to be played on Minnesota Public Radio, you have had enough years of touring, so there is currently no need for any further promotional touring, and you should be signed to a major label by now."


  1. I work for the  Minnesota Department of Revenue and all of my co-workers and I (in a different division) were shocked to see this story last week. Not the way we strive to do business. Don’t write off all tax auditors just because of stories like this, please!

    1.  OK, insider; so what’s the deal with this whole witch hunt, then?  what the hell is going on, here?

      1.  $5 will get you $10 that even this cursory appeal is a career-endangering depth of public commentary.

        As far as “what’s going on here”, I assume they’re run by Vogons.

      2. I have no clue. Like I said, I work in a different division and I don’t know any specifics of this couple’s case outside of what is in that story. We take privacy seriously; details of individuals and businesses aren’t shared even with co-workers. 

        1. Having worked at the IRS, I know that every year they will choose specific things to “crack down on.”  It sounds like Minnesota is cracking down on artists, possibly because lots of people were noodling around on weekends and trying to write off every CD they buy as a business expense. 

          It sounds like they had to develop guidelines to distinguish the real professionals, but they did a poor job.

          1.  There actually is a de-facto reasonable guideline:  Do you show a profit or a loss on your schedule C (small business income and expenses)?

            Businesses exist to produce a profit.  If the business consistently loses money, yet is something people commonly do for fun, its probably not a business but someone putting expenses on a schedule C.

            Consistently losing money on one’s schedule C is a big red flag.  Especially after 10 years, your “business” MUST produce a net profit or it isn’t a business, but a hobby.

            So, the tax inspector probably put it in an impolite way, but it is not unlikely that this is what the inspector is picking up on.

          2.  Unless of course you;’re a multi-billion dollar trans-national corporation and then having a few permanent tax write-offs in the form of money losing subsidiaries is just peachy.

            But very few tax gatherers would survive the attempt to audit such companies since they’d find themselves auditing manhole covers in the remotest part of their state or country soon after the attempt.

    2. As a tax auditor, maybe you can help us understand how this situation might have gone wrong. For example, perhaps their auditor was merely holding them to a rule that requires business ventures to show a profit in every third year in order to prevent being recategorized as a hobby. It seems entirely possible to me that, their auditor’s weak social skills notwithstanding, this music ensemble might have simply failed to meet this requirement, or perhaps they kept shoddy records of their expenses or something. The article presents their side of the story but there may well be more to the story from a technical standpoint. Thank you for any light you might be able to shed on this as a tax auditor reading the article. Cheers

      1.  This was my first thought: that since they’ve been “pursuing” their art for quite some time but have not made any money at it, that it is legally classified as a hobby just like millions of others.

      2. The problem with this theory is that it is categorized as a “hobby” only if it doesn’t show any profit. Making a “living wage” is not the requirement, just that you didn’t spend more money than you made it at. (Shoddy record-keeping on expenses would actually make it show a higher profit than actually made, and be less likely to be categorized as a hobby.)

        1. At the IRS, there is more to the determination than profit.


          Like, “Do you depend on income from the activity?”

          If the musician is continually losing money on this activity and using the loss to offset her income from other sources (like a day job) or her partner’s taxes then it starts to look like it’s not properly classified as a “business” for tax purposes.

          1. Yeah. Something like this. I know we are talking about MN Revenue here, not IRS. Same general scenario. Combine these sorts of considerations with sloppy recordkeeping on the part of a taxpayer, and PRESTO you have a very unpleasant audit

          2. If the musician is continually losing money on this activity and using the loss to offset her income from other sources

            Which is what I said – it’s not considered a “business” if it only provides net losses. If it’s providing a profit, you’re not “using the loss to offset income from other sources”, because there is no loss to do so with.

    3. If you write off a tax auditor, please make sure to use the correct forms or be subject to further auditing and fines.

    1.  Minus…you know…the whole “boot to the neck” stuff…  doopy..doopy…dooo….

  2. One is left to wonder if the taxman has his dreams of stardom crushed as a child and has been saving this pent up rage for just such an occasion.
    Or if as suggested in the article the state is just trying to ‘get back’ money paid out to support the arts in MN.  Look at all of these bums we gave money to! None of them are famous yet, they should pay us back and get haircuts and real jobs.

    Besides we need those dollars back to give someone with more money than they need another tax cut.

    1.  …with more money than they need….

      Please define. 

      I have money.  I need more. What is the threshold?

      Also, I would argue that given my proclivities, I pay more money than I need to. 

      Decent argument up until this point, though.

      1.  Are you confusing needs and wants? You only need need enough money so that you and any direct dependents can live comfortably. What you want might be many times that, but does not qualify as a need.

        “I only want my half. Oh, and some of yours, too.”

        1. Defining the ‘comfortably’ in that statement gets tricky, though. Almost anyone can argue that they’re not comfortable.

          1. Agreed. I think you have to define a “need” as on the verge of malnutrition with maybe a 5th percentile life expectancy.

      2. somewhere we most likely funded a study that showed that most people were happy earning $75,000 a year.  Most likely UScentric data.  More money than they need, Romneys 27 million IRA comes to mind.  The tax write off for Facebook comes to mind.  The tumblrs devoted to the children of the stupidly wealthy who post themselves spending what I make a year on 1 bar tab.  Oh and the wall street bankers who tried to destroy the world and then got bonuses, handouts, bailed out, and no interest loans for their wives…  that would be the target demographic.

        Hell even Warren Buffet will tell you he has more money than he needs.

        1. It’s easy to identify outliers and extreme cases.  The problem is they are relatively sparse and, lets face it, there will always be outliers.    

          What of a married couple with no kids earning $115k per year combined?  Is that more than is needed?  What of a couple earning $175k per year?  225k?

          What if the living amass wealth to leave a legacy upon death?  

          I strongly dislike any need based argument when it comes to finance and wealth.


            I strongly dislike any need based argument when it comes to finance and wealth.

            Whether or not you “like” them would seem to me completely irrelevant.

          2. “identify outliers and extreme cases”

            And yet these are the same people who always get tax breaks and preferential treatment at the expense of others.
            Microsoft (Hey they made corporations people not me) got out of trouble for dodging taxes, and a new law protecting them from those taxes… and now the state is reviving an old possible tax on places where dancing might happen.  They went so far as to show up and demand payments because a dead girls obit said she enjoyed dancing at a club, so the club needed to pay.

            The burden of keeping the system running is applied more to the people with less, so that those with more, can have even more.  And under the strain more of those people paying more end up in NEED of those already tightly stretched programs.

            I strongly dislike the fact that the rest of us NEED to pay more to make sure those with more don’t.

            I strongly dislike the fact that CEO’s in the US make a huge multiple of what the employee’s make while doing less.

            I strongly dislike that we need to have a social safety net to feed, house, provide medical treatment that keeps getting cut away while we give tax cuts to the top tier who NEED to have them to amass more wealth.

            They don’t NEED hundreds of millions, and we shouldn’t NEED to have to pay more and get less for our tax dollars because they NEED another tax break.

      3. Do you need a home?  Do you realize that there are thousands of people living on the street?

        Although it’s perfectly possible to live without a home as I see demonstrated every day I’m sure you nonetheless consider it a “need”.  So let’s make that the cutoff.  If you can house and feed yourself you’re doing pretty good.

  3. Perhaps they could contact senator Al Franken (D-Minnesota) as someone in power  who has experience in “the Arts”.  He might be able to help them out.  I at least hope that someone in his entourage can bring this to his attention.

  4. Obviously, if they’re not signed to a major label, they’re rogue musicians.  Think of the deleterious effects on social order if major corporations don’t get their cut of all musicians’ work.

  5. Christ, what an asshole.  Like you’re going to get a lot of money out of a musician.   Also pertinent is this old Steve Albini article:  http://www.negativland.com/news/?page_id=17   You’re likely to make more as an moderately successful indie than with a major label contract.   there seriously needs to be a legal method of making bureaucrats like this accountable for abusing their position.   We need to know this guy’s name so we can start an internet campaign to get his ass fired.

      1. I don’t care whether it’s malice or stupidity.  Someone stupid enough to do something that hurts other people enough to seem like malice shouldn’t have a position with any more power than night shift at a convenience store.

  6. What this guy has to say means absolutely nothing to me.  One, two, three…. forgotten.

  7. Somebody should tell all those bands headlining festivals this year that they shouldn’t need to tour anymore to promote themselves and get their name out there, because they’ve already made it, and if they continue to do so it’s proof they don’t intend to be profitable…

  8. So working as a musician means you’re not a successful musician because you’re… working as a musician?

    This smells much more like a witch hunt than a legitimate audit, and it seems that to at least certain Minnesota tax collectors, being a musician isn’t a “legitimate” job.

  9. If this is true, Macklemore’s tax guy is going to freak out next year with all that money coming in without a major label.

  10. The way I understood showbiz, is that after paying your dues and having hilarious misadventures, you find yourself in Orson Welles’ office where he has his secretary draw up the “Standard Rich and Famous Contract”.

  11. Despite all the objectionable details of the tax-man’s behavior–and there are many–it sounds like these folks have run afoul of the basic principle that you can only declare business losses for so long before the IRS decides that it’s a hobby, not a business. The IRS even has documentation to this effect:

    The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

    EDIT: I don’t know what that bit about “breeding horses” has to do with anything. The rest of the IRS publication has nothing to do with horses. Go fig.

    Granted, this is a state, not federal audit, so the rules may be different. The real shame here is that their accountant apparently advised them to continue writing off losses even after they failed to meet the standards for “presumes that an activity is carried on for profit.” At that point, it is incumbent upon you to convince the tax-man that you’re really for-profit, and that’s not a position that I think any of us would like to find ourselves in.

    1. Personally, I don’t understand why a ‘for-profit’ tax exemption exists at all. If I’ve got enough spare money to live off of for a couple years while working to, say, help those less fortunate, why should my money have to go to pick up the slack left by for-profit vultures hoarding their dollars?

      Also, aren’t there a number of longer-focused businesses that can suffer minor losses three years in a row without actually doing all that poorly? Say, if they’re involved in a lot of investments? Do they suddenly lose their business status, then?

      But that could very well be the reason. It still doesn’t make any sense to me though.

      1. My assumption has been they’re afraid people will use it as a tax-dodge, and would be able to write off music collections, elvis makeovers, music lessons, guitars, etc. as business expenses. 
        Edit: Though I wonder if famous folk who’ve bankrupted themselves, like MC Hammer, or various actors who hit dry spells have the same accusation of hobbyist vs. pro.

      2. The reason it matters is that in business you subtract expenses from taxable profits. With a hobby, your expenses are on you, and all income is taxed.

        Without this, a business that had a bad year would be taxed into bankruptcy.  OTOH, imagine the chaos if people could deduct every kitchen gadget and computer game as a “hobby expense.”

        Also, I think this only applies to self-employed people. Corporations can lose money forever without becoming a hobby. In theory.

        1.  Except that the losses for the corporation aren’t able to be used to offset taxes in another area.  The corporation can carry forward that tax loss for its own use, but that only offsets taxes on profits the corporation makes later.

    2.  “Granted, this is a state, not federal audit, so the rules may be different. The real shame here is that their accountant apparently advised them to continue writing off losses even after they failed to meet the standards for “presumes that an activity is carried on for profit.”

      I agree.  I couldn’t even finish the article — when I got to the part where they describe how their accountant, whom they hired through a friend, convinced them to give him power of attorney and let him speak with the auditor without them being present, that was a BIG red flag. Next thing you know, they’re in deep shit, and he’s saying “Gee whillikers, I don’t know who you pissed off over there”

      But the most telling line is when they say “Our accountant has said he’s never seen anything like this.”

      In my opinion, they hired an incompetent accountant who got them into trouble by because he either didn’t know about the state version of the IRS Hobby Rule is or didn’t care.  This was made ten times worse when they gave this mope Power of Attorney to speak on their behalf without them present. They abdicated their responsibility to some guy they didn’t really know, and now they’re paying for it.

    3. The reason there’s a different rule for horses is that horses can’t race or do significant farmwork until they’re about 3 years old, so there’s no chance of making a profit 3 out of 5 years, even if the horse is fast enough to win enough races to pay for itself, which (sort of by definition) not all horses are. 

      And it’s not uncommon for people to run a hobby as a business because there are all kinds of expenses you would have had anyway that can be absorbed into the losses of the hobby business.  Home offices were a classic example of this, though they became really hard to deduct before the Internet let many of us work from home.

  12. Two things.

    First, the statement that “MPR … doesn’t pay royalties” is technically true, but irrelevant in this context.  Public radio reports airplay to ASCAP and BMI just as commercial stations do.  IIRC, the actual royalty payments are made for them by the Corporation for Public Broadcasting, but royalties ARE paid to the composers of works played as a result of the broadcast.  Having your music aired by public radio does NOT mean that you’re not getting royalties.

    Second, “I’ll quote him as close as I can: ‘I know, I know. Big transgender rock star. I’ve seen all your videos online. Very talented'” is telling.  Draw your own conclusions about the motivation for this audit.

  13.  The couple in question also breeds horses. Venus’ band is called All The Pretty Horses. I assume their breeding business has also not turned enough profit for the state of Minnesota, and is therefore being classified as a “hobby” as well.

  14. My husband is a very successful corporate person, but spectacularly unsuccessful musician. If he thought he could get a tax break on the thousands of pounds he already spends on guitars each year, I would lose what is left of my lounge to fenders and various bits of analogue bleepy things. I say thank you, fine upstanding chaps of the Minnesota Department of Revenue for maintaining the sanity.

  15. Hmm Curiously none of the musical equipment I have can be insured under my home insurance because its obviously professional kit! Even though I don’t make any money.

    I think the laws of thermodynamics apply to taxes! You can’t win, You can only break even… no actually you have to loose out all the time!

    1. Yep, my camera equipment is fortunately all below the single per-item threshold for my renter’s insurance, but once I buy a C100, it’ll have to be insured separately, unless there’s a special policy for USAA for pr gear.

      I don’t make enough to write off my camera gear, but I do use it a lot. Without a mortgage, itemizing is more trouble than its worth…

  16. Translation:

    Amateur musician gets caught cheating on taxes, tells one sided story to bloggers.

  17. On the off chance that the musician from the original article reads this, my advice is to get a good accountant. Fox Tax Services in Minneapolis specializes in artists, writers, and musicians. I recommend them highly. 

  18. I’m not sure anyone else has noticed this, but Venus is transgender, and out and active in the local LGBT community. Maybe anti-trans prejudice, even here in Minnesota? Also, the band is called “All the Pretty Horses: but as far as I know, they do not raise horses. 

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