How Tax Works – Episode 16

Title: Questions People Ask Tax Lawyers at Weddings
Host: Matthew Foreman
Date: January 6, 2025

Episode Overview

In this episode, Matthew Foreman, Co-Chair of Falcon Rappaport & Berkman LLP’s Taxation Practice Group, shares entertaining and educational anecdotes about the most common—and sometimes surprising—tax questions he gets asked at weddings and social events. He uses these examples to clarify fundamental tax principles, highlight pitfalls, and offer pragmatic advice, all with humor and a touch of realism about the nuances of U.S. tax law.

Key Discussion Points & Insights

1. Why Tax Lawyers Get "Wedding Questions" (02:50)

• Storytelling: Matt recalls how, like any professional, he often gets bombarded with requests for quick advice at family gatherings and social events—paralleling his father’s experience as a dentist.
• Humor:
  “I used to tell people I was a nuclear physicist... No one really has questions for nuclear physicists, other than like, is the Iron Man suit possible?” (03:23)

2. Is Adverse Possession Taxable? (04:35 – 13:50)

• Background: A non-tax-attorney once asked Matt if adverse possession is a taxable event.
• Explainer:
  • Defines adverse possession using New York law.
  • Emphasizes requirements: “open and notorious” use, passage of time (10 years in NY), potentially getting a court order to obtain title.
  • Offers vivid examples: suburban property lines, fences, rural squatter situations.
• Tax Implications:
  • Any gain via adverse possession is generally taxable under Section 61 (income from whatever source derived), per the Glenshaw Glass standard.
  • Key Moment:
    “It’s income when the taxpayer has complete dominion and control. That’s Glenshaw Glass.” (11:48)
  • Taxable moment: when a court order confers ownership.
  • How to value? “Go to someone who does valuations. What was my real property worth before? $100. What is it worth now? $102. That $2: taxable income—probably ordinary.” (12:48)
• Memorable Quote:
  “Yes, it is taxable, and the answer is: when you get the court order.” (13:36)

3. Common Personal Tax Planning Questions (15:00 – 26:30)

• Top Questions at Social Events:

  • “What can I do to lower my taxes?”
    • Matt’s tongue-in-cheek advice:
      “Earn less money. Generally speaking, you’ll pay—you will pay less in taxes.” (16:58)
  • Practical tax saving tips:
    • Salary deferral and employer retirement plans (IRAs, 401(k)s, SEP IRAs).
    • Section 121 for principal residence exclusion.
    • Section 1031 exchanges for real estate.
    • Rollover strategies to avoid RMDs by working part-time (“go be a greeter at Walmart / put IRA in the most boring bond fund…” (20:20)).
    • Investing in tax-advantaged instruments like municipal bonds.
    • Choosing the right business entity and leveraging pass-through structures.

• ROI Over Tax Chasing:

  • Matt emphasizes not letting the “tax tail wag the dog”—focus on net return.
    “Taxes are an expense. You should maximize your net ROI. They’re no more than rent, just the amount you have to pay.” (24:02)

4. The “Change Residency” Fantasy (26:30 – 29:45)

• Popular Question: “How do I move to Florida or Puerto Rico…without really moving?”
• Matt’s blunt response:
  “You can’t. You have to actually move.” (27:15)
• Common misunderstandings:
  • Keeping a NY home, family, or business ties negates any claim of domicile change.
  • “If you own a business that only operates here and you’re not here, it’s New York source income anyway...so you’re going to pay New York State taxes.” (29:05)
• Audit risk: “If he gets audited, he’s going to lose and he’s going to pay interest and penalties.” (28:50)

5. The Business Vehicle Deduction Myth (29:50 – 34:10)

• Frequent Query: “My friend deducts his SUV—why can’t I?”
• Matt’s take:
  “This isn’t really creativity. This is just a willingness to let people do the incorrect thing. That’s not supported by the law.” (30:56)
• IRS Compliance Suggestions (31:55):
  • Proposes matching NAICS codes with vehicle deductions and proactively questioning questionable claims.
  • Envisions that many business owners “don’t really need to have a car.”
• Real-world consequences:
  • Example of a professional who “deducted everything,” got audited, and owed six figures:
    “How do you pay that off? Five years...you’re cutting a quarter of their gross income out. That’s pre-tax. That’s not great.” (33:52)

6. Final Principles: Sensible Tax Advice (34:15 – End)

• Best tax advisors sometimes say "No"—“making sure if there is an audit, you’re going to be successful.”
• Summary advice: “Take defensible positions and don’t deal with interest, penalties…interest, not that high—maybe 7.5%, 8%.” (35:28)
• Tease for Next Episode:
  • Deep dive on Qualified Small Business Stock (Section 1202 IRC) coming up—“get out your popcorn…definitely take notes.” (37:10)

Notable Quotes & Moments

| Timestamp | Speaker | Quote | |-----------|---------|-------| | 03:23 | Matt | “I used to tell people I was a nuclear physicist... No one really has questions for nuclear physicists, other than like, is the Iron Man suit possible?” | | 11:48 | Matt | “It’s income when the taxpayer has complete dominion and control. That’s Glenshaw Glass.” | | 12:48 | Matt | “What was my real property worth before? $100. What is it worth now? $102. That $2: taxable income—probably ordinary.” | | 13:36 | Matt | “Yes, it is taxable, and the answer is: when you get the court order.” | | 16:58 | Matt | “Earn less money. Generally speaking, you’ll pay—you will pay less in taxes.” | | 24:02 | Matt | “Taxes are an expense. You should maximize your net ROI. They’re no more than rent, just the amount you have to pay.” | | 27:15 | Matt | “You can’t. You have to actually move.” [& change residency] | | 30:56 | Matt | “This isn’t really creativity. This is just a willingness to let people do the incorrect thing. That’s not supported by the law.” | | 33:52 | Matt | [On bad tax advice/audit] “How do you pay that off? Five years...you’re cutting a quarter of their gross income out. That’s pre-tax. That’s not great.” | | 37:10 | Matt | “Get out your popcorn…definitely take notes.”* [re: upcoming Section 1202 deep dive] |

Summary Table of Important Segments

| Time (MM:SS) | Topic | |--------------|-------| | 02:50 | Why tax lawyers get awkward wedding questions | | 04:35–13:50 | Is adverse possession taxable? Deep dive | | 15:00–26:30 | Go-to questions on lowering taxes; practical tax planning | | 26:30–29:45 | “Can I move my residency?” myth | | 29:50–34:10 | Vehicles, business expenses, and audit nightmares | | 34:15–End | Sensible principles and preparing for complex topics ahead |

Tone

Matt Foreman keeps the episode light, humorous, and personable, combining accessible explanations with lawyerly realism. He gently pokes fun at persistent myths and the sometimes wishful thinking of well-intentioned askers while championing practical, defensible tax behavior.

Takeaways

• Many “common sense” tax strategies aren’t legitimate—proper planning is nuanced.
• Taxes should be seen as an expense—not something to upend your life for or chase unethically.
• Sometimes the best tax advisor is the one who says “no” and keeps you out of trouble.
• Big, technical tax topics (like qualified small business stock) need dedicated, focused attention—so tune in next episode for a deeper dive.