Can AI Replace Tax Lawyers? (Part II)

In episode 34 of How Tax Works, Matt Foreman continues his evaluation of human and AI answers to a less straightforward tax question, seeking to (hopefully) answer the question of whether AI can replace or augment tax lawyers.

How Tax Works, hosted by Falcon Rappaport & Berkman LLP Partner Matthew E. Foreman, Esq., LL.M., delves into the intricacies of taxation, breaking down complex concepts for a clearer understanding of how tax laws impact your financial decisions.

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Transcript

Matthew Foreman [00:00:17]:
Hello. Hope you're enjoying the, the new temporary music. Welcome to the 34th episode of How Tech Works. I'm Matt Foreman. This episode, I'm going to continue my evaluation slash discussion of how well or poorly artificial intelligence models, LLM, large language models. I have an LLM, but it's different, is going to be at replacing or at least significantly augmenting my job as a tax lawyer. How Tax Works is meant for informational and entertainment purposes only. This may be attorney advertising. It is not legal advice.

Matthew Foreman [00:00:54]:
Please hire your own attorney. Or risking it wrong, I guess. I don't know. How Tax Works is intended to help listeners navigate the intricacies and complexities of tax law, regulations, case law, and guidance to demystify how taxes shape the financial and business decisions that we all make. Before we get back into it, a few administrative things. New episodes, next one in 2 weeks. They're all in 2 weeks except for these 2, which came out at the same time. The next one's going to discuss the installment method under 453.

Matthew Foreman [00:01:23]:
And 453 cap(a) of the Internal Revenue Code. If you have any questions, comments, constructive criticism, you can email me at my FRB email address, which you can find via your favorite search engine. I strongly recommend having an email written by artificial intelligence. It'll totally sound great. Upcoming webinars. Again, I have a couple coming up in November and December. If you're not on the list, you think you're not on the list, you want to get your friend on the list, do it. Just send me an email.

Matthew Foreman [00:01:49]:
I'll add you to the list. Not an issue. If, you know, you're on the list, I'll send you an email. Don't worry. And you can also connect with me on LinkedIn. That will make sure you see it, assuming you see my posts. And I don't really know how their algorithm works, but have at it. So we're talking about artificial intelligence.

Matthew Foreman [00:02:07]:
And I want to tell another story. It popped in my head the other day. I was talking to one of our summer associates about using AI in research. And I said, you know, He's like, well, was it right? And I said, it really doesn't matter. I mean, it did, right? Obviously it mattered. But I said, you know, the part of the point of the work that I assign isn't always so that you give me the answer. I mean, it is, right? Effectively, I get the answer, but it's also so you learn. You learn how to write, you learn how to research and think about things.

Matthew Foreman [00:02:35]:
And there's something to be said for the process, right? You know, we all famously remember— at least I hope we all remember— Allen Iverson talking about practice, right? He's not talking about a game. I'm talking about practice, right? And what he was saying there is, I don't really need to practice. I'm so good. You know, who cares if I'm late? Who cares if I don't show up? And there's truth to that because by the time Allen Iverson said that, you know, he may have won an MVP, he was already an elite player on his way to the Hall of Fame. But for those of us, you know, or people when I was, right, early in my career, part of it is learning how to do it, learning how to research, how to write, how to structure. The argument. And I think that's important. And it reminded me of a conversation I was having with someone who was a senior at a college, major research university, at a large school that's in one of the— I guess it's now Power 4, but Power 5, now Power 4 conferences, generally viewed positively academically, I guess.

Matthew Foreman [00:03:32]:
I don't, I don't know how things work, but whatever. And he told me that he was taking— I met him at a social event. He told me he was taking 22 credits or 23 credits in a semester, um, in college. And I remember being baffled by it. For those who don't— I know there's a lot of schools, one class, one credit, or they're on the trimester or whatever. Um, normal credit load is 15, 30 per year. So he was taking 22 credits. So he was taking a credit, a semester and a half at once as a senior.

Matthew Foreman [00:03:57]:
And he was taking all these upper-level classes and sounded like interesting stuff. And he's like, no, no, I just have AI read everything and then I read what AI tells me. And I'm like, well, A, aren't you worried about missing anything? And he wasn't. And B, I'm like, you know, part of doing it is learning how to analyze itself. And it really kind of irked me that he was doing it because he was taking a shortcut to answer the question, but he wasn't learning how to do comprehension. And I think a lot of this stuff and a lot of the expertise, there's a lot of value in expertise, not everything. But there's also a lot of value in the process of learning and researching and constructing the discussion point. And I think that's really important to think about.

Matthew Foreman [00:04:42]:
And I think that's really important to take and learn how to do it. And the shortcut of AI for how good it can be, and again, it's pretty good, is you still need someone to evaluate it, know how it's done. And if all we ever do is rely on AI, we'll never learn how to tell if it's right or wrong. And so we'll end up with a situation where someone is putting real estate in New York City in an S corp, which I'll get to in a second. So question 2, it's about holding real estate. The first one is one where I want to do where it's similar to questions I get a fair amount. I actually have run into this exact question in the past couple of weeks. But the second one is the kind of question I get all the time, which is what kind of entity should I be? I have a business, I have an entity, right? So Lots of income tax variables, short and long-term balancing federal tax, but also state and local issues, some estate and gift concerns, non-income taxes.

Matthew Foreman [00:05:36]:
You know, this is the stuff, these are the questions that I really enjoy them. I really, really do, because I get to talk to my clients about what they want. I learn about them. I learn how they're balancing, how they're thinking about it. And I can adjust how I describe things. If they're not worried about something, but I'm very worried about something, I have to explain that to them. And I enjoy that. You know, I enjoy the problem-solving parts.

Matthew Foreman [00:05:55]:
Of my job. So I feel like I really, I really help them, you know, I really help their thinking and I help them feel comfortable. Right. Because there's a lot of things that can be solved through proper structuring and proper insurance. But also, if a person doesn't feel comfortable with their decision simply because they don't understand it, that's a problem. And so part of my job is to explain that to them. So I think it's, I think it's really interesting. All right.

Matthew Foreman [00:06:18]:
So, so, so let's read it. Let's read it. Right. A client sends the following email and requests analysis and advice. By the way, this is such a law school question, the way that's set up. My name is Gilbert Dumoutier. Um, it's by the way, the name I'm mispronouncing it because I took Spanish, not that my pronunciation in Spanish is any better. Um, but this is the Marquis de Lafayette, who by the way, yes, was in fact a US citizen.

Matthew Foreman [00:06:38]:
Okay. My name is Gilbert Dumoutier. I'm a retired US Army officer. I was born in France and I'm a citizen of France. I became a citizen of the United States. Of America as an adult. So yes, that is totally true. I live in a rented apartment in Battery Park City neighborhood of Manhattan.

Matthew Foreman [00:06:53]:
I don't know where he lived. In the next week or two, my father, Michel— actual, that was his father's name— is going to give me his only asset, a brownstone near Washington Square Park in the Greenwich Village neighborhood, which is also in Manhattan. I put that in there. The associates and the people who work at the firm do, but I didn't know if AI knew that. And there could be other Greenwich Village, could of Greenwich, Connecticut. So I want to kind of make that obvious. It is a value of $10 million. My father purchased the land on which it stands for $1,000.

Matthew Foreman [00:07:21]:
He built the brownstone, which has been fully depreciated. I expect to have it transferred to my name within the next 2 weeks. Presently, my father rents the entire brownstone to a single commercial tenant under a triple net lease, which I'm not sure what that means. I say things like that all the time. Um, I know that the commercial tenant pays the property taxes, electricity bill, heating bill, etc., and subleases the remainder of the building to 4 residential tenants, each of whom are viewed as good tenants. My father has advised me to maintain the current rental structure as it will minimize the need for my time and effort while maintaining strong operating cash flow. I put that in there to say, hey man, don't get too into how this business is operating. Let it ride, right? I am married to Marie Adrienne, which is true.

Matthew Foreman [00:08:03]:
We have 4 adult children, also true. Each of which is a citizen of the United States and resides in Manhattan. I have no idea if they were citizens. I made that part up, and I suspect they weren't because he basically returned to France after he came back a few times. He lived in France. We, my wife and I, have no other significant assets, which is such a lie, man. That dude was wealthy. Just a pension that will not pay out any death benefit and approximately $100,000 in the bank and investment accounts, much of which of our annual income will come and much of which of our annual income will come from the rent from the brownstone.

Matthew Foreman [00:08:35]:
That's an awful sentence. It's too long. Marie, Adrienne, and I share all of our assets, though I will admit that we do not have significant assets beyond the anticipated gift of this brownstone. I emailed my friend George about this situation as he is extremely wise. George, who presently lives in Virginia, told me that you should be able to guess who that is, told me that I should put it into an LLC and elect to be taxed as an S corporation, which will save taxes. Though I'm not sure how, and he could not articulate the reason beyond saying that it has something to do with self-employment income. If beneficial, I would be happy to transfer some of the brownstone to my wife, though I'm not sure if that would result in imposition of any taxes or how it would affect our estate plan. Presently, each of our wills gives our interest in property to our 4 children, 1/4 each, after the second one of us passes, and we prefer to keep it that way.

Matthew Foreman [00:09:25]:
To minimize the chance of arguments with our children. There's no way to minimize the arguments with children, but, you know, I appreciate his efforts, I suppose. Sorry about making a joke about George Washington not knowing about S-corps, but here we are. That's what you get sometimes. Like, oh, I should put it in an S-corp because it's, you know, self-employment taxes. And we'll get into why that's really wrong. All right, Summer Associates, how to hold. Um, they identified the two concerns, you know, they wanted to make sure that from a non-tax perspective to Marie, um, then the kids and to avoid tax.

Matthew Foreman [00:10:01]:
They got the order right. I actually think avoiding tax is less important than getting to the right people. Should we put it in an LLC? They said, yeah, um, you know, it's a better way to control ownership. Um, asked about S election, they did not say absolutely not. So that's a fail. Um, there's no, you know, they said they kind of gave a maybe answer. I'm not going to go into specifics. No 754 election, no 311(b) if you put it into an S election, if you make an S election, and the UBT versus GCT.

Matthew Foreman [00:10:30]:
I'm going to explain this right now. I suspect a lot of you do not live in the city of New York or close to it. Maybe you do, maybe you don't, but I'm going to go into it because I think this is an important point, and this is something that I talk about with some level of frequency with our associates. Okay. And people in other groups is that the, the, so the UBT is, and the GCT, the GCT, the general corporate, corporate tax, corporation tax, I don't know, GCT is the corporate tax you get on C corporations in New York state. However, New York city ignores S elections and you're taxed as a C corp. Um, so the GCT becomes the tax for S corps and it is an 8.85% tax starting on $1. The UBT is a 4% tax that ramps up.

Matthew Foreman [00:11:15]:
There's no tax until $95,000 and then a 4% tax once you hit $135,000. It's the exemption. It's like a credit exemption mechanism. So at $135,000, the rate is exactly 4% and then it stays 4% above. Furthermore, income from rental real estate is not taxed by the UBT at all. It is a 0% tax. So I'm going to ask the question, should you ever put New York City real estate into a corporate structure? And the answer is only yes if all of the shareholders are also corporations or there's a public corporation or something like that. For most people, do not put in any sort of corporation whatsoever, C or S.

Matthew Foreman [00:11:58]:
All it does is increase your taxes. It's bad. Um, one of the many reasons to not use an S corporation because it's pass-through for federal. Not for, not necessarily for state. All right. Should they transfer any to his wife for tax purposes? They said, you know, the US person has a $14 million estate tax exemption. Know that a gift from a US person to a non-US person is subject to estate tax, which is important. I never, this is the error here.

Matthew Foreman [00:12:27]:
I never actually said whether Marie Adrienne or Marie, whether she was a US person. I mean, she wasn't in real life, I don't believe, but was she in this hypothetical? Never actually said it, but it's a really good catch because there is no exemption effectively, uh, for US person— for, for a gift from a US person to a non-US person. So I thought that was interesting. Uh, ignored the New York State tax cliff. Um, you know, that's something I should probably discuss. So New York State is a really weird exempt estate tax. So no gift tax. Once you gift it, it's gone.

Matthew Foreman [00:13:02]:
There's no tax there whatsoever. Don't care. Conversely, the way the estate tax works, it is not an exclusion amount. What it is, is for the first— it's a little over $7 million, so I'm just going to pretend it's $7 million because it's easier. First $7 million, no tax. You get $1 or $2 or whatever it is over $7 million, the number actually drops to about like half a million dollars or a million. It basically disappears. So essentially what you get in that situation is one where if you have $7 million of an estate, you don't pay tax.

Matthew Foreman [00:13:35]:
If you have $7.5 million of an estate, you pay tax on the full thing, right? It's 11%. It's not a huge rate, but it's real. It's material. And it's something that New Yorkers absolutely should consider if you have more than a $7 million estate. Definitely something to consider. So they just missed it. I'll talk more about that later. You know, me, I'd probably split it between the two, put 5 and 5.

Matthew Foreman [00:13:58]:
They don't have any real assets otherwise. It's going from one to the other, take half the step up now, half the step up later, and you're fine. You could do more, but, you know, half and half, it allows for some growth, you know, plus the New York State exemptions subject to inflation increases, so should be fine. Any state tax concerns for the brownstone? They said $14 million, but really the New York State one is really the issue. They already answered this. Any other information that's relevant? They discussed the use of a trust or gift during the lifetime. They talked about the income from tenants, you know, who should get that. They were big into whether Marie is a US person, which is not an issue that I intended, but it is absolutely a good catch.

Matthew Foreman [00:14:41]:
Um, they did pretty well. I thought they did all right on this one, all in all.

Matthew Foreman [00:14:45]:
Um, we're gonna take a quick break right now and come back for the Associates.

Matthew Foreman [00:15:12]:
All right, we're back. Episode 34, associates again, you know, two different ones. I'm going to kind of talk about them a little different. So question one, LLC, they were big on the use of LLCs. No need to change ownership, non-tax liability protection, which is great. Disagree, disregarded entities, you get the 10-14 step up. If you do gift, you know, from one to the other, the partner should be at 754 election. They both pretty much got this one right in very similar ways.

Matthew Foreman [00:15:43]:
We do a lot of real estate. We do a lot of real estate like this, you know, where people own one piece of real estate. We own it where they own $75 million of real estate. And so stuff like this is pretty, I'll say bread and butter, but they better get that right. 2, should they use an S corp? Both have heard me rant about S corps. And real estate, S-corps generally, but S-corps in real estate specifically. One said no, an S-election is a terrible idea. And one said no, generally not the recommended vehicle to own real estate.

Matthew Foreman [00:16:14]:
Uh, still better than a C-corp, right? You know, an S-corp better than the C-corp, but neither are great. Um, one noted that Marie's status as a US citizen, US person is unclear. Um, one did not. I don't, you know, that's interesting because I could blow the ass. Both noted 311(b). 311(b), talked about a lot. If you don't know what 311(b) is, boy howdy. 311(b) is that when you distribute an asset that has a fair market value in excess of its basis from an S corp or a C corp, it is taxed as if you sold the asset.

Matthew Foreman [00:16:42]:
So there's tax within the entity. And if it's a C corp, there's a tax on distribution, possibly dividend, likely a dividend. And S corp's only obviously taxed once because it's pass-through. But both mentioned that. Both talked about 1014. And so S corp would be worse because it's only on the outside basis where a disregarded entity or partnership, you get it on the inside basis, either automatically or on a partnership 754 election. So they nailed that one. They really did.

Matthew Foreman [00:17:07]:
One even noted that in New York City and UBT, there's no NYC UBT on the real estate, but there is NYC GCT in real estate. So one noted that, one did not. You know, I mean, the answer is so obviously no to the S corp that I wasn't sure it really was worth It may have just said no. I mean, they knew it was a terrible idea and they weren't going to dig into it. Um, what about transfer to the wife, right? To Marie. One noted that if it's 50/50 now, divorce would actually trigger transfer taxes to go back. Um, which is true. 50% or greater transfer in divorce in New York triggers transfer tax.

Matthew Foreman [00:17:40]:
I, I, from a policy perspective, I think that should be changed. Um, but yeah, I don't, I don't, I don't rule the world. So here we are. Both noted that they'd have no strong feelings either way, but I thought that one concern was actually a pretty good one. Um, I'd probably transfer it, you know, recommend, but this is discussion, it's a business decision. I don't really care. Estate tax concerns, you know, one had one where they, you know, dad gift to a trust and then, you know, use the trust to keep it under the $7 million estate tax cliff. I thought that was interesting.

Matthew Foreman [00:18:11]:
They neither of them had any federal tax concerns, you know, $14 million plus you go to your spouse tax rates. That was pretty easy. I largely set up to that question, that whole dollar threshold and how I phrased that was to see if there was— it would pick up New York State, to be honest. Any other concerns? New York State transfer tax on the gift if there's debt. So if there's debt, you can have it. A lot of states have that even though it's a gift. If there's debt, that's consideration. Gift to tax if dad is a U.S.

Matthew Foreman [00:18:38]:
person, right? You know, have to file a 3520. I'm sorry, a 706 or 709, I forget which is which. And if the dad is not a U.S. person, you have to file a 3520. They had questions about the triple net lease terms. They did well. Would have liked a little more on something that I'll talk about at the end that I think is important. But here we are.

Matthew Foreman [00:19:01]:
We're going to take another quick minute or so break. That's a lie. We're going to take a quick break, get some more music in, and then I'm going to talk about AI models. And I think that's a good one.

Matthew Foreman [00:19:12]:
All right, we're, we're back. Episode 34.

Matthew Foreman [00:19:35]:
Uh, let's talk about AI. You know, I was I was talking about this with my wife. This is not on my notes, but I'll talk about it last night. And as I was kind of outlining it and discussing, thinking about it, my wife was like, oh, what are you doing? And I told her and she's, well, how did it do? And the answer I gave was better than I thought, but in some ways kind of how I thought. It still needs human help. And I think it does better when it's given a cleaner question, which is what I had. And maybe sometime In the future, I'll see how far off I can get that, how far off I can get it to go, and giving it a kind of crappy question or whatever, some, a lot of false positive questions, see what happens. But, you know, it's interesting to hear how, how I think about it, right? And I'll give a full evaluation at the end, but that's sort of a preview.

Matthew Foreman [00:20:23]:
So AI number 1, if you remember from the last episode, large language general model, LLM, right? Mine is a master of laws. LL is actually plural of L, plural of L for law, which is Latin. It's interesting that the double letter is plural. So I thought that was interesting when I learned it. But this one is large language model. When people started talking about large language models, it was interesting because I was like, why is everyone talking about Masters of Laws? This is not that interesting. So I thought that was interesting. I got that one wrong.

Matthew Foreman [00:20:53]:
But anyway, large model, you know, asked about the LLC and it said something that I just did not think about, but is Absolutely true. New York State has publication fees. Otherwise, it's pretty similar to what the associates put down. One thing that I do, I get this every so often where someone will come, foreign person, they want to open a business in the US. Like, I'm going to form an LLC. And I'm like, you're going to operate basically out of New York. You actually just— and they want to have an LLC, but they want to be registered, you know, taxed as a C corp. They're like, they told me this is the best way to do it.

Matthew Foreman [00:21:24]:
I'm like, you know, you should consider a C corp because publication fees are not that cheap. And they're annoying and they can delay things. So I thought that was interesting that the language model, the general one, picked that up. I thought that was cool. S election, it said no, 311B and loss of 199 cap A. I don't know how you'd lose 199 cap A, but that was interesting and kind of weird, but whatever. Ignore the New York City UBT, New York City GCT. It says loss of 1014 on inside basis.

Matthew Foreman [00:21:52]:
It didn't call it inside basis because it's not inside basis. But the assets of the business, you know, the actual brownstone itself. So that was good. That was a good catch there, I thought. Transfers to the wife, it assumed she was a citizen. It was the only one to actually make that assumption without saying it, but the answer didn't make sense otherwise. You know, citizen is not dispositive as a U.S. person.

Matthew Foreman [00:22:13]:
A U.S. person is broader, includes citizens but not just citizens, you know, residents. I think if a fair reading of it would be that she is a U.S. person, at least by residence, as we we live here, but I don't actually know. It notes the New York— it noted the New York State estate tax cliff, so that's good, I guess, that it picked that up. Estate tax considerations, New York State tax portability election federal, which is, I guess, good, but they don't really have other assets, so it's kind of pointless, but maybe it would appreciate a lot after one died, so maybe. LLC interest discount, I don't know if there's really an interest discount there because it's a single piece of real estate controlled by a married couple, I don't know how much of a discount you're really going to get there, but worth noting. Any other information that would be helpful, right? It noted that the non-resident alien gifting US-citizen real estate is subject to gift tax.

Matthew Foreman [00:23:07]:
So I thought that was interesting how it picked that up. You know, that was a really interesting pickup. So I was very curious as to how it got that one. Oftentimes it's actually better for a nonresident alien to gift, to gift cash and then pay it, you know, pay it, use cash to buy, you know, especially with FIRPTA, right? 15% withholding. You've held it for long enough. So something like this, right? You know, capital gains is 20%, 23.8%, and FIRPTA is 15%, you know, so you have it, you know, New York State has a FIRPTA-like function. 88.2%, so, you know, which is New York State. So that may actually be less than the gift tax stuff, even though New York State doesn't have gift tax.

Matthew Foreman [00:23:50]:
So, you know, it's worth that discussion, I think, at the very least. It asked about insurance as other information. Man, that is a— I mean, that's valid. That's absolutely valid. You need to make sure you have insurance. And that's something that, you know, even as a tax lawyer who really only pays attention to tax, something I absolutely discuss with clients, the need for insurance, because I do think that's important. And it's part of my job is to be a tax lawyer and talk about that stuff.

Matthew Foreman [00:24:15]:
Stuff.

Matthew Foreman [00:24:15]:
And that, that brings us to the legal model. Its answer on whether you should use an LLC was kind of nonspecific. I didn't think it really helped. I was kind of unimpressed, to be candid, um, with the answer. So, you know, it is what it is. It said yes, but probably. Um, S corp— man, did it get this one wrong. It said it will save on self-employment tax.

Matthew Foreman [00:24:35]:
Passive income such as income from a triple net lease is not subject to self-employment tax. So yeah, I got that one wrong. Um, it said there's no inside basis if you do an S corp, so the 1040 won't get the basis. It mentioned 311(b), but then it, you know, the self-employment tax, is that even better? You know, I mean, no, because you wouldn't pay self-employment tax anyway because it's passive income. So I was kind of a, lack of a better word, annoyed that it got that part that wrong. I intentionally put in the self-employment tax. as a false one. And that was the only one that seemed to pick it up.

Matthew Foreman [00:25:09]:
So there we go. Gift to wife. It basically says no benefit, but ignore, which kind of ignores the New York State estate tax. Uh, could be right because it's going to the wife, but you kind of want to try to get it out because the second spouse could really have an issue with the estate tax. So it's something you'd want to think about, you know, for that one, I would do 50/50, but I would actually, you know, put it in the trust, each one into a basic trust such that the spouse gets like the lifetime income from it. Or get something, and then when they die, the real estate goes, because I'd be worried about that $7 million income. So that's what I would do. Estate tax concerns, it now notes the New York State estate tax cliff, but it missed the gift tax stuff, right? The non-resident and alien gift of U.S.

Matthew Foreman [00:25:50]:
site that's from his father. Is his father a U.S. person? I left that ambiguous on purpose. I didn't really think it mattered, and I was curious as to whether it would pick up this issue when it did it. I wrote these questions, by the way, when I was on a cross-country flight, so I had some time to think about it. And I wrote them pretty quickly and then just kind of sat on them for a little bit. And then at the end of the flight on the way back, I actually revised them pretty heavily because that by the time I sort of chewed through them in my head. Other concerns, nothing specific.

Matthew Foreman [00:26:21]:
So I then asked it the, this legal model, I asked it about, hey, like LLC partnership versus S corp, like what should we do? You didn't really mention that. Like, what are we doing here? Right. And it discussed it and it noted that S corps are kind of crappy because the tax rate's higher. And it specifically said that the UBT exempts real, you know, income from real estate. So I was kind of annoyed that I had to ask that question because there is no way a nonprofessional would know to ask it. And, and I think this is really important here. Even if you are a professional and you don't know the New York City GCT issue and you don't know how New York City UBT works, there is no way you ask that question. Not possible.

Matthew Foreman [00:27:02]:
So I thought that was kind of the thing that irked me. Then, man, everyone missed PTETs, pass-through entity taxes. If you don't know what they are and you listen to my podcast, then like, I want to know who you are because this is like PTETs are like the kind of thing that tax pros that are like the target demo of my podcast or financial advisors that are the target demo of my podcast or business lawyers who are the target demo of my podcast know about. And so if you don't know what that is, like, that's kind of interesting. And I'd actually like you to email me because I'm just, I just want to know who you are. I want to know how you found it. Really curious. Basically what they are is a workaround state and local taxes, the cap, right? Because, because you can say, oh, now it's $40,000.

Matthew Foreman [00:27:51]:
But the assumption for a lot of these, right, a $10 million piece of property is probably generating a couple hundred grand of taxes. And if you live in New York City and you make $300,000 a year, right, and you know, there's a standard deduction and blah, blah, blah, but your tax rates can be about $40,000, $50,000 total taxes. It's not small. And so I think that's important to know, you know, that you kick over that threshold pretty quickly. So, you know, no one mentioned PTETs at all. None of the associates, not the summer associates, not AI. Huge planning opportunity. And I think how to do it's the really important one.

Matthew Foreman [00:28:29]:
The really, you know, and then I say this, you know, this is the interesting question for me. How do you do it, right? I put it in LLC. and I'd give some percentage to the Roth to my wife. Um, I, you know, you could use grantor trusts that the first one to die goes to the kids, but the trust is controlled by this, and you can have the, you know, income come from it and whatever. And I think of this, you know, I, I think you could just do that, you know. And I think that's really a really easy one where you put it in your own grantor trust and you put it in another trust. Um, you know, you put it in a SLAT, right, where, where the wife owns it, etc. Spousal lifetime access trust is SLAT.

Matthew Foreman [00:29:06]:
So, you know, gift it to the wife and then she puts it in her own grantor trust, whatever you want to do, doesn't matter. PTETs for both New York City and New York, New York State, New York City, doesn't affect the UBT. So it's going to, you know, essentially make their tax creditable, right? So if they have any other income, could be an issue. $10 million brownstone, you know, again, I'm assuming $350,000 a year. you know, of income. So that's pretty significant, especially, you know, New York City tax rates are not small. So that's where it is, right? That, that's kind of what it came out to. So what is my conclusion, right? What, what, how am I finalizing this? And I think the way I would do it is, is a lot of what I said to my wife, which is AI did better than I expected.

Matthew Foreman [00:29:49]:
However, right, some significant misses. Um, and then they, you know, brings up some irrelevant stuff. Some misses are on the types of issues where there's no direct questions. Or asked, you know, or incomplete information's included. And I think that's where it did well with my questions, but it would actually struggle with regular old folks asking it questions. Because I think that AI would struggle with the kinds of questions and the kind of framing that normal, normal people do, non-tax professionals ask. And I think that's where it does it right. That's where I'm not getting replaced.

Matthew Foreman [00:30:29]:
It's not so much the question of whether AI can come up with a mostly right answer, which it can. It's really a question of whether AI can replace what I do, which I don't think it can. I really don't, because I'm not really sure AI was overtly better than our associates. And AI has to be better than the associates. Because we work with the associates and they have time to get to where I am. You know, both of them have practiced for less than 10 years and less than 10 years less than I have. So there's a lot of, a lot going on there. You know, what does that mean for me? Right.

Matthew Foreman [00:31:05]:
I, you know, like my job's safe, right? I think I have a long run and people tell me that I'm overconfident and, you know, we all struggle with the Dunning-Kruger effect to some extent, but that's fine. And what you see is all there is, right? If you've read Thinking Fast and Slow. But I feel comfortable, you know, I'm faster than AI, I'm more accurate, I'm going to get a much more correct answer. And I'm going to be able to ask questions that are more incisive and ask really more. So I think that's helpful for me. You still need someone to distill and explain. I don't know if someone would read this and be able to say, well, now I know what to do. Or now I can weigh the different options.

Matthew Foreman [00:31:46]:
So I thought that was good. And AI still gets weird results. Sometimes my responses are unexpected, but that's because tax law is weird. Sometimes AI gives you weird results simply because it doesn't know what it's doing and there's no one there to check, you know, the way it just, you know, it could have gotten this right and I would have said, well, I think you're wrong about this. And it probably would have— I didn't test this, but it probably would agree with me. And that's troubling that it doesn't have the spine. There's other words I'm going to use the word spine, um, to really push back. So that was the 34th episode of How Tax Works.

Matthew Foreman [00:32:22]:
I hope you enjoyed it. Hope you learned something. I'll be back in 2 weeks with the 35th episode where I'll be discussing the installment method under 453 and 453 cap A of the Internal Revenue Code. And now for the, uh, the remixed, I guess, best song of all time. But don't worry, the, the old music will be back in 2 weeks. All right.

Matthew Foreman [00:32:43]:
Thank you for listening.