Latest / The Inspired Stories Podcast / How Tax Expert Mark Misselbeck Saved a Client Millions by Asking One Follow-Up Question

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How Tax Expert Mark Misselbeck Saved a Client Millions by Asking One Follow-Up Question · The Inspired Stories Podcast

0:04
Welcome to another edition of the Inspired Stories podcast,
0:08
where leaders share their experiences so we can learn from
0:11
their successes and be inspired by how they've overcome
0:14
adversity. As you listen today, let one
0:17
idea shape what you do next. My name is Anthony Cotespotti
0:21
and today's guest's father was conscripted into the German army
0:25
at 17, survived 3 1/2 years in a Siberian gulag, came to America
0:31
with nothing, and died at 45 from the damage his body had
0:35
endured. Our guest was starting his
0:37
sophomore year of college when that happened, the 1st in his
0:40
family to go to school. That early lesson about
0:43
fragility and resilience was shaped everything that followed.
0:47
He spent more than 50 years building an expertise so deep
0:51
that a single conversation with him can be worth millions of
0:54
dollars to the right client. Mark Misselbeck is a core Tax
0:58
Director at Cherry Beckard Advisory, one of the nation's
1:01
top tax and advisory firms, where he has spent more than 27
1:05
years. He holds a Masters of Science
1:08
and Taxation from the University of Hartford and has advised
1:11
clients across industries from manufacturing to technology, on
1:16
everything from M&A strategy to estate planning.
1:19
Mark is the kind of person who has seen enough of life to know
1:23
what actually matters and still shows up every day to find the
1:26
thing nobody else caught. But before we get into all that
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back benefits.com. All right, back to our guest
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today, Director of Cherry Beck Art Advisory, Mark Misselbeck.
2:31
Thanks for making the time to Share your story today.
2:34
Happy to do so. So let's start with that first
2:38
wild story that we introduced there at the beginning.
2:42
You grew up with a father who survived the gulag, came to this
2:46
country with almost nothing, died early at 45 because of what
2:51
his body had been through. Walk me back to your sophomore
2:55
year at college when you got that news.
2:57
What did you do with that? I dedicated myself to attaining
3:02
what he had hoped I would get to a degree and I put it to good
3:09
use. My brother and sister followed
3:12
in my footsteps and originally I could only find a job in Boston.
3:17
I moved back home to be with my mother to help her take care of
3:21
the home and contribute what I could to support my brother and
3:26
sister in their pursuit of their education.
3:29
My sister also became ACPA. My brother became an emergency
3:32
room doctor. So from a father who was a an
3:41
independent butcher, small meat market neighborhood.
3:46
On his on one side he had a a dry grocer on the other side a
3:51
soda fountain newsstand, you know, 3 unit commercial small
4:00
mall. And from that, I've become what
4:05
I've become. I think you'd be proud of the
4:08
torch that you carry forward. I would hope so.
4:13
So your first job out of college was with the IRS.
4:17
What did you learn sitting on that side of the table that most
4:20
tax advisors never get to see? The mindset that is presented
4:27
from the agency point of view is to challenge everything and view
4:31
everything with skepticism. Now I tend to look at things and
4:38
poke around to find out what the underlying base or real
4:45
information is. Because if you change one factor
4:50
in the fact pattern, the tax outcome can skew very
4:56
differently from where you thought it was going.
5:00
And usually the clients bring me a transaction that's already
5:07
executed and all I can tell them is what the outcome is based on
5:13
what they did. If on the other hand, they say
5:17
I'm thinking of doing this or that, what's the prospect of
5:22
doing it in a more tax efficient manner?
5:24
I had the opportunity to save a good deal of money in early
5:31
circumstance was a part a client who was had a partner at a 5050
5:37
deal and the partner had said to him, look you here, I found a
5:43
buyer for a property we own. I want you to take the proceeds.
5:49
I will take the remaining property and we're quits at the
5:54
end of the day. The way that partner proposed
5:57
the transaction, the IRS would have gotten the tax 150% of the
6:02
proceeds 100. And 50%?
6:05
Well, if they sold the part the property in the partnership,
6:09
each partner would have to pay tax on half the gate.
6:13
But then the partner who wanted my partner out, in tax parlance,
6:17
would have taken his proceeds to buy my partner out of the other
6:20
properties, creating another game, OK.
6:25
And he wouldn't have held back any money to pay the taxes on
6:28
his game. So what's?
6:32
The smarter setup in that situation.
6:34
In that situation, what we did was we dissolved the partnership
6:38
and each partner took a property.
6:43
There was a small, much smaller game.
6:46
The game would have been lower 6 figures to each partner.
6:52
And my charge from the the client initially was what is my
6:57
tax from this proposal? And when I presented it to him,
7:02
he said no way am I going to pay that kind of tax.
7:06
You got to find a way around it, which is when I found out that
7:10
this was the circumstance in the proposal and while I was sitting
7:16
there in front of the client, I came up with this alternative.
7:21
What happened was my client had to recognize a relatively small
7:26
amount of income and from low 6 figures I burnt his tax down to
7:37
high 4 figures. Oh wow, and his partner's tax
7:42
which would have been middle 5 figures went down to very low 4
7:49
figures plus at the time. We then have the opportunity to
7:55
execute a tax deferred transaction.
7:57
Since it was real estate we execute, we went into the mode
8:02
of trying to swap the property rather than sell it for cash.
8:08
Now that has survived we're When you trade in a vehicle for
8:13
business purposes, you can no longer defer into the received
8:17
personal property car for a truck or truck for a truck.
8:22
But you can recognize gain now there's land you can deal with
8:24
physical. Yeah, real estate, though you
8:27
can still swap real estate and as long as you don't get your
8:31
hands on cash or get out from under debt, the gain you would
8:36
have had is deferred into the property you get in the
8:38
exchange. So how does the swap actually
8:41
take place? What does that transaction look
8:43
like? Well, these days you use an
8:45
intermediary to park the deed that you hold while the other
8:51
party acquires the property you want with their cash, somebody
8:54
else willing to pay the tax. So they acquire the deed, then
8:58
they give it to the intermediary in exchange for the deed you put
9:02
to the intermediary, and the intermediary gives you the deed
9:06
from the other party. And why would the intermediary
9:09
want to pay the tax and put them subsidized?
9:10
They don't pay the tax they they have bought from you at a price
9:15
that's at fair market value, that's equal to the value they
9:19
get from the other party. And you adjust the value for any
9:24
differences by debt that you take on.
9:28
If you increase your debt as though you paid cash to acquire
9:31
the property because you're obligated to pay off the debt.
9:35
Now the, at the time we, we already crafted this
9:39
transaction, there was also investment tax credits if you
9:44
rehabbed buildings that were 15 or 20 years old equal to 10% of
9:49
the cost, provided you spend the larger of $5000 or your basis in
9:54
the property. I was figuring the client with
9:59
the cash that would be available at the price quoted for the
10:03
value of properties at the time could buy 2, maybe 3
10:07
rehabilitatable properties and he would have a basis fairly low
10:12
that when you split it between two or three properties and take
10:15
out the land cost so you have the building cost, we'd be at
10:19
the 5000 or below. So everything he spent on the
10:23
property would generate credits. Here's the question that pops
10:28
into my mind, Mark, is like, obviously you've learned this
10:32
stuff, you're reciting it, you know it like the back of your
10:34
hand. You can reference it and all
10:36
these client conversations. But when you're first learning
10:39
about it, does it ever strike you as who came up with these
10:43
numbers? Like why is it 10% and why is it
10:46
5000 of this? And like, do they just feel
10:49
random to you or does it feel like it's been well thought out?
10:53
It's a matter of budgeting because the Congress sets those
10:58
thresholds in the law and they they pick the numbers.
11:03
How they pick them I have no clue.
11:05
From the air, from a bingo. Roller or some other place?
11:11
OK. All right.
11:12
So how did the opportunity to join Cherry Becker come about?
11:16
I was working with a firm that would Cherry Becker approach
11:20
notably acquire. So the history I had with that
11:24
firm has tacked on to Sherry Becker.
11:26
They've essentially grandfathered my work experience
11:31
in the prior firm. I started with that firm in
11:35
December of 1998. OK.
11:39
So that has tacked on. Prior to that, I was employed by
11:45
three other CPA firms and the IRS.
11:48
So across my experience I've had a total of really 5 employers in
11:53
this field. And what has caused you to stay
11:58
with, I understand there was the transaction that took place the
12:03
the acquisition, but what's basically caused you to stay in
12:06
place for so long? What do you enjoy about this
12:08
this group? Well, I went with the firm
12:12
because of the salary that was offered and across the course of
12:17
the years they were pleased enough with the quality of my
12:20
work to compensate me fairly well to the point where I think
12:26
I was priced out of the market to change firms.
12:32
Now I'm of an age where the question becomes how long of a
12:36
shelf life do I have for further rendition of services?
12:42
Is that a question that you need to answer that your you expect
12:45
your employer to come up with the answer?
12:47
It's a question I would need to answer and so far it's a matter
12:51
of is my mental acuity and my health at the level where I
12:57
believe I can still function well and the hours are not a
13:02
drag. If one of those 3 components
13:05
would go South then I would have to re evaluate whether or not I
13:13
can continue on. And how do you feel today, March
13:17
of 2026? Not bad.
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I'm, I'm putting in 10 hour days give or take to accommodate the
13:27
workload and I'm the I'm not bragging, I'm the go to guy in
13:35
the local office when there's a knotty problem or a hairball to
13:39
try and straighten it out or determine what the options are
13:43
for dealing with it. Sometimes there's not a good
13:47
option there. That was just the case the other
13:49
day. Partner who's been with our
13:51
office 2-3 months and has taken over a chunk of of work, brought
13:57
with him some of his own, had an issue with a client that he
14:02
didn't feel competent to sort out.
14:06
And so we've had a couple of conversations over the last
14:08
couple of days as to what the positives or the pitfalls are in
14:15
the situation and what's necessary to resolve it.
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Now he's assembling a memo to go to the client.
14:23
Let's say these are your options.
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Where do you want to go from here to straighten this out?
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So is most of your work reactionary?
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And maybe that's not the right word, but I'll tell you what I
14:39
mean. The client comes to you, they've
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got an issue or they've got a transaction and they want
14:44
guidance. Or is there a portion of what
14:47
you do that's more proactive? Oh, hey, here's a change in the
14:52
tax law or here's a new thing that we, you know, uncovered.
14:56
Let us reach out to our client base and say, hey, look at this.
15:02
Well, the firm is is doing that regularly and we have a slated
15:07
presentation I believe in Atlanta at the end of the month
15:12
for businesses that's going to run a day and 1/2 or two days
15:17
for all of if you sign up early, it's 295 including an overnight
15:22
in the hotel. And if you don't, you do the
15:28
early bird. It's an extra $100.
15:33
And at this session, they're going to present all kinds of.
15:37
All kinds of different things depending upon your industry or
15:41
tax pro inclinations or interests, what would fit your
15:47
particular niche. So that that's going to be on
15:51
the website I'm sure for Terry Becker, if anybody.
15:55
Wantscbh.com, right? Yeah, OK.
16:01
And this is something that's done annually and and they've
16:03
got another one that's coming up here soon.
16:05
They have others they're going to do in other localities.
16:08
I understand the the dates may not be yet fixed so if you check
16:13
the website you can keep an eye on it.
16:17
But they would like I think to do it annually.
16:22
It all depends on circumstances. I can tell you I have
16:27
recommended to P to younger people if you want job security.
16:33
This isn't necessarily a bad field Between Congress and the
16:37
50 states, somebody's always tinkering with the tax law.
16:42
So you you have changes that are going to affect people's bills
16:46
and advising them how to deal with it or mitigate it if
16:51
possible is pretty good job security.
16:56
So you've been doing this 50 plus years.
16:59
What's the biggest change in tax code that you've seen?
17:03
The sea change was back in the 86 Tax Act under President
17:07
Reagan trying to simplify things and in fact it move it
17:14
transmogrified from simplification to what the hell
17:21
did they call it? I can't even remember now but it
17:25
it it changed to something else and it I was keeping up with all
17:31
the changes and advising clients what the potential moves were
17:37
and it's 3 or 4 in the morning. The whole thing changed and it
17:41
almost blew out my memory banks, so to speak.
17:45
Everything I had learned of what they were proposing and thinking
17:48
went out the window. So they had been proposing
17:51
things. This was the strategy everybody
17:53
thought they were going to go with, but before it got signed
17:55
into law, they made radical shifts to it.
17:57
Yeah, they they changed the whole plan.
18:00
We got passive activity losses, limiting tax, what they were
18:04
perceived to be tax shelters. We have the modern alternative
18:07
minimum tax now. Not many people heard of it
18:12
shorthand. We deal with it as AMT.
18:15
Its origins go back to 1969. Congress held hearings and
18:21
investigated 11 millionaires who paid no tax whatsoever.
18:27
It started with that as an alternative minimum tax to be
18:30
imposed on people, taking advantage of the strategies
18:34
those people employed to have a no tax bill year.
18:39
At its height, it was anticipated to reach 23 million
18:44
American tax filers. Under President Trump's first
18:51
TaxAct in 2017, that number was cut down to an estimated 5 to
18:56
6,000,000. What started as something to hit
19:01
only 11 taxpayers grew to that proportion.
19:06
So beware of what you ask for it and what the unintended
19:11
consequences are. And why did it expand so much?
19:15
Was it just because inflation? People were earning more money?
19:18
People were. The the regular tax rates reach
19:22
up to 37%. Yeah, 37% now.
19:27
They were 39, six under Clinton and for an interim period
19:32
afterwards under Obama. Whereas capital gains tax rates
19:38
are at 1520%, sometimes 25 or 28 alternative minimum tax.
19:45
Things you deduct such as taxes and other items have one
19:50
treatment for regular tax deductibility, are not
19:53
deductible for alternative minimum tax and where you have a
19:57
tax rate of 20% on capital gains and then 37% those deductions
20:02
missing. Are taxed at 26% for a small
20:06
range of income and 28% for all other income under alternative
20:09
minimum taxes. So when you have too much bad
20:13
income at a lower tax rate and a regular tax, you wind up paying
20:17
the alternative minimum tax. We're just scratching the
20:21
surface here on the complexities of the tax laws, Mark.
20:24
And it makes me think of something that I heard you say
20:28
publicly before, which is you think the best path to tax
20:33
simplification would be what? I posted it on LinkedIn and it
20:39
still gets 2024 reads a week. Maybe all Congress people should
20:47
be required to prepare their own returns.
20:50
Access to people such as myself or tax attorneys are full
20:55
panoply of tax research materials, the best tax
21:01
preparation programs to deal with all the complexities, but
21:06
for whatever they have in the basket of their income
21:09
reporting, prepare their own returns and immediately upon
21:12
filing they get an IRS audit. I would think that that might
21:19
bring about some level of simplification.
21:24
Basically, let them feel the pain.
21:26
Yeah. Yeah, yeah.
21:30
So who are the types of clients that you work with?
21:33
Who's a good fit for you? We, we have some legacy
21:38
individuals whose picture has simplified probably through
21:42
retirement mostly, but we do have business owners.
21:47
And as their business success balloons, they have the
21:52
wherewithal to get involved in other things.
21:55
They get investment advisors, the investment advisors put them
21:58
into alternative investments, partnerships or venture capital,
22:07
private equity. And those tend to complicate
22:10
their picture relatively quickly, particularly the
22:13
partnerships, because they get into the partnerships that are
22:17
put together by the brokerage houses and they're investing
22:20
across the country. With that comes the obligation.
22:24
You're generating income from different states.
22:27
You got to file returns in those states to report to those states
22:30
the income you're drawing from those states because they didn't
22:34
have the jurisdiction to tax you on it.
22:38
And most states have a complementary feature of if you
22:44
pay tax in another state, we will offset the tax imposed on
22:49
the same income you're reporting to us, capped at whatever tax
22:52
you would have paid us. So give me an example of how me
22:56
living in Ohio might be generating income from another
23:01
state that I would owe additional tax on in that state.
23:04
You get into a partnership that has rental property in let's say
23:08
Georgia with A5. Assume a 5% tax rate and your
23:12
tax rate can reach 9% or so I think.
23:17
So if you have profit on your rental property from Georgia and
23:21
you pay Georgia 5% on a $10,000 income or $500 and you report
23:28
that 10,000 in Illinois, that generates a $900 tax.
23:32
Illinois will give you a credit against the 900 they want you to
23:36
pay for the 500 you already paid to Georgia.
23:39
Your net tax to Illinois is then $400.
23:44
Doesn't work so well with Massachusetts where we have a
23:47
typically a 5% tax rate in California is a 13.3% tax rate.
23:54
You pay 13 three to California. You can only get credit against
23:58
the same the tax on the same income in Mass for 5%.
24:03
So net, you're paying an extra 8.3 because you're doing
24:06
business in California of some sort or another.
24:10
There's so many layers to this mark.
24:14
Walk me through the 8 figure tax savings that you engineered for
24:18
a client that started with a single question about a
24:21
charitable contribution. Yeah.
24:26
A bit of serendipity if you will, but we had acquired the
24:31
client about 6 or 8 months before.
24:35
And as I was part of the group that discussed his taxes with
24:40
him, he called me. He had exercised some options on
24:46
stock that he did in January of that year and he called me in
24:50
June and he said I'm contemplating A charitable
24:53
donation of that stock. And is that a good tax strategy?
24:59
I had to say no, because in order to get fair market value,
25:03
the full value of the stock, you have to qualify for long term
25:07
capital gains treatment on selling it, which means holding
25:10
it a year in a day. He had maybe six months on the
25:14
clock. If it's short term, you only get
25:15
what you paid for the stock. So was the exercise price.
25:21
Well, what I said to him was if you have other holdings in the
25:24
company, I can look at them and maybe recommend a different
25:31
bundle of stock to satisfy your charitable donation inclination
25:37
and get you the fair market value rather than the cost.
25:41
So do you, can you, do you have a listing, can you send it over?
25:44
He did. And in closing the conversation,
25:47
he says, by the way, I think this company will be sold in two
25:50
to three years at X dollars per share, which was a multiple of
25:54
what he paid on his exercise price.
25:58
It's just a throwaway comment at the end of the conversation.
26:01
Wasn't. Wasn't what he had called about.
26:04
There is a a provision on the tax law under Code section 12O2
26:09
called qualified small business stock or QSBS shorthand taking
26:13
the initials were great for acronyms.
26:16
Just like the defense industry, we have our own set.
26:20
So QSBS qualified stock you can exclude from income in its
26:25
entirety potentially as much as 100% of gain to the larger of
26:30
$10 million per corporation or 10 times your basis in the
26:35
stock. OK.
26:38
All right. In this instance the $10 million
26:41
was the goal. Now it's 10 million per
26:46
corporation and per taxpayer. So if I look at the the husband
26:53
wife as one taxpaying unit, if they file married filing
26:56
separately, they only get 5 million apiece as a marital
26:59
unit, 1 taxpayer, $10 million. If I stop there, I get squeezed
27:06
into $10 million. And also, depending upon when
27:11
you bought the stock, the exclusion isn't 100% of $10
27:15
million, it's only 50 or 75%. So now you got to sort through
27:20
what your holdings are and what exclusion level they qualify
27:25
for. And when you say your holdings
27:27
like, what would qualify as a holding in this case?
27:30
Stock that you originally acquired from the corporation as
27:34
originally issued stock? Yep, that was issued after a
27:39
date in 1993 when this incepted. OK.
27:44
All right. And depending upon when you
27:47
bought the stock, it's the 5075 or 100% exclusion.
27:51
OK. Now he's telling me this company
27:56
would be acquired by one buyer in one transaction, which means
28:01
there is no opportunity to designate which shares you're
28:04
selling. And the default rule with IRS is
28:09
if you don't designate which shares you're selling, the first
28:13
shares you bought are the first shares you sold.
28:18
If it's one transaction and I don't have the opportunity to
28:21
designate his earliest shares, which are 50% excludable,
28:24
instead of his later shares at 100% exclusion, he'd only get 5
28:29
million of the 10 million exclusion.
28:32
OK, I'm with you. I wanted him to donate the block
28:36
of shares that that were 50% qualified to get them out of the
28:40
way to get to 75 or 100%. But his feeling was that the
28:45
value of the block at 50% was too large for him to swallow as
28:49
a deduction for that year, and he didn't know he.
28:52
Didn't have enough to like get the income for it to make sense
28:55
for OK. So then I had to flip it on his
28:59
head. We went with getting the 100%
29:03
excludable shares out of his hands.
29:06
And what we did was we created a couple of trusts for his kids
29:10
and he gifted the shares. If you are a subsequent acquirer
29:15
of the shares, not from the company but from an existing
29:18
investor, you don't get the QSBS treatment, but a transfer that
29:23
doesn't trigger a gift tax that changes the basis of the shares,
29:27
the character of the shares, the holding period, the basis all
29:30
tag along to the person receiving the gift or the trust
29:35
in this instance. So now I got 2 taxpaying trusts
29:40
each. Taxpayers each qualified for a
29:44
10 million exclusion on 100% excludable shares.
29:50
So and so break that down into math.
29:52
Yeah. What?
29:53
What does this end up saving him?
29:56
Well, we also converted what was it a trust that was taxed back
29:59
to him as a what is known as a grantor trust.
30:03
We got the attorneys to change the terms of the trust.
30:05
So that was a tax paying trust qualified for another 10 million
30:09
its own right. Wow.
30:12
On top of it, there's a companion provision section
30:16
1045. If you have what is seemingly
30:20
QSBS qualified shares and you held them more than six months
30:27
and within 60 days of the liquidity event, the acquisition
30:33
you acquire QSBS qualified shares in another startup.
30:38
You can roll over the gain from the shares and start the path
30:46
with the holding period from the earlier holdings tacked on to
30:50
the new shares towards QSBS exclusion, another 10 million in
30:56
that new company. We took the short term proceeds
31:02
and some of the taxable regular long term capital gain shares
31:05
that were QSBS qualified and he had two other start-ups that
31:09
needed funding. We used the proceeds to fund
31:12
those to avoid dilution of his ownership in those companies.
31:17
Roll them over and he's got anywhere from a year to four
31:22
years or more tacked on to those holdings towards getting QSBS
31:27
treatment on their liquidity event.
31:31
OK, Mark, so let's break this down in a way that the average
31:36
person might have hope in wrapping their heads around the
31:40
value of what you did. Can you assign a?
31:45
Maybe there's been enough time that's passed where you know
31:48
what the actual hard dollar savings were for this guy.
31:51
Maybe it's theoretical at this point.
31:53
The projected hard dollar savings were a the low E figures
31:59
you're talking $10 million or so.
32:02
I lost a little ground because the shares were only 50%
32:05
excludable. The AMT kicked in on the
32:08
excluded portion. I lost a couple, 100,000 maybe.
32:13
Still an outcome that the client was very much appreciative of
32:17
and happy with. I can imagine, yeah.
32:20
Because what happened was he was thinking the runway to a
32:24
liquidity event was two to three years out by the time we
32:28
presented the plan and he approved it.
32:33
As a closing comment, what he said was that the board of
32:38
directors had received a non binding, non exclusive letter of
32:41
intent to acquire the company at the price he thought was two to
32:44
three years out. They were going to reject after
32:47
the weekend because it had earn out conditions for about 1/3 of
32:51
the price that he felt wouldn't be met.
32:55
The deal went down 3-4 months later at a price that was nearly
33:00
50% more than what he thought would materialize 2 to three
33:04
years down the road. And they did achieve some of the
33:08
earn outs because some of the proceeds have come in over the
33:11
last several years. The final So you just get a Do
33:16
you get a Christmas card from this guy every year?
33:19
A giant. Ham calling me or or emailing me
33:22
when he's got a prospective transaction to see what maybe
33:26
can be done. So I'm going to ask you to toot
33:29
your own horn here for a second. Mark.
33:31
How many folks in the country do you think are at your level of
33:38
tax advisory? There's a fair number, but it's
33:43
probably in the hundreds to to 1000 or so.
33:49
And there. Are people who are specialized
33:51
that they're going to know more than me about some areas.
33:56
I style myself a generalist because I find the overlap
34:00
between in this instance, gifts and income taxes or estates and
34:04
income taxes produce this opportunity and instead of just
34:11
real estate, it's real estate and partnerships in the earlier
34:14
transaction on real estate swaps.
34:19
Talk to us about tips deductions, overtime deduction.
34:24
Tips you have to be in an industry that the IRS has
34:28
specified normally has a tipping feature to it, and it can't be a
34:37
mandatory tip. If the restaurant's going to act
34:41
at an 18% mandatory tip, that tip will not qualify, has to be
34:47
reported to the employer, put into your W2.
34:51
So now they're bringing you in where you previously weren't,
34:54
and if this ever expires, they know that you're on the record
34:57
as having tip income, so that they're going to expect you to
35:01
continue reporting tips even if the tip exclusion expires.
35:06
So tell us about the tip exclusion.
35:08
What do you mean by? It's $25,000.
35:11
It is not a what is known as a Cliff phase out.
35:14
You hit a certain level of income and it's gone if you hit
35:18
a level of income. In this instance for singles
35:21
it's 150,000, for joint return is 300,000.
35:26
That's what this means that your tips are not a subject to income
35:29
tax. The 25,000 would is a deduction
35:32
against your tip income. The lesser of the tip income
35:37
reported or 25,000 would be the excluded essentially amount.
35:40
Through this deduction, if your income goes above the thresholds
35:44
of 150 or 300, you lose 100 for every thousand of income rounded
35:49
down that your income exceeds the threshold.
35:53
So it's not hit 150 and you lose the entire 25,000 / a range of
35:58
additional income, you're going to lose it.
36:02
The same thing applies for the time and a half extra earnings.
36:12
For overtime. Overtime pay.
36:14
But the IRS has said the overtime pay has to meet the
36:18
Fair Labor Standards Act FLSA requirements to be considered
36:22
overtime pay. And it's only the premium
36:25
portion of the pay, not the entire 1 1/2, but the 1/2 only,
36:30
that qualifies again for a 25,000 exclusion or exemption
36:35
deduction. Same phase out rules apply. 150
36:40
or 300 a hundred per thousand, but round the 1000 down.
36:46
South big picture, what do you think the reason for these
36:50
changes were? If the reason for any changes is
36:56
motivated by the primary underpinning motivation to all
37:03
Congress people having been elected, you do what you need to
37:07
do to get elected again. Essentially, they're buying
37:10
votes they make, so they. Did a study of how many people
37:16
are going to be affected by this overtime rule?
37:17
How many people are going to be affected by this TIPS exemption?
37:21
And they're like, wow, that is a big base of voters that I can go
37:25
and talk to and talk, you know, and explain to them.
37:27
What I'm doing for you, look what I've done for you.
37:30
I put money in your pocket. It's measurable.
37:33
It's immediate and recognizable. How about the senior deduction?
37:38
What is this? The senior deduction is an extra
37:41
6000 if you're over 65 per marital person in a marital unit
37:47
is 2. If they're both over 65, it's
37:50
potentially another 6000. Again, there is an income level
37:54
phase out. So when you say an extra 6000,
37:56
you mean an extra $6000 in tax deduction?
37:59
Like, yeah. You most seniors are at a point
38:05
in time where they don't itemize so much anymore unless they are
38:10
very good charitable givers. Frequently they paid off their
38:13
mortgages, the real estate, the real estate taxes, income taxes
38:18
were capped at 10,000. They're now up to 40,000 for a
38:21
period of time, but after that period of time will revert to
38:25
the 10,000. The only way they get over the
38:28
standard deduction, which frequently for them is 25 to
38:32
27,000 plus an extra dollar for age is by charitable
38:38
contributions or significant medical expenses.
38:43
So the standard deduction 27 to 30,000 plus another six
38:49
potentially. But again, it's for a lower
38:53
level of income and I can't give you the the phase out income
38:58
level right off the top of my head.
39:00
What it's too new, but it's built into our tax program and I
39:07
check for whether or not it's hitting depending upon the
39:10
income level of the client we're preparing the return for.
39:14
Up until now, Mark, I was starting to think you were an AI
39:17
bot, the way that you were spouting off all these things
39:21
from memory. Actually it makes me think, do
39:23
you use AI in any of your work now?
39:26
I'm not as proficient with it as I probably should be, but I do
39:31
search to verify that my memory isn't playing tricks on me
39:35
because I have so much of A history that's changed so much
39:39
over the years that I frequently need to just verify that what
39:44
I'm remembering is law is in fact the current law.
39:50
Speaking of technology, I saw that Terry Becker recently
39:54
launched a platform to automate R&D tax credit claims.
39:58
Are you familiar with how this works?
40:00
Can you explain it to us? I really am not that that is a
40:03
specialization within the firm on R&D credits and they do
40:08
studies for clients. They will respond to IRS
40:12
inquiries. I have a client did not have a
40:15
study done currently under IRS audit that is considering
40:19
bringing in these specialists to bolster their records and
40:23
documentation to present the IRS to support the claim credits
40:27
they have or have putatively claimed.
40:33
So aside from cases that we've already talked about, share with
40:39
us is another client outcome that stands out to you as one
40:43
that you're really proud of. Some years ago, there was a
40:49
client that I don't know how they wound up coming to us, but
40:54
the partner called me into a meeting with them in our old
40:57
offices in the library. They were foreign immigrants
41:02
with English that was colored by their home country accent and
41:09
background. But they they started on the
41:12
West Coast. They had developed a company
41:15
that they sold to one of the listed Sun Valley, not Sun
41:19
Valley, Silicon Valley people out there companies, but there
41:24
was a division that the company didn't want that they took back.
41:27
He was no longer getting AW2 and the preparer at the time,
41:31
because he became a partner in the division they bought back,
41:34
treated him as passive with adverse implications because of
41:39
the business operations under the AMT alternative minimum tax.
41:43
Again what? Do you mean treated him as
41:46
passive to explain the difference there and why it's
41:48
important? That was part again the part of
41:51
the Reagan Sea change. In the past partnerships you ran
41:56
losses. It didn't matter whether you
41:58
were involved in it or not. You took the losses and
42:02
frequently they were bolstered by borrow debt, borrowings to
42:06
fund the operation and that was all permissible under the
42:10
existing tax code. From 1954 to 86 in 86A,
42:17
distinguishment was made between whether you materially
42:19
participated in an activity or were just passing.
42:23
And the simplest explanation of the differentiation I've come up
42:27
with for people is material participation.
42:31
You're expected to earn your living by the sweat off your
42:35
brow or the sweat off your back being involved in the operations
42:39
of the business. If all you are is a silent
42:43
investor money person, you're passive.
42:48
In those circumstances. What the Congress said was you
42:51
can only take your passive losses if you can marry.
42:55
That's a passive activity loss. A pal your pal in taxes if you
43:00
can marry with a paid a passive income generator.
43:04
OK. So there are other adverse
43:10
aspects to being passive and the preparer mistakenly classified
43:14
this client as passive and those adverse aspects kept him paying
43:20
AMT for a number of years. Fast forward, 5 preparers later,
43:27
he's relocated to the East Coast from the West Coast.
43:30
Nobody else caught this along the way.
43:33
The last preparer finally woke up to the circumstance and
43:36
wanted to file an amended return and a claim for refund to
43:41
transfer or change his status from passive to material
43:45
participation. Took the client along, let him
43:49
sit with the IRS auditor for three or four hours, and the IRS
43:54
auditor was on the verge of issuing a denial of the claims,
43:59
the claim, and the amended refund change in status.
44:03
I listened to all of the circumstances.
44:06
The client was running a division of the partnership
44:09
between he and a buddy. They had enough ownership in the
44:13
partnership that they could override the professional CEO
44:18
running the operation. And he was traveling to his home
44:22
country. What was his former home country
44:25
to run a group that was working in the division couple 3 * a
44:31
year. I would say he was materially
44:34
participating. He just didn't get AW2.
44:36
Sounds like it. I listened to it.
44:40
I looked at the partner and looked at the client.
44:42
I said, I think we can win this thing.
44:44
And if we do, you get, I think 6 figures of refunds and they're
44:48
going, whoa, got a power of attorney, registered it with the
44:54
IRS, called up the IRS agent. We've been engaged to represent
44:58
the client. Is it worth having a discussion?
45:01
The client, the IRS auditor says no.
45:04
I met with the client for several hours.
45:06
I took voluminous notes. My reader, I understand the
45:10
situation perfectly. I've gone over with my manager.
45:14
They agree with me. We referred to a specialist in
45:16
Washington on passive activity status and they all agree.
45:21
I said fine. This was early February.
45:26
We met with the client late January.
45:28
The doors closed on this. At this point in the
45:30
conversation, they've made their decision 3 levels up.
45:34
Yeah, I said. When could we expect your
45:36
report? And he said, well, I've got
45:39
other things fish to fry. I've got to spend some time
45:43
fleshing out my position. So it'll take a while.
45:49
I'm waiting, I'm waiting. It's tax season.
45:51
I get out of tax season, it's April 20th.
45:54
I have sat down, my head is on straight again from dealing with
45:57
all the the last bunch of tax returns and tax problems and
46:03
I've started drafting a letter in response to what I know is
46:06
coming. April 20th I got a call from the
46:10
client. We just got back from
46:12
travelling. We found the IRS report in our
46:15
mail with a response date of today.
46:20
Well, we called the auditor on a time and explained that we just
46:23
got back from travelling and found this and he's agreed to
46:26
reissue the report with today's date and a 30 day response
46:29
window. Our question is, can you meet
46:32
that deadline? And I said, funny you should
46:34
ask, I'm already drafting what I anticipated the IRS position
46:39
would be a response to counter it.
46:43
When I get the letter together, I will run it by you.
46:47
I will explain what I'm saying, why I'm saying it, why I'm
46:50
saying it the way I'm saying it, because you want to create a
46:53
certain perception of the position.
46:58
And what happened was I put together A4 page letter backed
47:03
up with 85 pages of exhibits, computations of what the prior
47:10
preparers had missed of the AMT issues.
47:13
The AMT credits he was entitled to because of those issues.
47:17
The research and development credits that were thrown off by
47:20
the partnership that he hadn't been able to use because he was
47:22
an AMT and his foreign tax credits that were miscalculated
47:26
as to carry forwards. Sent it all in before the
47:31
deadline. SAT back come August, I get a
47:36
call from the IRS agent. He says, so what's the story
47:39
here? And I said, didn't you read my
47:41
letter? He said what letter?
47:45
The letter and package of exhibits had gone to the appeals
47:48
division. They're a Trier of law, so to
47:52
speak. The AIRS agent is the Finder of
47:54
fax. The trial court.
47:56
They don't examine the facts. If new facts are raised in the
48:00
appeal, they kick it back to the agent, find out what the facts
48:03
actually are. I had raised 4 new issues with
48:07
my exhibits on the credits and the deductions.
48:11
They kicked it back to the agent to examine that.
48:15
When he read through the letter and went through the exhibits,
48:17
we didn't hear anything from mid to late August, January on the
48:24
pretty much on the anniversary of our first meeting with a
48:26
client. I call the partner and say we
48:28
haven't heard back from the IRS. Should we be finding out where
48:31
this stands so we don't have to deal with in tax season?
48:34
He said no. Let sleeping dogs fly.
48:38
March 25th on a Friday, the client calls.
48:41
We have an IRS audit report. Should we sign it?
48:45
We said what report we're on. As power of attorneys, we're
48:49
supposed to get copies of the report.
48:50
We haven't gotten it. Can you fax it to us and let us
48:52
look at it? Over the weekend they gave us
48:56
everything they were that we had been asked for in the claim and
49:01
the amended return and we're somewhat apologetic.
49:04
They couldn't give us more because those documents are a
49:08
cap on what could be refunded. Wow.
49:12
The interest on the refunds approached 6 figures.
49:16
Wow. So from we're on, they're on the
49:22
the five yard line going for the goal and we win the game is how
49:26
that one came out. That's incredible.
49:29
The client has only just started paying regular tax again because
49:33
of the AMT issues I raised, and he's about to go back from
49:38
material participation to passive because of the change in
49:41
circumstances. In that, he retired from the
49:45
partnership and he's no longer employed using the sweat off a
49:50
brow or the sweat off the back to prosecute or promote the
49:55
business. More of the lesson here is talk
50:00
to Mark Misselbeck before, during, after anything.
50:04
He's your, he's your saving grace here.
50:07
So let me shift gears on you, Mark, because I want to take a
50:11
moment and just explore a really hard challenge that you've had
50:16
to overcome personally. We, we mentioned the passing
50:18
your father in the intro. Is there another one that we can
50:22
explore here together? Sadly, there is 1995.
50:29
I was partnering accounting firm.
50:31
We were in a recessionary period in our locality.
50:34
I hadn't had a paycheck for an aggregate of 15 weeks.
50:41
My wife's daughter by the prior marriage.
50:44
Essentially, my daughter was away at college freshman year,
50:49
came home with Thanksgiving, and it developed that her health had
50:54
taken a sideways turn to where she needed a liver transplant.
51:01
My wife prevailed upon me to resign the partnership because
51:05
she did get the liver transplant the following year, and it
51:11
happened that we were told we had a choice of going to
51:13
Pittsburgh or Boston to Centers for the nearest Centers for
51:17
liver transplants. We wound up going to Boston.
51:21
She had the liver transplant. She recuperated.
51:24
She made-up the lost ground. She graduated with her class,
51:27
finishing off her degree up here in the Boston education system
51:34
at Bentley College, now Bentley University.
51:38
Sadly, she also needed a kidney transplant 15 years later.
51:44
And this past year or so, the kidney was failing.
51:48
The liver was following they found cancerous lesions.
51:52
The treatment to cure the cancerous lesions through her
51:55
health even more out of kilter and they discovered that there
51:59
was a thickening in the walls of her heart.
52:02
A little over a month shy of her 49th birthday, she passed on
52:07
September 11th. Essentially, my wife and I had
52:11
to start over. We had a home in in our former
52:16
residence area that was underwater.
52:19
We had a short sale. I had to make up for an
52:23
outstanding debt that wasn't fully satisfied by the short
52:28
sale. And my former firm did not have
52:32
a retirement plan, so I had no retirement funding that was to
52:37
bolster my finances. So my wife, who had lost her job
52:42
at the time, I was 15 weeks without a pay, sitting with her
52:45
daughter up here in in Boston in the ICU.
52:49
She was 11 weeks in the ICU with what they tried to do.
52:54
That didn't work. She couldn't even claim
52:58
unemployment benefits because she had to physically appear to
53:02
the unemployment board in our home state to claim those
53:06
benefits because she lost her job being with her daughter.
53:10
And I had to juggle all the finances to keep everything
53:13
afloat without a paycheck coming in from either end.
53:20
So about 30 years ago, I restarted.
53:25
She restarted. I'm still working.
53:31
Pretty much made-up the the ground from those damages, but
53:36
wow. That you don't make up that
53:39
ground from the heart, the damage to the heart.
53:43
Yeah, no, that that was the the final nail in the coffin, I
53:47
think. And she had been in through so
53:50
much with all the treatments. They were trying to get her in
53:54
shape to go back on the transplant list for a dual
53:57
transplant of kidney and liver. But the heart thing just
54:01
scotched the whole business, and she'd been in pain and worn out
54:06
so much by all of this that it finally got to the point where
54:10
she, I think, gave up. How did emotionally, how do you
54:18
begin to put the pieces back together?
54:21
The financial stuff, that's hard and that's enough to cripple
54:25
somebody, but to be hit with that at the same time as losing
54:28
your daughter, how do you begin to put 1 foot in front of the
54:32
other again? Life goes on, you absorb what
54:38
has done. You know, nobody's getting out
54:41
of here. Alive is a basic premise.
54:45
You take each day as it comes. You're happy that hey, I got up
54:49
this morning, I can put 1 foot in front of the other.
54:53
That's a victory right there. And you just go on from there.
55:00
What was the source of strength for you in the early days, You
55:03
and your wife going through that?
55:06
The support she has shown to me over the years, her faith in me
55:09
and my abilities has sustained me across the years that we've
55:14
been together. And we're inhaling distance of
55:18
our 40th wedding anniversary. Congratulations.
55:25
So you guys have been a big source of support for each
55:27
other. Any external support?
55:29
It's been helpful for you guys. Well my mother passed away at 76
55:34
some years ago. There's a physical distance with
55:39
my brother and my sister, although we talk fairly often.
55:45
For a while my wife's brother was on the outs on a perceived
55:50
flight and they've recently reconnected and re established
55:55
their family relationship. Most of the the rest of the
55:59
family are older or have become disconnected.
56:05
So a lot of my wife's relatives have passed.
56:09
Her younger brother now is reconnected.
56:13
My brother and my sister. My my sister's down in the, the
56:18
Gold Coast of Connecticut, Richfield.
56:20
My brother's up in North Carol, Vermont, 20 miles from the
56:23
Canadian border. I'm down the outskirts of
56:26
Boston. So they're it's a triangle, but
56:29
there's some distance between us.
56:32
Yeah. So it's a special occasion
56:34
they'd be able to get together. But family, family's been your
56:40
support system. Yeah.
56:43
What do you think is your superpower, Merck?
56:49
When the the occasion presents itself, recognizing the
56:52
opportunities to provide clients with a better pack tax outcome
56:58
then might otherwise be the case.
57:03
By the same token, when I interviewed with this firm, they
57:09
gave me a gotcha question. OK.
57:13
What's your greatest strength and what's your greatest
57:15
weakness? And my comeback was my greatest
57:23
strength is my knowledge by depth and breadth of the tax
57:28
law. By the same token, my greatest
57:30
weakness is my depth and breadth of the knowledge of the tax law.
57:34
What? Do you mean by that?
57:37
The strength is finding those cracks and crevices or
57:40
interlacings of the tax law that permit me to get you the
57:43
outcomes that we've talked about in the three instances
57:47
discussed. By the same token, it gives me
57:51
the the knowledge that a particular circumstance, there's
57:57
nothing I can do to improve the situation.
58:01
You've done what you've done and I'm stuck with the outcome and I
58:05
got to give you the bad news. Don't shoot the messenger
58:10
though. Hopefully not.
58:14
Mark, I've just got one more question for you today.
58:16
But before I ask, I'm going to do 3 quick things for the
58:19
audience. First of all, if you want to get
58:21
in touch with Mark Misselbeck from Cherry Becker, their
58:24
website is cbh.com. Mark specifically is in the
58:29
Advisory LLC division of Cherry Becker and the direct phone
58:34
number for his area is 781-453-8700, 781-453-8700 It'll
58:42
be in the show notes for folks if you miss it, but one more
58:45
time, 781-453-8700. And if you're enjoying the show,
58:50
please take a moment to subscribe wherever you're
58:52
listening. It also sends us the signal that
58:55
helps others discover our podcast.
58:57
So thank you for taking a quick moment to do that right now.
59:01
And as a reminder, you can be the hero advisor that helps
59:04
clients give their employees access to therapists, doctors,
59:08
and prescription meds while paradoxically increasing their
59:12
net profits. Real gains that can change how
59:14
businesses value. Contact us today at
59:16
advacbenefits.com. So last question for you, Mark,
59:20
a year from now, what is 1 very specific thing that you hope to
59:23
be celebrated? Another birthday.
59:29
I love it. Simple but profound at the same
59:32
time. Well, Mark Misselbeck from
59:35
Cherry Becker and I want to be the first to thank you for
59:37
sharing both your time and your story with us today.
59:40
I really appreciate you being here.
59:42
Thank you for having me. Folks, that's a wrap on another
59:46
episode of the Inspired Stories podcast.
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Actually, before I completely sign off, tell folks where they
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can find you on the radio. We forgot to mention that and
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this is a fun one. I have been doing this as a
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public service now for a number of years, in the teens I believe
1:00:04
we we haven't tracked back to when I actually started, but Dan
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Ray is a talk radio host. His program is Night Side.
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It's on WBZAM 1030 radio through the iheart group and I will be
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appearing this Friday night at 9:00 and we will go as late as
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11 depending upon the call insurance.
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Because what we do is we will discuss some of the tax law
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changes that may be of interest to the audience, but what drives
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it is the calling questions and the opportunity to ask questions
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of someone such as myself that is made available to his
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listening audience when I appear on the program.
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Are you on there regularly, you know, second Friday of every
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month or is it a little bit more around?
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I try and do it at least once, if not in this case twice.
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I did beginning of February an appearance with him, but I try
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and do it twice before I get very deep into tax season and
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really locked into very long hours.
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I'm already working seven days a week, nine and a half, 10 hours
1:01:16
a day, weekdays 8 hours Saturday, 6 hours Sunday.
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So it it is wearing to a degree and then doing a nine to 11
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appearance and being on my game for the questions that are
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presented. It's a stretch.
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When we get beyond this point. Yeah, well, it makes me even
1:01:39
more grateful for the time that you chose to spend with us here
1:01:42
today. Thank you.
1:01:44
And folks, check it out. Dan Ray Rae on WBZ, part of the
1:01:50
iHeartRadio Collection and. The earlier the earlier
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appearance was taped if you search I forget if it was is
1:01:59
probably February 6th March from mirrors February this year
1:02:05
because there's 28 days and it's an even number of weeks.
1:02:08
So when we pick up in March, the the dates align.
1:02:12
Tomorrow is the 6th of March when I'm appearing again, so it
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would be February 6th. It'll be archived at the 9:00.
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Eleven O'clock Talking Taxes I believe is the podcast label for
1:02:25
the recording. All right, super helpful and all
1:02:28
those details will be in the show notes for folks.
1:02:30
In case you missed it, you want to refer back to it.
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OK folks, thanks for learning with us.
1:02:35
If one thing stood out, put that into action today.