Broker Check

Webinar Transcript: “The Latest and Greatest in Aggressive Tax Strategies”

April 18, 2024

Jonathan Shenkman, ParkBridge Wealth Management: Good morning and welcome to the start of the Park Bridge Wealth Management Spring Webinar Series. This program is entitled The Latest and Greatest and aggressive tax strategies. As always. My name is Jonathan Shankman. I'm the President, chief investment officer of Park Bridge wealth management. In that role I serve in a fiduciary capacity to help my clients achieve their financial objectives. The goal of my programs is to bring professionals together to help them better serve their clients.

 

2

00:00:26.670 --> 00:00:35.319

Jonathan Shenkman, ParkBridge Wealth Management: This is done by educating attendees on the latest topics in wealth planning, and by encouraging collaboration between a client's attorney, Cpa. And financial advisor, where appropriate

 

3

00:00:35.320 --> 00:00:48.669

Jonathan Shenkman, ParkBridge Wealth Management: my practice focused on working with high net, with families, businesses, and not for profits. I manage individual investment portfolios, trust accounts, corporate retirement plans and endowments that my clients achieve their financial goals. In addition to the 20 or so events I run every year.

 

4

00:00:48.670 --> 00:01:13.619

Jonathan Shenkman, ParkBridge Wealth Management: I also do a fair amount of writing on the topics of investing the financial planning. You could read my work in a variety periodicals, including Barron's Cnbc. Forbes, Kiplinger, the Wall Street Journal, and Trust in Estates Magazine to name just a few. You could see all my work on my website at Park Bridge. wealth.com forward slash articles, or by following me on social media, Jonathan on money. Additionally, you can check out my weekly, podcast which is also called Jonathan on money, and you could listen to that. An apple spot

 

5

00:01:13.620 --> 00:01:16.089

Jonathan Shenkman, ParkBridge Wealth Management: or wherever you get your podcast

 

6

00:01:16.560 --> 00:01:32.699

Jonathan Shenkman, ParkBridge Wealth Management: today, we're privileged here from Matthew Rappaport, who's a vice managing partner, falcon, rapper, porter, Berkman, based in Long Island, New York. Matt shares his firm's private client groups. He concentrates his practice in taxation, as it relates to real estate, closely held businesses, private equity funds, family offices, and trusts and estates.

 

7

00:01:32.700 --> 00:01:44.149

Jonathan Shenkman, ParkBridge Wealth Management: He advises clients regarding tax planning, structuring, and compliance for commercial, real estate projects, all stages of the business life, cycle, generational wealth, transfer, family business accession and executive compensation.

 

8

00:01:44.150 --> 00:02:05.569

Jonathan Shenkman, ParkBridge Wealth Management: Matthew is known for his work on complex deals involving advanced tax considerations, such as Section 1031, exchanges a qualified opportunity Zone program, freeze partnerships, private equity mergers and acquisitions and qualified small business stock. On a personal note. Matt is one of the most frequent and popular speakers at my program, and is, it is a pleasure to collaborate with him. Given his deep knowledge and expertise

 

9

00:02:05.570 --> 00:02:12.190

Jonathan Shenkman, ParkBridge Wealth Management: today, Matt will be speaking about the latest and greatest and aggressive tax strategies on that introduction. I'll now turn the program over to Matt.

 

10

00:02:13.350 --> 00:02:14.550

Matthew Rappaport: Popular

 

11

00:02:14.610 --> 00:02:20.754

Matthew Rappaport: Yoni popular. Are you sure about that? Listen, I'm not on video today, because I came back from Capitol Hill like midnight last night.

 

12

00:02:21.130 --> 00:02:33.729

Matthew Rappaport: Just like, not not video. Already today, like anybody wants to see my face, anyhow. So capital, it was interesting. I'm actually gonna throw some capital hill content into this program because some of what I heard

 

13

00:02:33.870 --> 00:02:36.519

Matthew Rappaport: was relevant to today.

 

14

00:02:37.360 --> 00:02:38.280

Matthew Rappaport: But

 

15

00:02:38.890 --> 00:02:42.029

Matthew Rappaport: I am happy to speak with all of you about.

 

16

00:02:42.430 --> 00:02:48.739

Matthew Rappaport: You know I wanted to do this topic because I feel like for those of you on the line who are tax advisors, wealth advisors, etc.

 

17

00:02:49.100 --> 00:02:58.009

Matthew Rappaport: You get the question all the time. Oh, hey! I have a windfall event, you know. I sold business. I sold the valuable collectible like I sold

 

18

00:02:58.150 --> 00:03:04.510

Matthew Rappaport: artwork, or I just made a lot of money this year, and what is available to me.

 

19

00:03:04.730 --> 00:03:05.650

Matthew Rappaport: and

 

20

00:03:05.760 --> 00:03:10.589

Matthew Rappaport: for better, for worse. I've sort of compiled a little menu

 

21

00:03:10.770 --> 00:03:11.960

Matthew Rappaport: of things

 

22

00:03:12.200 --> 00:03:14.440

Matthew Rappaport: that I tell people.

 

23

00:03:14.660 --> 00:03:17.739

Matthew Rappaport: okay, there's different risk levels to each of these different

 

24

00:03:18.070 --> 00:03:19.670

Matthew Rappaport: things you can do.

 

25

00:03:20.390 --> 00:03:22.320

Matthew Rappaport: And in addition.

 

26

00:03:22.770 --> 00:03:23.760

Matthew Rappaport: excuse me.

 

27

00:03:24.510 --> 00:03:26.790

Matthew Rappaport: there are things that I tell people not to do.

 

28

00:03:27.070 --> 00:03:29.900

Matthew Rappaport: There is a growing mountain

 

29

00:03:30.090 --> 00:03:31.040

Matthew Rappaport: of

 

30

00:03:31.640 --> 00:03:39.229

Matthew Rappaport: strategies out there that I feel are abusive. They're illegal, and they're going to get people to trouble. And I describe some of them

 

31

00:03:39.350 --> 00:03:47.900

Matthew Rappaport: on this program today, so you can watch out for them and you can ignore them. I heard about some of them when I was running around Capitol Hill yesterday. So I'll tell you about

 

32

00:03:48.160 --> 00:03:51.509

Matthew Rappaport: what Congress seems to think

 

33

00:03:51.600 --> 00:03:53.199

Matthew Rappaport: about some of this stuff.

 

34

00:03:54.100 --> 00:03:57.110

Matthew Rappaport: But there is a handful

 

35

00:03:57.290 --> 00:04:01.619

Matthew Rappaport: of strategies that I consider to be more or less on the in between. They're aggressive.

 

36

00:04:02.640 --> 00:04:10.050

Matthew Rappaport: I think they work. Basically, I don't think the Irs is going to be amused with them, but every one of us has clients

 

37

00:04:10.460 --> 00:04:11.530

Matthew Rappaport: who

 

38

00:04:11.710 --> 00:04:17.950

Matthew Rappaport: they want to take the risk of us disclose to them, and they are just like that. They're risk friendly.

 

39

00:04:17.970 --> 00:04:21.759

Matthew Rappaport: And they wanna do certain stuff that as long as they can get an advantage.

 

40

00:04:22.190 --> 00:04:30.829

Matthew Rappaport: and they can stay out of prison they'll take the chances on things like penalties and all sorts of other consequences. And I'm I'm happy to give them disclosures in writing about

 

41

00:04:31.250 --> 00:04:39.540

Matthew Rappaport: what kind of risk they're taking. But it's a risk, nonetheless. So what this program will describe over the next 25 min is the stuff I've seen

 

42

00:04:40.170 --> 00:04:46.220

Matthew Rappaport: and I'm gonna go red, light, yellow, light green light, basically on all of this, and let you know what my thoughts are, because

 

43

00:04:46.970 --> 00:05:02.080

Matthew Rappaport: there's a good variety now, and I feel like the Irs. Still, after all the hemming and hawing, you have a lot of these debt ceiling deals that have cut off the inflation reduction act funding that was supposed to go to the Irs and restore them to some level of firepower that could allow them to

 

44

00:05:02.120 --> 00:05:06.650

Matthew Rappaport: properly examine these things and enforce against them, and they still don't have it.

 

45

00:05:07.300 --> 00:05:15.849

Matthew Rappaport: The disclaimer is super important today. Please don't run around with this stuff and then start implementing it, and then turn around and say, Hey, oh, Matthew told me on that one webinar about it.

 

46

00:05:16.150 --> 00:05:23.740

Matthew Rappaport: Please don't do that. Okay, this is an informational presentation. If you want to email me, don't call me if you want to email me

 

47

00:05:23.850 --> 00:05:34.269

Matthew Rappaport: and say, Hey, do you know the person who is going ahead and implementing strategy? A strategy? BI am very happy to make an introduction for you, but

 

48

00:05:34.730 --> 00:05:45.729

Matthew Rappaport: don't run around. Then say, Oh, yeah. I relied on Matthew's little program with Yoni at, you know, 8 30 in the morning on April eighteenth, 2024. Don't. Don't do that. So okay.

 

49

00:05:46.440 --> 00:05:48.559

Matthew Rappaport: let's get into it. Ercs.

 

50

00:05:48.800 --> 00:05:51.809

Matthew Rappaport: I still see these things floating around. They're so bad.

 

51

00:05:52.280 --> 00:05:56.679

Matthew Rappaport: The the Ercs were part of the COVID-19 legislation

 

52

00:05:56.730 --> 00:05:59.380

Matthew Rappaport: that allowed a

 

53

00:05:59.620 --> 00:06:01.110

Matthew Rappaport: tax credit.

 

54

00:06:01.330 --> 00:06:06.649

Matthew Rappaport: Really, you know, in synthesis with the Ppp loans

 

55

00:06:06.680 --> 00:06:08.180

Matthew Rappaport: is meant to keep

 

56

00:06:08.270 --> 00:06:12.029

Matthew Rappaport: employees on payroll during the COVID-19

 

57

00:06:13.060 --> 00:06:20.210

Matthew Rappaport: periods which were in really like 2021, you know, a tiny slice of of 22. And then basically at the, you know, after that.

 

58

00:06:20.220 --> 00:06:22.420

Matthew Rappaport: you're not really eligible anymore. But

 

59

00:06:22.750 --> 00:06:26.690

Matthew Rappaport: the thing about Ercs, the bungled implementation of it was.

 

60

00:06:26.900 --> 00:06:29.120

Matthew Rappaport: yeah. Rcs were

 

61

00:06:29.360 --> 00:06:30.340

Matthew Rappaport: open.

 

62

00:06:30.490 --> 00:06:39.259

Matthew Rappaport: and by that I mean, one could file an amended 9 41. You have to file an amended payroll tax. Return to claim this.

 

63

00:06:39.750 --> 00:06:42.409

Matthew Rappaport: The thing about the Erc is again. It's a

 

64

00:06:42.570 --> 00:06:47.990

Matthew Rappaport: it's all on the payroll tax, like a lot of people have the misconception that this comes from.

 

65

00:06:48.580 --> 00:06:55.580

Matthew Rappaport: You know your 1040, or, you know, 1120 s. 1065. It doesn't really come from that. It comes from the payroll tax returns.

 

66

00:06:55.900 --> 00:07:02.380

Matthew Rappaport: So when it comes to the Rc. Right? You're amending your payroll tax. Return to claim this. If you were eligible, and the thing is.

 

67

00:07:02.800 --> 00:07:08.050

Matthew Rappaport: there was an objective test which was about the decline in gross receipts that was easy to measure.

 

68

00:07:08.360 --> 00:07:11.090

Matthew Rappaport: And then there was the

 

69

00:07:12.010 --> 00:07:16.990

Matthew Rappaport: more nebulous subject of tests, which was whether or not a government order

 

70

00:07:17.310 --> 00:07:25.559

Matthew Rappaport: cost you to partially or fully suspend your operations. That is the one that's being abused, that the client grocer seats test is pretty easy to measure.

 

71

00:07:25.860 --> 00:07:28.330

Matthew Rappaport: But the the problem that you ran into was

 

72

00:07:28.920 --> 00:07:30.499

Matthew Rappaport: ER. C's

 

73

00:07:30.600 --> 00:07:32.739

Matthew Rappaport: are now being.

 

74

00:07:33.350 --> 00:07:39.100

Matthew Rappaport: I mean, even with the moratorium that the Government put in place. On actually processing these.

 

75

00:07:39.400 --> 00:07:46.199

Matthew Rappaport: the Ercs became promoted. There were folks that were quote unquote, consulting, that were taking

 

76

00:07:46.290 --> 00:07:51.106

Matthew Rappaport: fees based on a percentage of the of the refund that came back off the amended 9 41 s.

 

77

00:07:51.510 --> 00:07:56.810

Matthew Rappaport: They were sometimes going in there and preparing them irresponsibly. They were claiming that

 

78

00:07:57.250 --> 00:08:04.819

Matthew Rappaport: folks who are eligible who are, in fact, not eligible. They were claiming that folks were eligible for more than they actually were eligible, for

 

79

00:08:04.830 --> 00:08:09.460

Matthew Rappaport: so so Ercs became this enormous, enormous problem.

 

80

00:08:10.000 --> 00:08:14.049

Matthew Rappaport: and it became a multi-billion dollar, fraudulent sort of thing.

 

81

00:08:14.170 --> 00:08:20.230

Matthew Rappaport: And I hope that everybody on a call is aware of how badly these things are being.

 

82

00:08:21.050 --> 00:08:22.670

Matthew Rappaport: I guess us

 

83

00:08:22.790 --> 00:08:37.343

Matthew Rappaport: frowned upon by the Government Enforcement mechanism. Whether that comes from the legislative branch, the Enforcement branch everybody. They're so upset about how badly. This got abused like I said. The Irs is put a moratorium in place on processing these. They're going after the promoters.

 

84

00:08:37.740 --> 00:08:47.140

Matthew Rappaport: Anybody who has gone out there and mass marketed. Quote unquote, consulting for Ercs and going on the radio going on television, going on the Internet

 

85

00:08:47.380 --> 00:08:48.410

Matthew Rappaport: and

 

86

00:08:48.450 --> 00:08:51.560

Matthew Rappaport: trying to solicit people site unseen.

 

87

00:08:52.170 --> 00:08:54.350

Matthew Rappaport: Those folks are going to get promoter audits

 

88

00:08:54.837 --> 00:09:20.070

Matthew Rappaport: every single one of those claims is going to be audited. And the Irs had a voluntary disclosure program that, I believe, recently expired. The Irs. Considering reopening it. There was over a hundred 1 million dollars of claims that in the voluntary disclosure program folks gave back. The voluntary disclosure program for Ercs is really good and really generous. They said, keep 80% of the credit 20% of whatever you got. You can keep.

 

89

00:09:20.070 --> 00:09:45.489

Matthew Rappaport: and you'll have no penalties, and you also have no interest, I think they said, and that was really good. Now, if they have to come, find you, and they have to come. Get the Erc money back. They are going to throw the book at you. They're going to throw everything at you interest penalties interest on the penalties they're gonna have. You pay the refund back. It's gonna be really bad. So I hope everybody knows enough to stay away from these things. But, man, this has been promoted super duper heavily, at great detriment to the overall

 

90

00:09:45.840 --> 00:09:47.610

Matthew Rappaport: system of tax fairness.

 

91

00:09:47.760 --> 00:10:09.712

Matthew Rappaport: conservation, easements, when these are done like the regular way. In other words, you have a a person who, you know she may own land. This is super popular. By the way, when you get to more wide open spaces. Not in. You know where most of us are in New York, although I gotta tell you when you go out East. You go to the Hamptons. You got the peaconic land trust and stuff. They still love these things. But

 

92

00:10:09.980 --> 00:10:20.573

Matthew Rappaport: you know you go upstate. These are popular, upstate, too. But these are most popular. I've come to find the Midwest in Big Sky country, in places where there are wide open spaces. Texas, for instance. Right.

 

93

00:10:20.980 --> 00:10:22.709

Matthew Rappaport: You could have a a person

 

94

00:10:23.430 --> 00:10:25.429

Matthew Rappaport: take a perpetual

 

95

00:10:25.640 --> 00:10:33.420

Matthew Rappaport: easement, not to, you know. Put any like meaningful human, permanent activity on it. No development, no, no, no, nothing.

 

96

00:10:33.850 --> 00:10:41.919

Matthew Rappaport: And basically put it, put an easement that says we're going to preserve all of this land for nature. You can do it on

 

97

00:10:42.010 --> 00:10:46.640

Matthew Rappaport: part of land. You can do it on all of land. But, generally speaking, whatever part you have.

 

98

00:10:46.740 --> 00:10:54.280

Matthew Rappaport: you can take a charitable income tax deduction for the appraised value of the land, subject to the easement

 

99

00:10:54.720 --> 00:11:00.149

Matthew Rappaport: and both sides of the aisle. Absolutely love this thing, both sides of them

 

100

00:11:00.483 --> 00:11:06.050

Matthew Rappaport: the left loves it because it's environmental preservation. The right loves it because it's a tax deduction. Here's problem

 

101

00:11:06.600 --> 00:11:11.689

Matthew Rappaport: in notice 2,017 dash 10, the Irs said. We are observing

 

102

00:11:12.310 --> 00:11:15.709

Matthew Rappaport: a variety of this transaction, in which a

 

103

00:11:15.900 --> 00:11:17.570

Matthew Rappaport: group of persons.

 

104

00:11:18.210 --> 00:11:25.649

Matthew Rappaport: led by a promoter will get together in a tax partnership and invest a lot of money leverage that money.

 

105

00:11:26.320 --> 00:11:28.070

Matthew Rappaport: purchase empty land.

 

106

00:11:28.290 --> 00:11:36.740

Matthew Rappaport: and then he wait a year, place a conservation easement on it, and then somehow get an appraisal that the highest and best use is like 4 times

 

107

00:11:36.990 --> 00:11:49.969

Matthew Rappaport: what the purchase price was a year ago, and then take a deduction accordingly. That deduction is super valuable. If you put in a dollar your tip. You were typically getting in these things in the most aggressive version, 7 $8 worth of deductions which were ordinary.

 

108

00:11:50.680 --> 00:12:15.428

Matthew Rappaport: $4 in your pocket, you get 4 extra investment pretty good. Except for the idea. The valuations were bogus, the Irs, and originally attacking these, tried to attack them on technical grounds. They had mixed success doing that. Now, what the Irs is doing is they're going after the appraisers, and they're throwing some of them in prison, the Doj announced an indictment and a successful indictment, I believe, of one of the appraisers involved in this. I believe in Georgia.

 

109

00:12:16.190 --> 00:12:28.059

Matthew Rappaport: and there will be others to follow syndicated conservation easements. Given the idea, I'll go to the next slide here just for you guys to see what the authority around this is. But given the idea that conservation easements

 

110

00:12:28.120 --> 00:12:31.519

Matthew Rappaport: are being so heavily enforced against.

 

111

00:12:32.708 --> 00:12:49.109

Matthew Rappaport: There are now some clever variations being put up by promoters. Some of them are doing what they call fee simple deals. So you'll get promoters coming at you, saying, Oh, no, no, no, no! We're we're buying the land, and we're not donating the the conservation easement. So we get around the technical problems we are donating. The entire fee

 

112

00:12:49.510 --> 00:13:03.270

Matthew Rappaport: in my estimation still requires a bogus appraisal still requires way way, too much aggressiveness. And the Irs is going to go after those just as just as heavily as they've gone after their sister technique. The conservation easements.

 

113

00:13:03.490 --> 00:13:17.958

Matthew Rappaport: And these are bad. They're really really bad. If you wanna talk about Capitol Hill yesterday and running around these Congressional representative offices. Oh, they hate the syndicated version of this. They hate it. They love the regular version, love it. They're not gonna throw it out, you know. They don't wanna throw out the baby with the bath water.

 

114

00:13:18.250 --> 00:13:26.440

Matthew Rappaport: but con the syndicated conservation eases they cannot stand these, so Congress is angry. The Irs is angry, and I would not even touch these. If

 

115

00:13:26.640 --> 00:13:31.810

Matthew Rappaport: I were any client who was seeking something to help out with

 

116

00:13:32.120 --> 00:13:35.479

Matthew Rappaport: my tax situation. Split dollar

 

117

00:13:36.425 --> 00:13:48.499

Matthew Rappaport: split dollar is interesting because split dollar. There are many varieties of it. I go over a couple of them in this deck, but split dollar. If first off it's got 2 general regimes. There is.

 

118

00:13:49.270 --> 00:14:01.989

Matthew Rappaport: I believe, under Section 61 is the economic benefit regime, the economic benefit regime of of split dollar life insurance right in split dollar. The reason they call it split dollar is because there's somebody who pays the premiums. And there's somebody who gets the

 

119

00:14:02.100 --> 00:14:09.100

Matthew Rappaport: benefit of the actual product. And those are 2 different people. That's why they call them split dollar, because you're literally splitting

 

120

00:14:09.360 --> 00:14:20.529

Matthew Rappaport: the costs and the benefits associated with the life insurance that you're placing very popular in business. It's very popular as an as as a an executive benefit.

 

121

00:14:21.130 --> 00:14:25.399

Matthew Rappaport: but split dollar has been abused various ways over the years.

 

122

00:14:25.440 --> 00:14:26.470

Matthew Rappaport: I

 

123

00:14:26.600 --> 00:14:50.100

Matthew Rappaport: notice 99, 36 was all the way back 25 years ago now, but it said charitable split dollars really bad, whereby you would have a charitable vehicle. Go ahead and get the benefits associated with, you know, paying the premiums that may have come with the policy, and then there would be a split of the death benefit between a private party and the Charity

 

124

00:14:50.160 --> 00:15:13.790

Matthew Rappaport: and the Irs is not amused by this. And they came out. They said, Yeah, we're we're not letting you do this anymore. The other thing that the Irs is not amused with was private split dollar. I will not protect the innocent. Just because the the practitioner who invented a private reverse split dollar is still around, and I'm friendly with him, and he is an exceptionally intelligent, exceptionally capable person.

 

125

00:15:14.469 --> 00:15:17.540

Matthew Rappaport: He invented private reverse, split dollar and an absolute genius move.

 

126

00:15:18.060 --> 00:15:26.569

Matthew Rappaport: and Congress was not amused. And then, once they got wind of it, they passed a law prohibiting it. Private reverse split dollar basically took advantage of the idea

 

127

00:15:26.610 --> 00:15:29.590

Matthew Rappaport: that there would be a deemed gift

 

128

00:15:30.500 --> 00:15:38.880

Matthew Rappaport: or a deemed wealth transfer between generations. If, say, a senior generation paid the insurance associated with

 

129

00:15:39.558 --> 00:16:00.950

Matthew Rappaport: you know, junior generation right? And there would be a deemed wealth transfer if you had a split dollar regime where the senior generation was was the pay, or but what if the junior generation was the pay or and the senior generation benefited from it? The the way that the the deem transfer between generations would work is that it would be the

 

130

00:16:01.410 --> 00:16:03.760

Matthew Rappaport: measured premium

 

131

00:16:04.200 --> 00:16:16.639

Matthew Rappaport: for one year of term life insurance on the insured. Well, if the senior generation is the insured right, and you could get the transfer to to go from you know.

 

132

00:16:16.970 --> 00:16:27.969

Matthew Rappaport: senior to junior right the way. The private reverse split dollar worked in a nutshell was there was a Dean transfer from senior to junior generation of the term

 

133

00:16:28.210 --> 00:16:30.249

Matthew Rappaport: life insurance cost

 

134

00:16:30.940 --> 00:16:38.959

Matthew Rappaport: for the senior generation, which is typically extremely high, except the way that that the split dollar regulations would work under a state and gift

 

135

00:16:39.350 --> 00:16:40.440

Matthew Rappaport: is that

 

136

00:16:40.470 --> 00:16:41.510

Matthew Rappaport: you

 

137

00:16:41.850 --> 00:17:02.804

Matthew Rappaport: would not have a negative transfer tax federal transfer tax meaning a state and gift. You wouldn't have a negative transfer tax consequence for for that amount of premium. It sort of spl. It flipped the intention of the split dollar regulations on its head, and it was super clever, except the the I. Congress was just like. They took one look at it, and they said, We can't do this.

 

138

00:17:03.200 --> 00:17:11.200

Matthew Rappaport: So what is split dollar looking at today? Right? Intergenerational family split dollar is not really about taking the

 

139

00:17:11.450 --> 00:17:21.640

Matthew Rappaport: cost of term life insurance and and transferring it from senior generation to junior generation tax free anymore? What? What intergenerational family split dollar does

 

140

00:17:21.810 --> 00:17:26.629

Matthew Rappaport: is it takes like a buy sell agreement, for instance, in a family business.

 

141

00:17:27.230 --> 00:17:31.570

Matthew Rappaport: and it enters a split dollar agreement between senior generation and junior generation.

 

142

00:17:31.790 --> 00:17:38.660

Matthew Rappaport: It's typically loan regime, I think. Economic benefit regime, I think, is less popular. Now it's loan regime, which is under Section 78, 72,

 

143

00:17:38.750 --> 00:17:44.159

Matthew Rappaport: and in a intergenerational family split dollar agreement. What'll happen is as part of that. Buy, sell, agreement.

 

144

00:17:44.460 --> 00:17:54.310

Matthew Rappaport: The senior generation will pay the premiums to a trust for the benefit of junior generation, and and the insured person will be the

 

145

00:17:54.500 --> 00:18:10.020

Matthew Rappaport: junior generation. And then what'll happen is right. What? Let's just say mother is is paying for insurance on daughter's life. The insurance is held in in A In a life insurance trust, and the split dollar arrangement says that Mom is gonna pay the premiums.

 

146

00:18:10.110 --> 00:18:11.550

Matthew Rappaport: If that happens

 

147

00:18:12.000 --> 00:18:15.454

Matthew Rappaport: right, you have an arrangement whereby

 

148

00:18:16.490 --> 00:18:18.569

Matthew Rappaport: under the economic benefit regime.

 

149

00:18:19.020 --> 00:18:20.170

Matthew Rappaport: mom.

 

150

00:18:20.200 --> 00:18:30.546

Matthew Rappaport: you know, is is merely going to clock consequences according to the term life insurance cost on daughter, which is typically not that much because daughter is typically younger and healthier.

 

151

00:18:30.930 --> 00:18:40.670

Matthew Rappaport: or under the loan regime, Mom is is deemed to make a loan, and has to get paid back according to a, you know, stated interest rate

 

152

00:18:41.260 --> 00:18:45.860

Matthew Rappaport: for the premiums that are advanced. But when mom dies right?

 

153

00:18:47.060 --> 00:18:49.700

Matthew Rappaport: What's valued in Mom's estate

 

154

00:18:50.110 --> 00:18:52.990

Matthew Rappaport: is either the loan receivable

 

155

00:18:53.160 --> 00:18:55.090

Matthew Rappaport: under the loan regime

 

156

00:18:55.260 --> 00:19:04.170

Matthew Rappaport: or under the economic benefit regime. The right to get the premiums back upon the earlier of the death of daughter.

 

157

00:19:05.500 --> 00:19:10.169

Matthew Rappaport: or the surrender or other disposition of the policy.

 

158

00:19:10.770 --> 00:19:12.749

Matthew Rappaport: So this is what

 

159

00:19:12.800 --> 00:19:14.130

Matthew Rappaport: this is what

 

160

00:19:14.660 --> 00:19:16.830

Matthew Rappaport: the taxpayers did

 

161

00:19:16.990 --> 00:19:25.360

Matthew Rappaport: when they took a position around intergenerational families. But dollar, they said that loan receivable or that economic benefit right

 

162

00:19:25.730 --> 00:19:27.459

Matthew Rappaport: should be discounted

 

163

00:19:28.390 --> 00:19:29.570

Matthew Rappaport: because

 

164

00:19:29.930 --> 00:19:33.760

Matthew Rappaport: you can't really value, or you can't really take into account when

 

165

00:19:33.870 --> 00:19:36.009

Matthew Rappaport: the policy is going to be disposed of.

 

166

00:19:36.250 --> 00:19:54.550

Matthew Rappaport: You can have an actuarial estimate of when daughter's gonna die. And it's really the latter that you control. And and they took positions that the valuation discounts on these should be like 60%, 70%. And what this really was at the end of the day was a wealth transfer vehicle by which you you need not use

 

167

00:19:54.810 --> 00:19:56.280

Matthew Rappaport: the state tax.

 

168

00:19:56.400 --> 00:19:59.570

Matthew Rappaport: Yeah, exemption, gift, tax exemption anything like that.

 

169

00:20:00.570 --> 00:20:06.950

Matthew Rappaport: And you know, because if you have the right to get the premiums back in some way, shape or form, there shouldn't be a gift.

 

170

00:20:07.190 --> 00:20:12.239

Matthew Rappaport: and that was set forth in the gift tax related regulations that govern split dollar.

 

171

00:20:13.350 --> 00:20:14.460

Matthew Rappaport: So

 

172

00:20:15.230 --> 00:20:26.521

Matthew Rappaport: taxpayers are taking relatively aggressive positions. If you paid a million dollars in premiums, they were saying. By the time the senior generation died, the value and senior generations estate was like $420,000. I mean something ridiculous

 

173

00:20:26.920 --> 00:20:35.230

Matthew Rappaport: and a state of Mars. And the state of Lavine basically tested this out. The state of Mar said, had really really, really good facts.

 

174

00:20:35.620 --> 00:20:46.639

Matthew Rappaport: and the the taxpayer in both Marset and Laveen. One on all the technical grounds in Mar said the valuation was statement. Penalty, though, was really hefty, because they said, there is no way the discounts that high.

 

175

00:20:47.270 --> 00:20:57.364

Matthew Rappaport: And I think on this one you have to be really aggressive. This one here's here's the way I. I use this one because the Irs is not amused with this, and they're

 

176

00:20:57.970 --> 00:21:02.709

Matthew Rappaport: They're going in. And they are really, really badly enforcing against this.

 

177

00:21:02.910 --> 00:21:06.810

Matthew Rappaport: If you have an aggressive client who's at the absolute last resort

 

178

00:21:07.060 --> 00:21:28.200

Matthew Rappaport: of Hey, what do we do? You can consider this. But, man, do you need an aggressive client for it, because between Marissa Levine, the overall enforcement attitude it is a jungle out there on intergenerational family split dollar. And it's it's it's a tough environment. So I would say, proceed with great great caution around this one.

 

179

00:21:28.260 --> 00:21:29.930

Matthew Rappaport: Pbli.

 

180

00:21:30.380 --> 00:21:31.790

Matthew Rappaport: Senator Wyden.

 

181

00:21:32.132 --> 00:21:58.750

Matthew Rappaport: famously. This is all over the tax press. Senator Wyden released a report on this. Pvi. What is this in a nutshell? Pvi is basically, could you take variable life insurance and then designate an investment manager to whom you are not related, and and that investment manager can't be supported to you. But if you designate an an independent investment manager and have that person place the money in the separate account of the variable life insurance policy.

 

182

00:21:59.510 --> 00:22:00.410

Matthew Rappaport: What

 

183

00:22:00.610 --> 00:22:09.579

Matthew Rappaport: would be the benefits? Somebody ask some devious mind. Ask if you could take the the variable life insurance money, and you could place it anywhere you want

 

184

00:22:09.720 --> 00:22:13.780

Matthew Rappaport: rather than just a menu that's put forth by an insurance company

 

185

00:22:14.240 --> 00:22:23.470

Matthew Rappaport: like New York life, or Northwestern, or something. You will get a variable life insurance policy from from a a retail company like that, they'll tell you. Well, this is the menu of stuff that you can invest in.

 

186

00:22:23.510 --> 00:22:26.319

Matthew Rappaport: Somebody turned around and said, Well, what if you could invest it in anything?

 

187

00:22:26.620 --> 00:22:28.300

Matthew Rappaport: And in a nutshell.

 

188

00:22:28.780 --> 00:22:39.900

Matthew Rappaport: You know. Ppli takes advantage of the idea that under Section 72, the cash value, and you know any return you get on the cash value. The insurance is generally not taxed as long as you structure the policy the right way.

 

189

00:22:41.100 --> 00:22:46.200

Matthew Rappaport: Senator Wyden did an investigation, and in my estimation, Senator Wyden's.

 

190

00:22:46.350 --> 00:22:52.799

Matthew Rappaport: which which was in February, by the way, that he came out with the report. He gave subpoenas last year, and then they and then everybody complied.

 

191

00:22:52.930 --> 00:23:00.859

Matthew Rappaport: and he came out with the report. The problem is that Senator Wyden subpoenaed like only the largest providers which would make it doing the most conservative things. With this.

 

192

00:23:01.190 --> 00:23:13.700

Matthew Rappaport: I I've seen some really crazy stuff get done with Pvi, and in my estimation Senator Wyden's report doesn't really scratch the surface of what is going on in this arena. I like Pvi for certain people.

 

193

00:23:14.150 --> 00:23:16.650

Matthew Rappaport: I like them for people in the financial industry

 

194

00:23:16.900 --> 00:23:23.340

Matthew Rappaport: where they are risk friendly, and they typically invest in their friends funds, and

 

195

00:23:23.350 --> 00:23:30.100

Matthew Rappaport: you know their friends already have vehicles that can accept life insurance money. You have to set up a special vehicle in order for

 

196

00:23:30.170 --> 00:23:34.100

Matthew Rappaport: variable life insurance money to actually go into

 

197

00:23:34.599 --> 00:24:01.440

Matthew Rappaport: private equity or a hedge fund. But a lot of those private equity and hedge funds have smartened up, and they've set up those mirror vehicles. And they allow people to invest through these types of policies. The advantage of this is that any investment that's done through a life insurance company. You know, there's no current taxation on any investment returns or growth in the investor value. And then, by the time that one dies, you know. Section 101 says that as long as you haven't had a transfer for value during life.

 

198

00:24:01.660 --> 00:24:05.760

Matthew Rappaport: the proceeds are paid out to the beneficiary without taxes.

 

199

00:24:06.201 --> 00:24:16.798

Matthew Rappaport: This is good for aggressive clients. It's gotta be used the right way. And there are things that people are doing in order to get more exotic assets into the cash value

 

200

00:24:17.240 --> 00:24:23.954

Matthew Rappaport: portion of the life insurance policy that are like really high flying, that I'm not sure I I agree, or actually kosher.

 

201

00:24:24.350 --> 00:24:43.180

Matthew Rappaport: So the vanilla providers, the larger providers, I think they're doing stuff that is pretty good and ways and means. By the way, when I was visiting with me ways and means yesterday. There is no proposal to act on Senator Wyden's report, so, even though Senator Wyden is angry and he's brought it to the public, for this doesn't seem to be changing

 

202

00:24:44.002 --> 00:24:46.617

Matthew Rappaport: captives especially micro captives.

 

203

00:24:48.210 --> 00:24:52.950

Matthew Rappaport: the I mean, these are out there. But man micro captives they hate them.

 

204

00:24:53.330 --> 00:24:59.249

Matthew Rappaport: Regular captive insurance is really good. Captain insurance under section 8, 31 B. It says you can get like a 2 plus 1 million dollar

 

205

00:24:59.668 --> 00:25:16.952

Matthew Rappaport: maximum deduction for premiums that you pay to an insurance company you set up for your own business, you know. They say they call it captive, because at the end of the day it's a it's now a related company cluster. I have an operating business. This works really great, for like waste management, private medical practices, construction,

 

206

00:25:17.370 --> 00:25:24.760

Matthew Rappaport: manufacturing a distribution, food and beverage. This works great because their insurance con their insurance costs are off the wall, and if you use captives, right?

 

207

00:25:24.960 --> 00:25:40.800

Matthew Rappaport: You can get a tax benefit while also getting a financial benefit while also getting an insurance benefit. It's very powerful. The problem is, it has to be designed responsibly. If it's designed as a microcaptive, the Irs hates it, and Congress hates it, and they're just gonna hit you over the head with a sledgehammer.

 

208

00:25:40.860 --> 00:25:43.659

Matthew Rappaport: But if you lead with the insurance need.

 

209

00:25:43.690 --> 00:25:45.060

Matthew Rappaport: this is really awesome.

 

210

00:25:46.090 --> 00:25:47.439

Matthew Rappaport: I mean, it just is

 

211

00:25:47.946 --> 00:26:02.329

Matthew Rappaport: and you just have to make sure you're setting it up with a responsible provider. But yeah, I I still like captives in the right situation. But, man, these micro captives are super toxic, and that that gets a red light for me. Shark fin clouds. I like shark fin clouds. They've become more popular recently.

 

212

00:26:04.160 --> 00:26:06.144

Matthew Rappaport: you know, this is

 

213

00:26:06.720 --> 00:26:16.449

Matthew Rappaport: strategy whereby if somebody has a major income tax event, you set up a shark fin cloud, and what you're doing is you are pushing the

 

214

00:26:16.690 --> 00:26:20.999

Matthew Rappaport: you know, money you would otherwise pay in income taxes toward premium

 

215

00:26:21.250 --> 00:26:26.219

Matthew Rappaport: that can pay into a life insurance policy that's going to benefit your

 

216

00:26:26.560 --> 00:26:27.740

Matthew Rappaport: heirs

 

217

00:26:28.300 --> 00:26:32.219

Matthew Rappaport: where you have income, tax, estate, tax and gift tax, and mathematically

 

218

00:26:32.370 --> 00:26:39.270

Matthew Rappaport: this thing set up so that the only way it can fail is that a very highly rated insurance company doesn't pay the death benefit. Otherwise

 

219

00:26:40.420 --> 00:26:43.550

Matthew Rappaport: you get about, I would say in the aggregate.

 

220

00:26:43.670 --> 00:26:46.630

Matthew Rappaport: maybe half the money in this vehicle. On average.

 

221

00:26:46.640 --> 00:26:53.619

Matthew Rappaport: you know, it's gonna depend on a number of factors, the age and health of the of the insured, the irs, tables, and how you punch the

 

222

00:26:54.080 --> 00:27:03.359

Matthew Rappaport: numbers is the Irs tables to design this thing. But you know, look, it's a regular clat, except it follows some literal language in a 2,007 revenue procedure.

 

223

00:27:03.700 --> 00:27:10.390

Matthew Rappaport: and it generates a charitable income tax deduction that's usable for up to 30 of Agi for the year you implement it.

 

224

00:27:10.470 --> 00:27:15.209

Matthew Rappaport: You set this thing up as a grant to trust you, get a nice income tax deduction. You get a nice benefit for your heirs

 

225

00:27:15.280 --> 00:27:16.380

Matthew Rappaport: just works.

 

226

00:27:16.560 --> 00:27:19.789

Matthew Rappaport: I like it. I am, you know, if you want to talk on

 

227

00:27:20.640 --> 00:27:40.110

Matthew Rappaport: circular to 30 levels of confidence on this, I'm gonna should level of confidence on these things. I like them in the right situation. I think they work, you know, for a lot of clients. They want the benefit to go in their pocket, and then they don't want it to go to their errors. But for clients who are out of exemption, or just really care about estate planning and have a big income tax event, these things work really? Well. So I like them.

 

228

00:27:40.420 --> 00:27:49.386

Matthew Rappaport: These crat transactions. This is like, I've never seen these. I've seen crut transactions that are really bad. I've seen CRT transactions where where

 

229

00:27:50.180 --> 00:27:51.150

Matthew Rappaport: the

 

230

00:27:51.700 --> 00:27:54.750

Matthew Rappaport: taxpayer will give up the charitable deduction

 

231

00:27:54.880 --> 00:28:11.159

Matthew Rappaport: so as not to have the self Dealing rules apply, and then go ahead and and put a bunch of assets into the CRT and then start, you know. Put an Llc. Underneath the CRT. That's on 99% by the CRT. One by the tax payer. Then they borrow

 

232

00:28:11.190 --> 00:28:37.064

Matthew Rappaport: stuff out of the Llc. That's abusive. I I don't think they're referring to that based on what these regulations say, but these. I've never heard of these. I don't know anybody who's heard of these. I've seen things in the tax press where people are like. I don't even know where these things are are going on. But the Irs was so angry about them they started passing regulations, which was like crazy, and and they don't. I don't know. I if anybody's seen this, I would love to get an email from you. But I've never seen the crats out there that they're talking about in these regulations.

 

233

00:28:37.340 --> 00:28:49.400

Matthew Rappaport: this is part of a category here of like, oh, if syndicated conservation needs really bad, what can I do to start generating income tax deductions on a leverage basis. Exploratory oil and gas.

 

234

00:28:49.590 --> 00:28:50.980

Matthew Rappaport: You can do it.

 

235

00:28:51.200 --> 00:29:09.209

Matthew Rappaport: It's a really risky financial investment. These things tend to go bust. But you can leverage these things and you can get into them. And then solar. The problem with solar is, it's very tough to get around the pass of activity rules, oil and gas. You can get around the pass of activity and at risk rules, because there's special rules for oil and gas. Not so much for solar.

 

236

00:29:09.300 --> 00:29:15.559

Matthew Rappaport: In addition, I've got somebody doing a car wash fund with a lot of accelerated depreciation. If you're interested in that, I can put you in touch. And like.

 

237

00:29:15.780 --> 00:29:25.720

Matthew Rappaport: you know, again, you gotta get around a passive activity rules. You gotta get around a couple of other sort of things. But you know, people have come up with really clever designs for this, and I'm also aware of an equipment leasing

 

238

00:29:25.770 --> 00:29:31.940

Matthew Rappaport: deal that's pretty nifty. So there's a cluster of like 4 of these that'll get you some decent deductions.

 

239

00:29:32.418 --> 00:29:51.390

Matthew Rappaport: Promoters of a lot of stuff now, have have really high powered lawyers because of how much money they're making. So notice, 2,007 dash, 83. Abusive welfare, benefit plans. Man construction was an abusive welfare benefit plan. And then, they wanted to headed to the collateral attack on the listed transaction regulations.

 

240

00:29:51.570 --> 00:29:53.480

Matthew Rappaport: and they want.

 

241

00:29:53.830 --> 00:30:21.634

Matthew Rappaport: So now, all of a sudden, right? I went back to the abusive crat thing. They came out with regulations. That's what they have to do now, instead of the the listing notices because of this man construction case, which is crazy, right? So what do they do in in Regs? They they did a Reg against the Me. Intermediary installment sales. If you'd like my Bloomberg article on this that I wrote in 2,016, you can send me an email, and I'll send you a Pdf. These are so bad their promoters coming in and saying, Oh, do you have a large sale event?

 

242

00:30:22.340 --> 00:30:42.460

Matthew Rappaport: Then what we can do is we can step in with our company. We can step in the middle of the buyer and the seller you, the seller, will sell the asset to us. It could be business, it could be real estate, it could be artwork. Sell it to us. We'll give you back an installment note. You pay taxes and installments. We'll turn right around and we'll sell that asset at the same cost

 

243

00:30:42.620 --> 00:30:44.949

Matthew Rappaport: to the ultimate buyer.

 

244

00:30:45.460 --> 00:31:01.160

Matthew Rappaport: and the service is not amuse with these. The promoters are all getting audited, and all their client lists are getting turned over to the Irs, and these are so bad it's a red light on these. I hate these so anyway. I hope this was helpful. It's always tough to

 

245

00:31:01.440 --> 00:31:13.670

Matthew Rappaport: squeeze these things into a half an hour. I'm turning this back over to Yoni, who I will thank for having me as always. And you know, you want any more information. Here's my email, just I'm I'm bad with the phone. Just try not to call me

 

246

00:31:14.004 --> 00:31:22.789

Matthew Rappaport: but other than that. You know you send me an email. I'm happy to send you more information on this stuff and strategize with you and your clients if they want to start getting fancy

 

247

00:31:23.220 --> 00:31:24.690

Matthew Rappaport: all right, you only take it away.

 

248

00:31:24.690 --> 00:31:49.690

Jonathan Shenkman, ParkBridge Wealth Management: Right? Thanks so much, Matt. If anyone has any specific questions, new business opportunities there, any other issues I'd like to discuss. Please feel free to reach out directly to Matt or myself, where appropriate. Now be sure to include his contact information again in the follow up email of this program. As I mentioned at the onset, the goal. These programs stay up to date on timely wealth management related topics and to collaborate where appropriate. I think we can all agree that the clients were best prepared are the ones that are served by team of knowledgeable advisors.

 

249

00:31:49.690 --> 00:32:14.669

Jonathan Shenkman, ParkBridge Wealth Management: 3 more quick items before I let you go first. My wint, my my Spring Webinar Series continues on May second, on the topic of hot topics in New York State, New York City, Residency and Personal income tax featuring Timothy Noonan partner and tax Residency practice leader at Hodgson Rus. With offices in Manhattan Buffalo. I'll send that invitation to this program in the coming days. In the meantime, if you have a friend, colleague, or client who like to be notified of my upcoming webinar.

 

250

00:32:14.670 --> 00:32:23.420

Jonathan Shenkman, ParkBridge Wealth Management: they can email me with the word webinar and the subject line. I'll add them to my Webinar distribution list. My email is Jonathan at Parkbridge, Wealthcom.

 

251

00:32:23.730 --> 00:32:48.249

Jonathan Shenkman, ParkBridge Wealth Management: Second, you could follow all my work on Twitter and Instagram at Jonathan, on money. You could also listen to my weekly podcast called Jonathan on money, which is available on apple spotify or wherever you get your podcast, and you can watch my new daily financial planning videos by following me on Youtube, at Jonathan, on money as well. And third, please take 30 s to fill out my survey at the end of this program. It helps me improve my webinars and provide timely and interesting content to attendees, and I thank you in advance for that.

 

252

00:32:48.550 --> 00:32:53.020

Jonathan Shenkman, ParkBridge Wealth Management: And with that this concludes today's session, please stay safe and healthy and have a wonderful day. Everybody.