Episode 159 – How To Choose A Tax Planning Specialist With Alex Sonkin

In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Alex Sonkin, founder of The Due Diligence Project™ and The Virtual Family Office Hub™, a platform of vetted resources that supports hundreds of leading tax-focused CPA firms and family offices around the country. Alex also authored a book, The Due Diligence Project™ and is the host of The Due Diligence Project™ podcast.

In this episode, you will learn:

How The Due Diligence Project™ helps tax-focused CPAs.
Why The Due Diligence Project™ community was formed.
What a virtual family office is, and why The Virtual Family Office Hub™ was created.
The complexity of the U.S. tax code.
And more!

Resources:

Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.

Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. Today I’m joined by guest Alex Sonkin. Alex is the founder of The Due Diligence Project™ and The Virtual Family Office Hub™, a platform of vetted resources that supports hundreds of leading tax-focused CPA firms and family offices around the country. Alex also authored a book, The Due Diligence Project™ and is the host of The Due Diligence Project™ podcast. Alex, welcome to the show.

Marc, thanks so much for having me. It’s a pleasure to be here, my friend.

Today’s topic is timely, as we’re recording this around tax season. Although taxes are worth considering all-year-long, the focus is especially heightened as of recently. How did you get started in tax and finance?

The Creation of The Virtual Family Office Hub™

I started out as an options trader in Chicago out of University of Michigan Business School. I was a member of the Chicago Board of Trade, the Merck and the CBOE. I was taught how to take on risk and get rid of risk in the financial markets.

I would frequently meet tax attorneys, and I realized they worked really hard, obviously eliminating taxes, but they got paid a fee for their work. To me, it seemed like they never really had a bad day. Meanwhile, I would go to work and trade all day – and, depending on the day or the week, I could have a negative day/week. I thought, ‘Man, I’m working really, really hard and I don’t make money every single day.’

I wasn’t interested enough to become a tax attorney, but at that point – about 25 years ago – I decided to get involved in taxes. My goal was to help families and elite business owners eliminate their tax problems.

When I left the trading floor, I started building our Virtual Family Office and ultimately created The Virtual Family Office Hub™. We started doing events for CPAs, and began to introduce people in the space to each other, including: elite CPA firms, elite family offices, top tax attorneys and specialists… All of these professionals would come to our events, speak on stage, and then have those hallway discussions.

We soon realized that those hallway discussions were magical. There’s a lot of due diligence that happened there.

The other thing we realized was that most of the CPA firms needed access and introductions to top tax strategists and attorneys in the country, because they were really limited to what kind of strategies they had access to.

The Creation of The Due Diligence Project™

Over the last 20 years in the industry, a problem became apparent: CPAs wanted to add value to their biggest clients, but they didn’t have the time or the resources to do so. They weren’t able to complete the due diligence on tax strategies, better understand the tax code, or meet with the best of the best in the industry. CPA firms were spread way too thin.

We built The Due Diligence Project™ as a vehicle to fill that gap. We help CPA firms access best in class resources, complete due diligence on those resources, and bring them additional value from specialists and tax attorneys.

That’s great. What you said is true… CPAs are spread so thin. They crunch to get taxes done beginning in February, working up until the April 15th tax deadline. Most people think they are then able to take a vacation for the rest of the year… But, in reality, there’s extensions and a variety of different tax deadlines, so they’re in that crunch year-round. They’re under a lot of pressure. It’s definitely difficult to make the time to do strategic work.

Exactly. The typical client has no idea how much a CPA deals with. There’s individual tax return deadlines, corporate tax return deadlines, trust tax return deadlines, spring deadlines, and fall deadlines. Aside from those deadlines, they’re producing financial statements, doing audits… doing all sorts of work.

When you look at the financial services industry, there’s many professions: estate planning attorneys, financial advisors, CPAs, CFOs, financial experts… But really, the only professionals that are trained to do tax planning – the ones that sign the tax returns – are the CPAs. CPAs know the tax code, have audit experience, and have tax court experience.

This is the group of people that we’ve identified – they’re who we want to bring into our independent, peer-reviewed community. Really, that’s what The Due Diligence Project™ is all about. The same way Amazon and Netflix help us save time and give us confidence when we’re buying products or looking for a movie. We’ve created the same type of facility for tax-focused CPAs.

When someone joins The Due Diligence Project™, they get access to 20 years of notes on hundreds of tax strategies. They will also have the opportunity to speak with hundreds of other CPAs that are a part of the community. Together, as a community of tax geeks, we rip apart the tax code and tax strategies to determine the weakest parts and if it can be defended in an audit/tax court? That’s the kind of work that happens. It’s messy, it’s complicated, it’s hard work. But, all in all, we save our members 90%-95% of the time that it would ordinarily take them to complete due diligence.

You mentioned some good points. When individuals or businesses with a CPA, they want to be working with someone who is up-to-date on the newest strategies. It seems like you’ve really created that framework for members of The Due Diligence Project™. Now, can you explain what a Family Office or Virtual Family Office is?

What a Virtual Family Office Is

A family office is a way for you to hire your own CPA, law or advisory firm in-house. Typically, a single family office supports one family. Family offices could cost anything from over a million dollars a year to $250,000 a year to operate – it really depends on what services the family needs.

Multifamily offices exist, which take care of multiple families. They could have anywhere from 2 families up to 30 families or so.

Our idea was to build Virtual Family Offices for families who are worth 20 million-100 million+. We custom design these family offices. The lead of the family office is the tax advisor, but it can include a financial advisor, estate planning attorney, etc. The lead CPA is plugged into The Virtual Family Office Hub™, where they get the best resources. They also have access to private family office investment opportunities, which can be focused on things like crypto or real estate.

The Virtual Family Office Hub™ allows families to custom design their family office.

What kind and size of CPA firms are part of The Due Diligence Project™? Is there everything from solo CPA practices to enormous firms?

We’ve been doing this a long time. We’ve met large firms, medium-sized firms, regional firms, and small firms. In all cases, we build relationships with CPAs one at a time because each CPA is essentially running their own practice and their own business.

Okay, so let’s say you’re building a relationship with a CPA that’s a part of a large firm. Do you find that they’re less likely to adopt strategies within The Due Diligence Project™?

Well, when that happens, it’s really fun for us. Because remember: we have the largest independent peer view community of tax focused professionals in the world. So our competitors are actually the other tax specialists and tax attorneys in our community.

Regarding large CPA firms out there… They may have bigger CPA associations, with W2 employees and all… But no one else is doing what we are.

First of all, our due diligence never stops. Second, if we do due diligence on something and approve it, but another firm disagrees, we want to understand why. Is it emotional? Is there something in the tax code? Is it a rule? What’s going on?

Because at the end of the day, they think they’re doing due diligence on the strategy, but what’s happening is we’re actually doing due diligence on them.

For example, we had 847 firms participate in our 2020 summit. I don’t need 847 CPAs with 50,000 hours of experience in audit and tax court to all agree on a strategy. If out of those hundreds, let’s say 30 complete due diligence on a strategy and recommend it, that’s significant. Getting 30 CPAs to agree on something is very difficult to do.

So, when a CPA or a firm says they don’t like the strategy, we ask them why. We actually want to know why they don’t want to do the strategy because the answer to that question will help us understand how the firm does or does not do due diligence.

How does information get disseminated to the members of the group?

We host virtual meetings every month with updates. We also share information in newsletters, in videos, conference calls, one-on-one phone calls, emails, etc. And in the planning that we do with our CPAs and their clients.

Is the network big enough that there are niches within? So, if a new tax law is enacted that will impact real estate, for example, are there experts in that area that can really dissect what’s going on?

Absolutely.

Now, our firm is so big that clients are finding us and asking for recommendations to CPAs, or requesting help in building out family offices. Even though our community exists primarily for tax-focused CPAs and virtual family offices, elite clients are coming to us, saying, “Hey, we know who you are. Can you recommend a really good CPA firm?” We’re really set up for that because we’re doing so much due diligence on our CPAs.

The Complexity of The U.S. Tax Code

When I speak to my clients, I hear everything from: “My CPA is aggressive,” to “My CPA is conservative…” I know that some of the tax code is not black or white – there are these gray areas. How does The Due Diligence Project™ approach the complexity of the U.S. tax code?

The great question. To illustrate this, I would encourage your listeners to Google the U.S. tax code, read a paragraph, and try to make sense of it. It’s an insanely complicated document, and when you jump into the tax code, it’s overwhelming.

If you ask a CPA, do you know the tax code? The answer should be no. No one knows the tax code. It is just too complicated.

To really understand how the IRS looks at tax strategies, you have to understand:

What are they doing in audit?
What are they doing in tax court?
How are they attacking these tax strategies?

After years of studying those things, you’ll get a better idea – but the learning curve is insane.

Then, if the IRS changes one word – they change “or” to “and” – it becomes a completely different law. When that happens, you could call up an elite CPAs or attorney in the network and ask, “What does this mean?” They’ll talk to you for hours about it.

To understand how the IRS works, you have to be really involved. And unless you have 10,000 hours or 50,000 hours of experience in audit and tax court, you’ll need assistance.

It’s taken me years just to get to where I am today, but the work is so important – and that’s why we exist. To change the lives of these CPAs, who then change the lives of their clients by providing this service. Again, we realized this need and now feel like we’re filling a huge hole.

That’s so great. Well, we’re just about out of time. Alex, thank you for joining me for an episode of The Agent of Wealth. It was great having you on the show and showcasing what you’re doing with The Due Diligence Project™. What’s the best place to send listeners who want to learn more, or contact you directly?

Your listeners can go to duediligenceproject.com or email us at [email protected]. Marc, thanks so much for having me. It was a great pleasure.

Great, we’ll include those resources in the show notes. Thanks again, Alex. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.

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