Guest Blogger

Bitcoin! (Now That I Have Your Attention, Let’s Talk Taxes)

Today, Carrie Reese authors our HM&M blog.

I was raised by a Marine and a CPA. To put it lightly, following the rules was a BIG deal growing up. Naturally, when Bitcoin (the first virtual currency) started weaving through the news in 2010, I clutched my pearls while being simultaneously positive that this information would never apply to me. At that time, virtual currency was almost exclusively used in a black market economy, trading for drugs, weapons, and other sorts of nefarious things not suitable to be mentioned in a professional blog. It was the wild, wild west of impropriety. In other words, for me, it was an instant tune-out topic. Or so I thought.

Fast forward a few years. I’ve received my CPA license, and have spent several years in public accounting. I was quite happy following all the rules (see, above). One day I received an email from a client that had unknowingly gotten in over his head with Bitcoin. He was a medical professional who had been looking to invest some of his money, and was not even the slightest bit interested in the black market trade I had heard about so long ago. He had opted to invest in virtual currency using an online exchange.

He had invested in Bitcoin at just the right time. He, like many of you, had done some research, and decided that Bitcoin would be a good investment. And you know what? He was right. Like, in the millions of dollars right. He began trading his Bitcoin for Ethereum, a little bit of Litecoin, and even some Bitcoin Cash (nope, not the same thing).

When he contacted me, he mistakenly assumed that since he had put money into the exchange, but not taken it out, that no taxable event(s) had taken place. It was my unfortunate duty to explain to him that each time he made a trade, he was subject to capital gains (or losses) on that trade. Virtual currencies, while residing in the same exchange, are not ‘all for one, one for all’. These are completely different assets. Not currencies.

For those of you interested in investing in virtual currency, you will want to be very mindful of your activity. You will want to be cognizant of a taxable event occurring when you are trading. A great way to mitigate your risks is to keep accurate records at the onset of your virtual currency endeavor. A great CPA helps, too.

Guidance from the IRS is still murky, and the last time an official notice on virtual currency was released was 2014. But be assured, the IRS reads the news. They know people are making money, and they want their piece of the pie. Regulations are already being put in place to require exchanges to share information on their users with the IRS. I expect we’ll see a lot more to come on this in the next year, but in the meantime, be careful. It’s still a little wild wild west-y out there.

Carrie J. Reese, CPA

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Tax Policy

OK, President Trump. Game On!

I was planning to pen a short note wishing all my clients, friends and readers a happy and prosperous 2018. Plans change.

On Thursday, December 28, President Trump told the New York Times that he knows taxes “better than the greatest CPA.” Them’s fightin’ words, Mr. Trump.

I may or may not be the greatest CPA, but I am a pretty good representative of the profession. I challenge you to a tax law smack-down.

I propose that we let the FBI administer the test and judge the answers, in order to assure a fair contest. I trust the FBI; you should, too.

Let’s each answer the same 20 questions. I’ll let Steve Mnuchin help you with 5 answers.

If I lose, I’ll quit my CPA job. If you lose, you’ll quit your President job.



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Tax Policy

Making Laws and Sausages: Not A Pretty Sight

My Comments on December 4, 2017:

A quote attributed to 19th century German Chancellor Otto von Bismarck crosses my mind frequently of late.  “Laws are like sausages.  You should never watch them being made.”

He is right.  For a time, I lived and worked in the sausage factory on the Potomac.  Law-making wasn’t pretty then. It still isn’t.

As I keyboard (formerly I typed), I await the probable conferencing between the Senate and the House of Representatives to work out the differences between their versions of tax reform.  I am not encouraged about what may result.

The Congressional Republican majorities compare their work nostalgically to the Tax Reform Act of 1986.  The TRA of 1986 was thoughtfully designed in a bipartisan effort with time to hold hearings and to deliberate carefully.  Even in such an environment, Congress designed a plan that unintentionally destroyed much of the real estate business and many (albeit already weak) savings and loan institutions.  Many commentators have concluded that the TRA of 1986 eventually hurt or did not help very much the economy.

This proposed sausage very likely will be toxic, even though its manufacture is, in some cases, well-intentioned.  I predict that the legislation that may result will be one of the oddest and most confusing tax laws ever enacted in the course of human habitation of this orb.  Historically, little good has come to our country when Federal taxes and not Federal expenditures are cut.

So, I’ll keep watching the current events on Capitol Hill, even though they are pretty disgusting.  People pay me good money to be current on the tax law and its evolution.   They have to.  Ugh.


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IRS: The Nice Guys Once Again

About two weeks before the wildfires struck northern California, my wife and I spent a few days in Napa Valley.  We went to a stunning estate to celebrate the perfect nuptial ceremony featuring a beautiful bride.  There aren’t many places more gorgeous than California wine country.  My friends there tell me that still is true, despite the fires.  However, a lot of folks have lost their homes and their jobs.  People are helping.  Also, the IRS is doing its part.

Yesterday, the IRS released Notice 2017-70 that provides guidance on the treatment of leave-based donation programs to aid victims of the California wildfires.

Under a leave-based program, employees elect to forgo vacation, sick or personal leave and the employer makes contributions of such forgone amounts to a charitable organization that, in this case, helps victims of the 2017 California wildfires.  There are some tough questions about taxation of such programs, when one looks at underlying law and authorities.  One could certainly project all kinds of adverse tax results of people trying to do good deeds.

If the IRS were to stick to the letter of the law, a lot of money intended for victims might go into the coffers of the Treasury, instead of to the charities helping the victims.  But, the IRS is turning away from a strict interpretation and, without citing any authority (of which there is probably none), outlines for the employees and employers a best-case scenario.  It is simply the case of the Federal government, through the IRS, doing the right thing; forget about the rules.

This is not the first time that the IRS has performed a kind act.  Over the last several years I have observed a number of these types of pronouncements and actions that aided victims of all sorts by loosening the strictures of tax law.  For example, in the aftermath of the recent hurricanes, the IRS extended many deadlines for filing returns and paying taxes; it set up and manned hotlines to help victims and tax preparers serving those victims.

Most of my dealings with the IRS are ministerial.  However, some of my dealings are respectfully adversarial.  The IRS interprets the law to be sure that my clients pay no less than they should and I am interpreting the law to be sure that my clients pay no more than they should.  Sometimes, the twain do not easily intersect.

Today, though, my hat’s off to the IRS.  Well done, Revenuers.


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As Proud As I Can Be!

I have always been associated with outstanding professional women.

My mother is a CPA.  My wife is an acclaimed family law attorney and former judge.  Our two daughters are accomplished licensed professionals with graduate degrees.

At HM&M, we have a lot of fine professional women.  Want proof?  Check out the “Latest News” page on our website. Last week, Carmel Wood was named as a 2017 top ten Managing Partner Elite by Accounting Today.  Carrie Reese is a 2017 Texas Society of CPAs Rising Star.  Susan Adams was named the 2017 CPA of the Year by the Fort Worth Chapter of the TSCPA.

See for yourself.

These ladies are great representatives of the talented women we have at HM&M.

This phenomenon leads to a theory that I have harbored for a long time.  Once science has found way to produce human offspring without the help of the male gender, only one thing will stand between men and our extinction:  We kill bugs.


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Tax Policy

“Unified Framework for Fixing Our Broken Tax Code” – A Magical Mystery Tour

Last week the Trump administration and Republican Congressional leaders released the aforementioned “Unified Framework.”  After taking a tour through the magical, “giant, beautiful, massive” (according to the Exaggerator-in-Chief) tax-cutting Framework, I find that what is unified is a mystery.  (Sorry, Mr. McCartney and the late Mr. Lennon.)

The Framework outlines, without reference to many numbers and with precious few specifics, over twenty disparate changes in the tax code.  The Framework suggests that the tax-writing committees of Congress will come up with the specifics and some additional ideas.  The Framework does not explain how the Federal government’s bills will be paid with less money coming in; there are only a few significant revenue generators proposed.  There are optimistic general aspirations that corporations will bring operations, money and employees back to the good old U.S.A., answering the siren call of lower tax rates and some vaguely-defined incentives for repatriation of funds.

One of the implied proposals is the elimination of the individual itemized deduction for state and local taxes.  Within moments after the release of the Framework, the Republican Unifiers got pushback from some of the biggest states that happen to have high state income tax rates.  Leading the protests were Republican members of Congress of those states and the precious few Republican government executives of those states.

A lot of oxen are being gored.  Many of those bovines have powerful and plentiful lobbyists in Washington.  There will be battles on many fronts.

So, what kind of tax planning do I think my clients should currently undertake?  Well, that’s not a fair question.  It is bit like asking a sports reporter to turn in his coverage of a football game before the contest even starts.  I may have some opinions, but they don’t mean much in light of the future brawls in the halls of Congress.  When the winners begin to emerge, I’ll start tax planning.


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Tax Court

The Tax Court Likes Hockey

Usually, the income tax deduction for meals and entertainment is equal to half the amounts spent for meals and entertainment.  There are some exceptions, one of which is where the meals are a de minimis fringe benefit.  Tax Court Senior Judge Robert Ruwe decided that the away-game pre-game meals of the NHL’s Boston Bruins were de minimis fringe benefits.

Jeremy Jacobs, the owner of the Bruins, and his uxor petitioned the Tax Court to overturn the IRS’ determination of tax deficiencies for 2009 and 2010 in the amounts $45,205 and $39,823, respectively.  The deficiencies were caused by the IRS disallowing as deductions 50% of the cost of away-game pre-game meals for “traveling hockey employees.”   The attorneys for Mr. Jacobs argued that the de minimis fringe benefit rule under Internal Revenue Code Sections 274(n) and 132(e) allows the taxpayer to deduct 100% of the meals.  In order to claim the 100% deduction under that rule, the meals have to run a gauntlet of six tests.

Judge Ruwe ticked through facts as they applied to each of the six tests and found that the away-game pre-game meals passed all of the tests for 100% deduction.  One test that seemed rather difficult for the Bruins to pass on the road is the requirement that the eating facility where the meals were served had to be owned or leased by the Employer.  The Bruins’ contracts with the hotels were not called leases and did not look like leases that I have signed.  However, they did allow the Bruins to use property.  Thus, they must be leases said Judge Ruwe, who also interpreted several other aspects of the hockey business rather favorably for the Bruins.

As the Court points out in a footnote to its opinion, the IRS did not challenge at-home pre-game meals.  While the opinion does not explain why the IRS viewed home cooking and road meals differently, this observer thinks that it may be that the IRS’ challenge did rely significantly on the absence of “owned or leased” business premises – a fine distinction.

So, good for hockey teams.  This decision also portends well for many kinds of businesses that may provide meals to groups when away from home.  In many instances of which I am aware, businesses simply default to the 50% deduction for meals and entertainment.  Businesses and their tax advisors should look more closely at the deductions. This case may provide authority for deducting 100% of the cost of group meals when traveling, if the facts are similar to those in Jeremy M. Jacobs, et ux., 148 T.C. No. 24 (2017).  I don’t think that the subject employees must be big men missing teeth and hitting each other with sticks.


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