The Accounting Podcast

Blake and David break down the IRS's $99 million paper-check limit, how states use tax credits to attract movie productions (sometimes unsuccessfully) and give their take on actor Kenan Thompson losing $1.5 million to fraud as a child. They also cover couples arguing over finances, AI answering tax questions in California, accounting rules hiding commercial real estate loan losses on bank balance sheets, and the lack of action from accounting standards boards to change these rules.


Chapters
  • (00:40) - What's the largest check you can write to the IRS?
  • (05:38) - Jeff Bezos could be saving $600 million from moving to Florida
  • (14:44) - Why movie studios are throwing out projects for tax breaks
  • (21:03) - Keenan Thompson's accountant stole $1.5 million from him
  • (26:27) - How much of relationship problems are finance-related?
  • (31:38) - California plans to use AI to help answer people's tax questions
  • (35:51) - PwC UK boss says AI is why workers should be in the office
  • (40:45) - Silicon Valley Bank collapse follow-up and why it could happen again
  • (51:09) - Thanks for listening and check out the Unofficial Quickbooks Accountants Podcast
 

Show Notes
Warner Bros.' Disgusting Accounting Trick May Find an Opponent in the U.S. Government

IRS Seeks More Than $1 Billion From SVB for Taxes

IRS sues FDIC to get $1.45B in SVB back taxes       

Mayweather’s $18 Million Check To The IRS Packs A Punch, But Is Under The $100 Million Weight Limit

California plans to use AI to answer your tax questions

Jeff Bezos will save over $600 million in taxes by moving to Miami

The Indicator from Planet Money : NPR  

Mayweather’s $18 Million Check To The IRS Packs A Punch,
But Is Under The $100 Million Weight Limit
 
Jeff Bezos reaps Florida tax benefit with $4B Amazon
share sale
 
Young staff need to be in the office because of AI, says
PwC's UK boss | Accounting Today
 
Money is the Biggest Relationship Hurdle for 1 in 4
Couples, Survey Reveals - CPA Practice Advisor
 
Kenan Thompson Reveals a Crooked Accountant Stole $1.5
Million From Him During His Nickelodeon Days | Video
 
When accountants attack: why Netflix is cancelling Halle
Berry’s new sci-fi movie
 
Ben Affleck Reportedly Filming The Accountant 2 This Year
 
FASB Won’t Consider Changes in Securities Accounting
After Bank Failures - WSJ

New York Community Bank’s Commercial Real Estate Loan
Problem May Be Isolated, Experts Say
 
Banking Crisis Plays Out at America’s Smallest Lenders

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Transcripts
The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

Creators & Guests

Host
Blake Oliver
Founder and CEO of Earmark CPE
Host
David Leary
President and Founder, Sombrero Apps Company

What is The Accounting Podcast?

The Accounting Podcast (formerly the Cloud Accounting Podcast) is the world's #1 accounting, bookkeeping, and tax podcast! Join us weekly for a roundup of accounting news, analysis, and interviews. Plus, earn free NASBA-approved CPE credits for listening with the Earmark app. Learn more at https://earmarkcpe.com.

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake Oliver: [00:00:05] According to cred IQ, a real estate data provider, only 26% of the $35.8 billion of office CMBS loans that matured in 2023 was actually paid off in full, so only 26% of $35.8 billion of office CMBS loans that matured in 2023 were actually paid off in full.

David Leary: [00:00:28] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:34] Hello and welcome back to the show. I'm Blake Oliver.

David Leary: [00:00:37] And I'm David Leary. Blake, I learned something this week, and I'm wondering if you know the answer to this question. So I learned this from Kelly Phillips Erb, friend of the show, her column in Forbes magazine. Do you know the largest check you are allowed to write to the IRS to pay your taxes?

Blake Oliver: [00:00:55] The largest check you are allowed to write to the IRS.

David Leary: [00:00:58] Like paper check to pay your tax liability.

Blake Oliver: [00:01:01] I never really thought about it. I figured they'd just be happy to take my money.

David Leary: [00:01:06] Is this a problem you have not encountered yet? You've not exceeded this.

Blake Oliver: [00:01:09] No, no, I well, I don't write paper checks very frequently. I think I'm still working on the same checkbook. Since when I, you know, opened up my bank account, you know, 20 years ago.

David Leary: [00:01:24] So the the limit on a paper check is $999 million in 99, $1 under 100 million. So $99,999,999. So $1 under $100 million. So you can write a paper check. And the reason this surfaced up is are you familiar with the retired boxer Floyd Mayweather Jr.

Blake Oliver: [00:01:48] Uh, yeah. I mean, everybody has heard of Mayweather, right?

David Leary: [00:01:51] And he publicly has been tweeting and putting photos and Instagrams about his personal finances for a long time when he makes a $60 million bet on a, on his own boxing match or bets in the Super Bowl or gamble. He's always has it out there. Well, he posted a photo and I'm add it to this stage here so people can see this to the feed. It's a picture of a paper check he wrote to the IRS. Try to zoom in on this a little bit.

Blake Oliver: [00:02:16] So it's a Wells Fargo.

David Leary: [00:02:18] It's a Wells Fargo check.

Blake Oliver: [00:02:20] For it looks like $18,074,181.00.

David Leary: [00:02:29] Yep. And obviously the checklist is doctored up because they had to cover the micro line and they changed the check number to 1000. And I don't know how. It also kind of looks like a fake check at the same time. So maybe rich people get different kind of checks than the rest of us. Um, but yeah, it's so learn that. And then for e-payments.

Blake Oliver: [00:02:48] Wait wait wait. So I just, I just want to stop here. So you're saying that the IRS will not accept a check that is a $100 million or more. It has to be less than that amount. Correct. Why is this.

David Leary: [00:03:00] So? They implemented I don't know the why, but they implemented it. Um, and went active January 1st, 2016 and was from IRS bulletin dated September 7th, 2015. Mm.

Blake Oliver: [00:03:13] Uh, I do see here in the article that check processing equipment at the Treasury cannot handle checks over $1 million, and that they must be processed manually, and the manual processing can lead to lost, stolen or mis shipped checks and increases the risk of fraud and processing errors. So even though the limit is stated as 100 million or the high limit, you may want to stick to under $1 million if you want your check processed on their equipment.

David Leary: [00:03:42] Correct. And then when it comes to using direct pay. So if you go to the website to make deposits that is capped at one penny under $10 million. Mm. There's too many nines. 10 million.

Blake Oliver: [00:03:54] Okay.

David Leary: [00:03:55] They should communicate it like one penny under 10 million or something. Because it's just there's too many nines in these these numbers.

Blake Oliver: [00:04:02] Oh, so basically, he couldn't have written. He couldn't have made this as an electronic payment because he's limited to 10 million and he had an $18 million tax liability. Well, they tell you.

David Leary: [00:04:12] To break it up into smaller payments when you pay it. Wow. You pay that over.

Blake Oliver: [00:04:16] Well, that is fascinating, David. I learned something today. I don't know if that'll ever come in handy. For me personally as a podcast host. It is a very lucrative profession, but I don't expect to have a tax liability in any given year of over $10 million. So, well, you know who else has a massive tax liability? Normally it's Jeff Bezos, founder of Amazon, savior of anyone who doesn't like to leave the house like me, who I think last year I had over 200 Amazon orders, which means more often than not, I'm getting an Amazon delivery to my door right more than every other day. Yeah, more than every other day. Um, well, Jeff Bezos recently relocated from Seattle to Miami, and that alone may have saved him approximately $288 million in taxes. He sold $4 billion worth of Amazon.com Inc. stock. And because Florida does not tax capital gains, unlike Washington state, um, it's tax free. No capital gains at the state level on that sale. Yeah, we.

David Leary: [00:05:32] Talked about this in the, um, December we said when he said he's moving to be closer to his parents, we're like, maybe there's some tax things. And so in 2022, because Washington state didn't have any income tax. So in 2020 they still.

Blake Oliver: [00:05:44] Don't have an income tax, right. They do not.

David Leary: [00:05:46] Have an income tax. But in 2022, they imposed 7% capital gains tax tax on sales of stocks or bonds, more than $250,000. That's a lot. Up to that point, Bezos was selling $2 billion a year of stock for years, and then 2022 came and you just stopped. Then he moved to Florida, and last week he sold 2 billion. And he has plans to move possibly 50 million shares before the end of January 31st, 2025, which I think could total more than 8.7 billion. And he might be saving as much as $600 million in taxes by not being in Washington.

Blake Oliver: [00:06:21] Wow. So this is an example of a state tax policy that has. Almost certainly pushed out their wealthiest resident or one of them, and made him move to Florida. So this sort of thing can backfire. States put in place these, you know, onerous tax rates on, say, capital gains or whatever it is to target wealthy individuals. And guess what? They can just pick up and leave. Bezos can just go live on his yacht in Miami. Right. He doesn't have to live in Washington.

David Leary: [00:06:55] His $600 million yacht that he now can afford. Yeah. To move. So because there's always this talk of chasing, you know, these billionaires, you know, for the from a federal tax perspective, is that like the next step of this like our biggest potential, uh, tax payers in the country just leave the country entirely if we do this at a federal level.

Blake Oliver: [00:07:17] Yeah. Well, that's the risk, right? Is and you see this happen in Europe, right? Different countries in Europe will raise taxes significantly. And you do it too aggressively, too quickly. And billionaires and millionaires have the resources to simply relocate. And they can change their tax home. So it's kind of a losing battle. Right. Or it's a game of whack a mole. And really, if you want to raise revenue, the best way to do it is to tax the people who aren't going to leave or don't put in place a 7% capital gains tax and do it in a single year. That's just going to piss people off, you know, raise the temperature slowly. Or maybe if they'd done like a 1% tax or something, maybe Bezos would have said, ah, fine, no big deal. Right. So taxes that are too high, uh, often reduce the tax base and have a negative consequence. It does not achieve the goals.

David Leary: [00:08:11] And I think, um, Elon Musk, right, because he really relocated to Texas from California.

Blake Oliver: [00:08:16] And then he relocated a lot of the production of Tesla.

David Leary: [00:08:22] Oh, yeah. Not just his own personal finances. You're right. The whole company. Yeah.

Blake Oliver: [00:08:25] Because of the company headquarters. Right? Yeah. Uh, so yeah, it happens with corporations too, right? They follow the tax breaks and often it doesn't end up working out that great for the. That's that's kind of the opposite, where it doesn't end up working out that great for the states or the cities that give them big discounts to attract them. Because then as soon as those tax breaks go away in, say, ten years, the company simply relocates again. This happens with movie tax credits, too. Um, and actually, I have a story about that. Oh, by the way, did you know the accountant to. Ben Affleck is filming The Accountant two this year.

David Leary: [00:09:04] It's finally in production. It's really happening.

Blake Oliver: [00:09:07] It's entering pre-production with shooting planned for 2024, and we talked in a previous episode about how this is going to be more of a buddy movie. It'll be a dual lead focusing on the dynamic between the two brothers. Uh, Ben Affleck's character has a brother, Brax, played by Jon Bernthal, and so there's going to be more screen time for Jon Bernthal in the.

David Leary: [00:09:29] Don't you have connections to the movie industry? Is there any way possibly like, maybe when he's driving his truck down the road, he could have the accounting podcast playing for a split second?

Blake Oliver: [00:09:37] Uh, no, I well, I think the best I could do is maybe get us into a prescreening courtesy of my relatives who are in the academy. That's all I could possibly do. Yeah, maybe a meet and greet. We could. We could try to get a meet and greet with Ben Affleck. That would be amazing, right? We could wear our podcast t shirts. Yes. I had a story here about movie tax credits and how they don't always work out. Yeah. So this is in Georgia. So Georgia has a big movie scene in Atlanta and just the state in general. They've been successfully attracting productions. Come to Georgia. Film in Georgia. Get tax breaks. Uh, Vancouver does this very successfully as well.

David Leary: [00:10:22] So at one time, Tucson did as well. And now there's no movie production in Tucson anymore.

Blake Oliver: [00:10:26] Because they probably got rid of the tax break.

David Leary: [00:10:28] Right. They I think they did some like that. Yeah.

Blake Oliver: [00:10:30] So this is a story in variety Georgia film credit creates fewer jobs than industry claims per audit. So of course that caught my attention. Uh, an audit of the Georgia Film and TV tax Credit program found that it generates approximately 34,354 jobs annually. That's according to a state audit. This figure is significantly lower than the 59,700 jobs reported by an industry funded study. The state audit revealed that the tax credit, which reached a record 1.3 billion last year, only brings back $0.19 for every dollar spent to the state's treasury, indicating a financial loss for Georgia. So Georgia actually loses money on this tax credit, according to the state audit. And now Georgia lawmakers are currently reviewing tax incentives across all sectors, with a joint committee from the state's House and Senate due to release a report by year end. I suppose that was last year because this article came out in at least I saved it in my notion back at the end of the year. So the film industry in Georgia is preparing to defend the credit. It's the largest in the US. The second largest is New York's recently increased $700 million per year incentive. This is something that's not how does this work?

David Leary: [00:11:50] So I'm gonna already I'm gonna have this great idea of his television show. I'm a producer. I'm ready to start shooting it. I approach Vancouver, I approach Tucson, I approached Georgia, and Georgia says, hey, we'll write you a check for $700 million in tax credits if you come here. Is that kind of this works like like it's bit out.

Blake Oliver: [00:12:08] I just know that there are these tax credits that exist. And so if you go do your production there, you can claim these tax credits. And you don't have to pay tax that you'd normally pay. Okay. But and I assume that if you are producing a film and you've got multiple places where you could be filming this, that meet your needs, you could then decide where to film based on how much tax credit am I going to get out of this? Yep. But again, as with corporate headquarters relocations, it often doesn't end up being a net benefit for the state or the city that gives the tax break. Just how sports stadiums often end up being a financial loss for the cities that build them. It's a ego thing, right? It's not a money making thing. You lose money. But of course, I guess there's there's. You have to balance the benefit of that, right? Do you want Atlanta to be known as a place where movies get made and stars are born? Maybe it's worth it in that case, but definitely from a financial standpoint, if you look at it.

David Leary: [00:13:10] It's not. And it probably creates tourism because and who knows if that how that gets added or subtracted because Walking Dead is filmed there. And I think you if you go to Atlanta, we could go on a Walking Dead tour like it brings in tourists. So I wonder, does that get tied to these studies? You know what I mean? Like there's where does the ripple stop versus direct revenue impact I don't know. Yeah.

Blake Oliver: [00:13:31] I imagine that these audits, these studies are focused just on the actual revenue attributable to the production, right, happening in that state.

David Leary: [00:13:41] I have a movie article. All right.

Blake Oliver: [00:13:44] Let's hear it. If you have anything now.

David Leary: [00:13:45] So, um, you know the Road Runner and Coyote, right? Road runner versus coyote from cartoons.

Blake Oliver: [00:13:51] I moved to Arizona, so I see road runners. Runners actual like the animal, not a cartoon running on the street about every week I see one. They are funny animals. They are like the, you know, like these, these flightless. Do they fly? They don't fly, do they?

David Leary: [00:14:06] They're like little dinosaurs. Yeah. They look like little velociraptor.

Blake Oliver: [00:14:10] Little plump velociraptors. The ones in my neighborhood are really fat. I feel like the coyotes must really feast on those when they catch them if they ever do. But they're fast. They run along the roads. They really do. And they kill.

David Leary: [00:14:22] Rattlesnakes because they're fast. Like, yeah, they're kind of an amazing animal anyways. But you know, the coyote, all his tools to kill the Roadrunner are from Acme.

Blake Oliver: [00:14:29] You're talking about the Looney Tunes Coyote and Road Runner cartoon series? Well, yeah.

David Leary: [00:14:33] So there's been a movie in development called coyote versus Acme, and this is, uh, being produced by Warner Brothers Discovery. And, you know, when movies come out, maybe production didn't go well, maybe the movie didn't test well, maybe it's going to flop. So and in many cases, it's cost more to promote the movie than it does to actually create the movie. An example of this is Barbie. It cost 145 million to make 150 million to market.

Blake Oliver: [00:14:59] Wow. That's a lot of marketing.

David Leary: [00:15:01] So Warner Brothers Discovery decided, you know what? We're pulling the plug on coyote versus Acme as a tax write off. And they're going to claim in the ballpark of $30 million write off. Well, people had an outcry. Cruise fans, Hollywood studios. So now they said they were going to shop it. So now they've tried to shop it out there, um, for $70 million and it still hasn't sold. And people are accusing them of they never really wanted to sell it anyways. They want the tax write off. And this is the third time Warner Brothers discovery has done this since the new CEO took over. They did this with a movie called Batgirl, and they also did it with Scooby Doo, The Haunted High Rise. So I because when I think about this and I'm like, you have to be emotionally detached from the art project because let's be honest, it's an art project, right? And like. This, I feel like, is a good role for accountants and virtual CFOs when they advise clients, right. There's that concept of, you know, sunk cost or in poker, you know, being pot committed. And then people just put more money into the pot just because they've already put so much money in the pot. Like this is a good role, I think, where CFO virtual CFOs could help clients from sinking more money into something, right, and advising them properly.

Blake Oliver: [00:16:11] So maybe this is the right financial decision to make. But it's so sad because so many hundreds or thousands of people's lives went into making these films for so long, and now the studio is never going to release it. They're just going to what are they going to do, put it in a vault? It'll sit there and for years until maybe someday it comes out and it's all because. You can immediately take all the expense on the PNL, and you don't have to capitalize this asset. And that's something I learned from Kendall King, who I interviewed on my earmark podcast yesterday. That episode is not yet out, but if you want to hear it. Subscribe to the earmark podcast. Just search for earmark on your podcast player of choice, and you'll get to hear an interview with Kendall King, who is a Deloitte auditor who was a Deloitte auditor who made the move into entertainment and was working as a consultant in accounting for he worked for Netflix, did work for snap, um, a major, you know, productions. Um, and I learned from him that like, the reason this happens, these films get shelved is because if the studio does not shelve the production, then it becomes an asset on the balance sheet, and it gets amortized over a period of years, and it has to get matched up to the revenue streams from, say, the licensing or the royalties. Netflix doesn't have licensing or royalties because they have their own distribution platform, but they still also amortize. Over a period of years, so they can take all the expense on the PNL in the same year if they shelve the project and decide never to show it. So it's an example of how accounting can influence business decisions in a, I think, a negative way, because like, how could how could like Netflix just shelved a movie with Halle Berry. There's no cost for them to distribute that onto their platform, right? They just have to finish it. There's not much left to do. And yet all the Halle Berry fans will never get to see this cool sci fi movie she was in.

David Leary: [00:18:17] So I know, I don't know if we've ever talked about this show, but there's like those Tic TAC videos, like how rich people you could buy a piece of art, then donate it, and you could claim that the art was worth so much to get bigger, tax free. Like, couldn't they just donate this and still get the same amount? Tax break? Yeah, just donate to the Smithsonian or something. So that way the movie can live I don't know, that's.

Blake Oliver: [00:18:35] A good idea. David. Maybe we should pitch that to Netflix. Or to Halle Berry's agent figure out how to make this movie come to life, or at least get distributed somehow. Well, speaking of celebrities, we're on a bit of an entertainment kick. I have a story about Kenan Thompson. I grew up with Kenan Thompson when he was on Nickelodeon, the sketch comedy series All That, which aired from 1994 to 2005, was how I Got to know Kenan. We're about we're almost the same. Well, he's about five years older than me, so he's 45. So he was, you know, like a child actor when I was watching Nickelodeon as a kid growing up. And he's also, uh, more importantly, in, in more well known for being the longest serving Saturday Night Live cast member he's been on since 2003. So he's a comedy legend at this point and has been working since he was a kid, and he was on a podcast recently, um, where he talked about his relationship with his and his accountant. And I learned that Kenan Thompson was the victim of a huge fraud as a kid. So I want to play the segment from this podcast. Um, it's called Breakfast Club. And, uh, and let's hear from Kenan. You know what happened?

Kenan Thompson Clip: [00:20:01] Yeah. Like I've been blessed to, to continue working. But yeah, I had a bad accountant and it came to the light around 99, like around 2000, which was really bad timing because that's right. When I left my consistent gig, you know what I'm saying? So then I went into being an adult actor for hire, and that is very hit and miss.

Kenan Thompson Clip: [00:20:23] How does the how do you lose $1.5 million? Because I know you said it, but I know people are listening. Like, how does that happen?

Kenan Thompson Clip: [00:20:29] Uh, we gave that dude power of attorney when we shouldn't have. Y'all were kids. Yeah, I was a kid, and my mom was trying to protect me, you know what I mean? And he had helped her out of her, like, tax situations, like her. And my dad's, like, tax situation, so she thought she could trust him, but she could trust him with like, day 30 to 50 grand issues kind of shit. But like when it's like $1 million on the table, you never know what people are going to turn into. And apparently he turned into a demon. And, you know, he I'm sure his karma has come back to him. But if it wasn't for that, I don't know if, you know, my track would be the same because I was ready to settle into Atlanta, you know what I mean? Like, I was ready to just be like, no, I'm good. And like, you know, 3.5 hours to LA. So if they need me, they can call me kind of thing, but I don't think I would have been as hungry or you know, as, you know, dedicated necessarily. Like I was dedicated to Atlanta, like Atlanta was, you know, my everything basically. So I was very comfortable there and very willing to just be like around the corner from my mama and be happy kind of thing.

Kenan Thompson Clip: [00:21:30] You couldn't sue the accountant or nothing that I.

Kenan Thompson Clip: [00:21:32] Did and I won, you know what I mean? But he can't pay you, you know what I'm saying? Like, so it's just paperwork.

Kenan Thompson Clip: [00:21:37] Basically, you want to spend more money to sue them and not get no money back.

Kenan Thompson Clip: [00:21:40] 1,000,000%, you know? And I sued him for years and ended up winning. But I sued him because the IRS came after me, you know what I'm saying? And they were like, you haven't paid your taxes all the time. I'm like, well, that's where he was supposed to be doing. And he went and ran. Don't y'all see? Like, I ain't got the money, like, you know what I'm saying? So.

Kenan Thompson Clip: [00:21:55] But. And Uncle Sam don't care.

Kenan Thompson Clip: [00:21:57] They don't care at all.

Kenan Thompson Clip: [00:21:59] They want their money, you know. So I got my settlement and it's on that person now. But as far as, like me getting that money back and I knew it as soon as it happened, you know what I'm saying? I'm like, I ain't never going to see that money. Yeah, I might as well just get back and start from scratch and just, you know, forget about it. If it comes back, great. But, you know, it has yet to. But I've been blessed in so many other ways. Like I take those life lessons and just learn from them.

Kenan Thompson Clip: [00:22:23] Mhm.

Kenan Thompson Clip: [00:22:23] I feel so sorry for everybody in that situation because they don't teach us financial literacy when in the communities we come from, but then we get people that we think are supposed to have our best interest in that way and they take advantage. It's like, man, how can you ever trust somebody, man, a black man, God damn.

Kenan Thompson Clip: [00:22:39] An elder black man. Damn. Come on, my brother.

Kenan Thompson Clip: [00:22:42] How can you trust somebody ever again?

Kenan Thompson Clip: [00:22:44] Because like, you want to try to keep hope. You know, you want to try to keep hope on humanity. You know what I mean?

Kenan Thompson Clip: [00:22:50] Jesse Jackson just now Keenan, you.

Kenan Thompson Clip: [00:22:52] Try to keep keep hope alive.

Blake Oliver: [00:22:57] I just find that so inspiring that Kenan Thompson. Was he had $1.5 million stolen from him at such a young age, and he managed to turn that into a positive thing. It had it. It forced him to get out of his comfort zone. Atlanta. Where he's from. Yeah. And go to New York, go to LA and really work on his career. And so it it's a terrible thing, but it ended up. Pushing him forward and making a fire.

David Leary: [00:23:29] In the belly to. Yeah to go to go earn more. Um, I think the key there was at the end, the host brought up about financial education. Yeah. At the end of the day, a lot of people just do not get educated about finances or accounting.

Blake Oliver: [00:23:43] And I didn't.

David Leary: [00:23:46] I, I did a talk at, uh, the high school for Career Day about how to be a podcaster or influencer. Right. So I did that, but I Trojan horse it. I opened the talk with no matter what you go into when you go visit things on Career Day, all of you should just go be accountants, because then you can do whatever you want. Even if you want to be a podcaster or influencer, be an accountant first. I kind of had to throw that out there because you're right, people just don't learn financial stuff. Did you, before we started mention you have a story about people's marriages and finances or something? Is that tie this?

Blake Oliver: [00:24:16] I spotted a story in CPA practice advisor money is the biggest relationship hurdle for 1 in 4 couples. Study reveals a significant number of couples, approximately 1 in 4 are identify money as the primary challenge in their relationship, and that's according to a survey by Fidelity Investments. This includes disagreements over daily spending habits, saving for retirement and other financial matters. So I got to stop and ask you, David, are you among the 1 in 4 couples? Are you a member of the 1 in 4 couples that has, uh, money as your number one disagreement?

David Leary: [00:24:55] It's really high up there. It's pretty up there because, you know, quitting jobs started being an entrepreneur. There's the comfort levels of risk. Couples don't all have the same comfort levels of risk, right?

Blake Oliver: [00:25:06] Yeah, apparently many couples, to no surprise, I think to anybody who has ever had a financial disagreement with their significant other, many couples avoid discussing financial issues to prevent arguments. About 45% of the surveyed couples admit to occasionally or frequently arguing about money, and over a third disagree on their next major savings goal. Now, I should also ask you, David. In your relationship. Who takes the lead in financial decisions or do you? Are you equal?

David Leary: [00:25:37] I were equal, but I tend to do like, you know, as soon as the bill comes in, pull out the phone, pay it with the, you know, the the bill pay app on the credit Union River like that. But I think we're okay kind of equal on major decisions. It's 100% equal. Yeah.

Blake Oliver: [00:25:51] So the survey found that one partner tends to take the lead in financial decisions. In most relationships, about 29% of men claim to make daily financial decisions, compared to 21% of women. Additionally, 31% of men lead in investing in retirement planning, as opposed to 16% of women. So it tends to be the the male in the relationship. Um. That's definitely how we do it in my relationship. But also I'm like the accountant. So my wife was like very happy to say, this is your job now here, here's all the bills, here's all the. But for one.

David Leary: [00:26:28] Argue like my wife gets stuff done that I don't like. I'll be like, oh, I'm supposed to put this X amount of money into a CD and never get around to it, and then she'll go do it in two minutes. Boom. It's done. Right. So if I want stuff done with our finances, that's important. I usually have to call on her.

Blake Oliver: [00:26:44] So retirement planning is a contentious issue. While seven out of ten couples share the same vision for retirement, over half disagree on the required funds for retirement. Nearly 50% expect to work part time during retirement, and 20% believe one partner will need to continue working to cover living expenses. I wonder if they disagree on which partner that's going to be. Uh, I'd love to retire, you know, early, but I don't think I could do it if I said, uh, Sam, you have to keep working. I don't think she'd be too happy with that, so I gotta, I gotta we got to figure out how to make enough money so that both Samantha and I can retire David.

David Leary: [00:27:26] To be on the same page.

Blake Oliver: [00:27:27] Yeah. So that is my, uh, Valentine's related story, which is appropriate since we're recording the day after Valentine's. Hey, we haven't talked about AI yet. Do you have any more entertainment or love? No, but I.

David Leary: [00:27:42] Actually have an AI story I was already starting to bring up. But you can go first. Let's talk about it. No, go for it. Go for it. So the headline for this one, this was a it's a blog or website called Calmatters dealing with California issues. Right. But California is now planning the California Department of Tax and Fee Administration to use AI to answer tax questions. So when busy season strikes the state of California for their tax taxes, the call volume quadruples up to 10,000 calls a day, and the average wait times go from 4 minutes to 20 minutes. Huh. Uh, the Department of Tax and Fee Administration in California is about 3600 people, and about 375 are call center agents. So you have, for sake of our discussion, like 400 people taking phone calls, answering your questions as a citizen in California about the taxes. So next tax season, they plan on using generative AI to advise the agents on the answers they should regurgitate out to the people calling in on the phones. It almost reminds me of. I know when we interviewed, uh, Daniel Vidal from Expensify and he was talking about how their support, the reason they're able to scale their support is they kind of have a bot sending the answers up, and then somebody just approves it to go out the door on their chat. Right. It's kind of similar to that. It reminds me of now, in theory, they're going to be able to review the answer before it goes out the door. But and their call for proposals, they're asking that the AI is able to provide the responses to voice calls, live chats and other communications.

David Leary: [00:29:11] So the writing's on the wall. Uh, yes. We're going to have the agents do it, but the writing's clearly on the wall. We really want the AI chatbot thing to do it instead. Um, it's a six month contract if somebody gets it, which by the time this rolls out, how are they going to test it? It feels like a very, very, very short contract in my opinion. And they're judging it. It must demonstrate shorter call times, you know, reduce wait times, abandoned calls. Right. All those types of things. Um, obviously there's also the risk of, you know, they're trying to keep it on, uh, siloed out servers and, uh, public information that's already publicly available and then hallucinations. You know, the typical AI challenge is. But my $0.02, after working in a call center with 400 people, even if it hallucinates sometimes my experience was with 400 people in a call center, 50% half regard to giving out bad answers. So it really like like if anything, it's just going to help the bad people just get a little bit better and everybody's going to win by that because it starts to add up. Because if if you call in and you have a 50% chance of trying somebody that's bad, that's going to be a wrong answer. You're going to have to call back in and get in the queue again. So if you take those 50% bad people and turn it to just 25% bad answers, you're going to reduce a lot of call volume, right?

Blake Oliver: [00:30:29] That's funny. It's proof that I doesn't have to be perfect. It just has to be better than your typical employee. And the typical person in a call center, like you said, is maybe given out wrong information. And it's the same thing with self-driving cars, right? The average driver may not be that great a driver. Especially the average impaired driver and impaired drivers are the ones who cause the most accidents. They cause the vast majority of accidents. So put the impaired drivers into self-driving vehicles and you save tens of thousands of lives every year. Same thing with these call centers. Right answer way more questions. And this is what the IRS should be working on is don't try to staff those call centers that they've got, uh, try to use AI and self-service portals to let taxpayers and their representatives file taxes better, like they're fighting the last battle if they try to use people to solve these problems.

David Leary: [00:31:29] Yeah, I remember the, uh, it was QuickBooks support. I came up through the tech support for QuickBooks, and I remember there would be some people they literally had three answers. And no matter what your call or question was, Blake, you're getting one of those three answers. And the fast, easy one, which is a lot of is because if you ever just go back to the QuickBooks Desktop Days, remember, like you have to verify the data file and rebuild the data file.

Blake Oliver: [00:31:52] Oh God, that's.

David Leary: [00:31:53] The best way to get off a phone call.

Blake Oliver: [00:31:54] Ptsd.

David Leary: [00:31:55] Click file Verify data and then move on. Then you're off the call.

Blake Oliver: [00:32:01] Well, David, here's my story. I got a lot of them, but this one has just been sitting in my queue, and, uh. Kind of irritates me. It ties remote work into AI. Ai is why young staff need to be in the office. That's according to PwC's UK boss. All right, so what does I have to do with getting us back at our desks? So Kevin Ellis, the chair of PwC in the United Kingdom, said during an interview at the World Economic Forum in Davos, Switzerland, that generative AI is removing, quote, tasks that in the past are more junior staff trained and cut their teeth on. Without these tasks, you've somehow got to get people through the career path faster. It's a lot more face to face time being important and a lot more developing. So you have to get people in the office more working together. If you're asking me my opinion on how you succeed in your career, he said, I'd be in the office 4 to 5 days a week. And his comments came as a PwC report came out showing that British companies are adopting AI more rapidly than their international peers.

Blake Oliver: [00:33:10] Apparently, 42% of UK bosses have implemented the technology. That's what they say in the last year, compared with 32% globally. And Ellis, the PwC head in the UK, he said that in the audit sector, AI would likely mean the end of charging clients for work by the hour, outcome based fees and effectively licensing and charging for tech and tech assets will become more important, he said. And I agree with that. I agree that that makes sense. Ai is going to be the end of the billable hour, because it's going to make audit and tax so fast that we will have to charge for our knowledge, and not for the time it takes to fill in forms or to do audit procedures. Um, and I think that's also what's going to hold back AI adoption in a lot of traditional firms is that if you're billing by the hour, it's really hard to implement AI because it cuts your hours by potentially 80% once it's fully in your stack, which is exactly what I discovered when I implemented cloud accounting in my cloud based accounting services business, my bookkeeping practice.

David Leary: [00:34:13] So I agree with that part of his argument or point of view, but I want to make sure I'm summarizing and understanding his first point of view, which is hey junior staff. We used to give you tons of work to do, and because of that, you got good at your job and because of being good at your job, you're able to move up the career ladder. Yeah, well, now that work's going to be taken away from you from AI. So you need to come in the office and just kiss ass to get promoted. Is that what he's saying? Like, like like.

Blake Oliver: [00:34:38] I think that's that's a pretty fair way to put it, actually. Um, I mean, you know. I see, and I don't buy this because I have been in plenty of office environments where staff don't get. They just come in, they sit at their desks and you can see they're not interacting with anybody and then they go home. So like this idea that being in the office magically creates face to face interactions, I believe is a huge fallacy by managers, and that the only way to actually create that is to have. Formalized programs to create the face to face interaction, right? People can ignore each other sitting right next to each other, just as they can ignore each other sitting at home. And if you run a remote practice, one of the best ways to get that face to face, to get that training for your staff, is to have dedicated times when those young people are on zoom calls or on teams calls, with more senior folks shadowing them. And it only takes a few hours a day of that to get the same amount of face time that you would actually get in an office environment. Because we all know that most of the time in the office, you are not having that working time together, so it can all be overcome. So this idea that you have to have an expensive office and force people to come in and lose work life balance to get this benefit is false. You can do it.

David Leary: [00:36:08] This argument should have been this come to the office because we as managers now and partners are using AI to give us elbow room to actually interact with you and coach you and help you develop your career like that. That would actually be the better argument is we're replacing some of our job duties with AI, I think better managers.

Blake Oliver: [00:36:26] You could make the other argument that AI is why young staff don't have to be in the office, because they can learn from AI, and they don't have to go bug their managers to find answers to questions like. Prove me wrong.

David Leary: [00:36:39] Yeah, right. It's only a matter of time. It's only a matter of time till somebody like we only need one person to manage all this. I staff, we don't need multiple managers, right? But if people aren't coming to the office, you don't need all these managers.

Blake Oliver: [00:36:54] I've got some follow up on a story that we covered a while back. The Silicon Valley bank collapse. We actually did a whole special live stream when that happened. It was so cool covering the issue, talking about, uh, we also talked about like the issue that caused it, the accounting treatment of held to maturity bonds on Silicon Valley banks balance sheet was the root cause of the entire bank run. So basically to review Silicon Valley Bank had. What did they have? They had, uh, government bonds on their balance sheet. They had gotten. Billions of dollars in customer deposits from startups during the era of free money, when interest rates were so low that it was very easy to borrow money. All of these venture capitalists borrowed tons of money and gave it out to startups. Startups took those funds and deposited them at Silicon Valley Bank, which was the number one bank for startups in the country, in the world. So now Silicon Valley Bank has billions and billions and billions of dollars of deposits. They don't know what to do with all this money, because they historically were not in the business of loaning out, you know, billions and billions of billions of dollars. Right? So they took it and they just plowed all these billions into federal bonds, Treasury bonds. And then interest rates started going up. Apparently, nobody at Silicon Valley Bank planned for the contingency of what happens if interest rates start going up.

Blake Oliver: [00:38:28] And what happened is that the value of those bonds started to plummet. And the way that banks are allowed to treat bonds on their balance sheet is that if they plan to hold them to maturity, they don't have to report losses, they don't have to mark those bonds to market. Right. And so they can basically hide the losses that are economically happening in the accounting treatment. And so this is a big issue still because there are lots of banks with like commercial real estate portfolios, right. Commercial real estate loans on their books. And all this commercial real estate is now worth way less than it used to be because people are working remotely, but they don't have to mark these to market. They don't have to disclose these losses that are going to happen because as long as they plan to, you know, hold these to maturity or whatever it is, right? All these bonds, loans, etc., then, um, it's just at the original cost. And FASB had the opportunity, the Financial Accounting Standards Board had the opportunity to consider changing the standards after these bank failures. This was reported back in December in the Wall Street Journal, that they decided not to consider any changes to how companies account for held to maturity securities. So. This is the ticking time bomb in the banking sector and potentially in our economy, is that there are trillions of dollars of. Securitized commercial real estate loans.

David Leary: [00:40:08] And big important things like teachers, pension funds and things like that. Yeah.

Blake Oliver: [00:40:12] And. They may not end up, you know, realizing, uh. Like they may not getting these these loans may not get paid back because the real estate is worth a lot less. And the, uh. The holders of the the borrowers are not going to be able to refinance. Every six seven years like they have to because the simply the the rent payments are not there to support the loan payments. And so, um, Phatsby had the opportunity to consider changing the standard. Right. Say like, no, you have to mark to market or you have to do fair market or whatever, and they decide not to. So all of this is still hidden on bank balance sheets. And the Wall Street Journal has been doing some great coverage about this. There was an article published on February 12th in the Wall Street Journal, what mortgage bonds say about the office meltdown. Commercial mortgage backed securities make a troubling proxy for the loans on bank balance sheets, and I'm just going to read from the article here. Banks issue about half of all commercial real estate loans in the US. They don't always give much detail about the health of the loans or the buildings they have lent against until it is too late. The first investors hear of problems may be when lenders set aside hundreds of millions of dollars as provisions for likely future losses, as happened recently at New York Community Bancorp and Japan's Ozora Bank. The lender's shares have tanked 53% and 34%, respectively, since they revealed souring US office loans in recent weeks.

Blake Oliver: [00:41:43] There is an indirect way to get a picture of the pressures building on some banks loan books. Commercial mortgage backed securities account for 14% of US commercial real estate lending and are a good proxy. Helpfully, the CMBS market spews monthly data about default rate, default rates, and the latest building valuations. What happened to the billions of dollars of office CMBS debt that matured last year? Which property watchers have been so worried about? According to critic A real estate data provider, only 26% of the $35.8 billion of office CMBS loans that matured in 2023 was actually paid off in full as borrowers struggled to get refinancing or to sell their properties. So only 26% of 35.8 billion of office CMBS loans that matured in 2023 were actually paid off in full. And the chart here, I'm just going to put this on the screen for our live stream viewers charters, you know, of the share performance of these banks, you know, is just they just tanked. So there's all these loans coming due on commercial real estate. These loans are held on bank balance sheets, and only a fraction of the borrowers are going to be able to repay these loans in full because they have to refi. Because these loans are not 30 year fixed loans, they're like five, six, seven year loans. And there's a balloon payment and you have to refi or you owe that entire balloon payment at the end.

David Leary: [00:43:13] And people are just going to walk away, just like they did with their houses in 2008. Just walk away from the house, walk away from the mortgage. People are going to walk away from these buildings and these these payments. Right? They're just going to say, forget it.

Blake Oliver: [00:43:23] And because to tie this back to accounting treatment, because FASB has declined to change the accounting treatment, it's possible for banks to hide this issue by saying these are held to maturity. So I don't have to recognize any losses as long as I intend to hold them to maturity. And the only reason they would have to change it is if management decided we can no longer we no longer have the ability to hold these to maturity, which is discretionary, right? That is a management decision.

David Leary: [00:43:57] Kicking the kicking the can down the road. Eventually this will be accounted for. Yeah, like it or not.

Blake Oliver: [00:44:04] And the only check on management is the auditors. The auditors would have to stand up and say, we don't think you have the ability to hold this to maturity any longer. And that may have been what happened with what was it, New York Community Bancorp, where it got so bad? Eventually they had to say, we're not going to be able to do this.

David Leary: [00:44:24] Yeah. So, so and then they.

Blake Oliver: [00:44:25] Have to recognize a big loss. So what it does is instead of having small losses over time right. You you you hide the losses. And now you have a big write off.

David Leary: [00:44:36] Yeah. So? So the first round of bank failures was due to the interest rate changes in the Treasury bonds. Right. But now the second, because there was just a bank failure about two weeks ago in New York.

Blake Oliver: [00:44:45] Well, that was the one.

David Leary: [00:44:47] That was the one. Right.

Blake Oliver: [00:44:47] Well, they didn't fail. They didn't. New York I don't think New York Community Bancorp failed, but they had this big write off in. Their share price plummeted.

David Leary: [00:44:56] So it did not fail. But do you see that as the next wave? Like we're going to see some banks be a victim of this?

Blake Oliver: [00:45:03] Well, this is the fear among regional banks is that they are the ones that issue, like most of these commercial real estate loans. And so they they have them on their books. Yeah, right. And they haven't written them off yet. Because they get to say, as long as we think that we're going to get paid back in full, we can keep them without recognizing any of these losses. This is best I can explain it.

David Leary: [00:45:27] So tying back to a Silicon Valley bank and the fallout of that. So then this is like our government tax dollars at work here. So obviously FDIC takes over the bank right. Fdic is in charge of the money. They're in charge of making people whole. Well, Silicon Valley Bank owed back taxes to the IRS for about $1.4 billion and actually owed New York City 2.1 million. And so first, New York City sued the FDIC last month. And now the IRS is suing the FDIC to try to get their money. Like like we have two government agencies. Not working together in any way, shape or form to to do what is probably the right thing to do. It's like.

Blake Oliver: [00:46:10] Well, David, I would love to keep chatting, but I gotta run because I am co-hosting a webinar with Hector Garcia on the earmark webinar platform all about the future of QuickBooks, and that's coming up in just about, uh, 20 minutes. So I better jump over there and check in. Um, if you are listening or watching live and you're interested in the recording of that webinar, go to earmark Cpcomm and sign up. You'll get notified of future live events. It's not just the accounting podcast. We also have live webinars from all sorts of instructors now, including Hector, who's also the host of the unofficial QuickBooks accounting podcast. And I don't know what exactly our plans are, but I think we will be I believe we will be putting the audio of this webinar out on the earmark podcast, and possibly on Hector's unofficial QuickBooks podcast as well.

David Leary: [00:47:02] So it'll be live streamed to YouTube and LinkedIn and Facebook all at the same time. So if you're watching this, you could just jump over the earmark channel on YouTube. Ah, yeah. Just watch it there. Yeah.

Blake Oliver: [00:47:11] So, hey, if you haven't had enough of me this morning, hop over to the earmark channel on YouTube and find the live stream of the, um, future of QuickBooks with me and Hector Garcia. We'll be chatting about it. Thank you, Chayton, for joining us. Chayton says great episode loving earmark. Uh, boring accountant says David can keep the show going. Boring accountant also says I software for audit and tax will need data integrity to be effective and correct, and clean data will not likely be something I can help with. That's a good that's a good point. We'll see. Um, we also had some comments about the Accountant two movie. Telugu 96 said it's going to be a trilogy as well. Yes, The Accountant is going to be a trilogy. So they're filming the second one this year and we don't know about the third one, but it's definitely going to be a trilogy. And Yelena, thank you for joining us as well. Yelena, uh, was chatting about those checks that check that you saw. David. Uh, that didn't look like a real check. She said, these are temporary checks you can get from a bank. So there we go.

David Leary: [00:48:18] So we opened up a bank account, wrote the first check to the IRS. Basically.

Blake Oliver: [00:48:22] Great to see you, Steve. Steve says good stuff. Awesome. Uh, perfect. See you all here next week. Oh, and don't forget, if you haven't taken our survey, please take our listener survey. Let us know what topics you want to hear about. Um, go to accounting show slash survey. That's accounting dot show slash survey. Take our listener survey. It's 5 to 10 minutes. It really helps us know who you are and what you want to hear about. So we can tailor our coverage to your preferences. And, uh, that's all I got. I'll see you here next week. David. Hi, everyone.