Jay: This week’s show guest is Larry Lipsher, who happens to be my tax accountant here in Hong Kong. Larry has been a practicing accountant, specializing in taxation for over half a century. He has worked most of his life in Asia and was licensed to practice as a CPA in China. He’s also the author of multiple books on taxation and is a frequent guest speaker at international tax conferences.

You might be wondering why I have my tax accountant on the podcast. Well, surprisingly, I’ve gotten a lot of questions about tax implications for U.S. citizens living abroad after President Trump took office. Of course, after this explosion in cryptocurrency investing that we’ve seen in the last two years, I thought it might be good to get an expert on the show. Let’s get on to it.

Jay: Larry, how are you? Thank you so much for coming on the show.

Larry: I’m feeling great. This is the 52nd U.S. tax filing season of my life, and I’m actually surviving.

Jay: You know, that’s incredible. I was just doing some research before our talk here today, and I was going to say nearly half a decade, but you’ve already surpassed that.

Larry: Yes. This is the 52nd year I’ve been doing this stuff. It’s amazing. I think I still have most of my sanity left in me.

Jay: As we were talking about the last time we met up, probably the one thing that is keeping you sane is having to deal with all these complicated tax issues. Am I talking to you from Hong Kong now? I know that you are kind of a digital nomad now at this point in your career.

Larry: I’m in Hong Kong. Last October we vacated the apartment that we kept for 23 years in Hong Kong. I probably could have qualified for the Guinness Book of World Records. I know of nobody else who has rented the same apartment in Hong Kong for 23 consecutive years.

Jay: That’s amazing. Your rent must have kept going up each year? How did that work? Or, did you arrange some sort of long-term lease?

Larry: No. I kept renewing year after year. It’s a strange thing. A landlord grows attached to a renter who a) doesn’t destroy the premises, and b) pays rent on time. Those are golden things for a landlord and I fall under that category.

Jay: That’s true. It’s very lucky. Great. Larry, why don’t you just introduce yourself to the audience. You’ve obviously done over half a century of tax work. Maybe you could give us a little bit of background of yourself — where you come from originally and how you got into this whole racket. I think for the audience listening in, this is going to be a slightly different episode, but I think it’s still going to provide a lot of value, particularly for our U.S. citizens who are based abroad, which is exactly what I am. Larry, please introduce yourself.

Larry: Okay. I’m the world’s youngest 75-year-old. Age is strictly a matter of mind. I was born and bred in Brooklyn, New York, spent the first 17 years of my life in New York, migrated to California with my parents, started University at Berkeley in 1960. These were the radical ‘60s. That first year in school, I was part of a group mass-arrested for student protests.

Jay: Nice.

Larry: I wound up getting a Bachelor’s Degree in political philosophy with a minor in English Literature. Unfortunately, while I bettered myself as an individual, the only jobs open at that time for political philosophers was pumping gas and wiping windshields at gas stations. So, I listened to my mother. I became an accountant, and one thing led to the next.

I discovered very, very quickly I hated accountants and I hated accounting. How do I wind up making it tolerable? The first 12 years of my career were spent in LA in the sports and entertainment industry, basically doing entertainment industry accounting, handling tax management for some very prestigious rock music groups. It was an interesting field. The rock music scene at that time, as now, was all drug-laced. About all I can say is that over those 12 years, it was an interesting experience, and I don’t have a single nasal membrane left to prove it.

Jay: I guess that’s one way to make the time go by quick. After that?

Larry: After 12 years in Los Angeles, I moved my family up to northern California, got involved in viticulture accounting, developed a love for wines, only curtailed when my doctors eventually told me, “You have a choice. A new liver or giving up your alcohol.” I gave up the alcohol. What can I say? Discovered in the mid-1980s that my first marriage was quite dysfunctional. I felt I had an important obligation to help get three kids financed through university, out of the house, and after that was all done, my first marriage at the end of 25 years came to a halt.

In 1962, I took a course in government and politics of Asia, discovered China through Edgar Snow’s Red Star Over China, and China became a hobby, so to speak. In the late 1980s, I started coming out here and discovering things. By late 1990, I made the jump across the Pacific pond, came to Hong Kong, discovered that if I stayed in Hong Kong all I’d be doing was U.S. tax work. So, I moved to Shenzhen through 1994 when my wife and I—I was remarried in 1993. Met a wonderful Guangzhou girl in 1992. By 1994 we were, for all intents and purposes, living in Guangzhou which has been basically my primary residence since December 1994.

Jay: Wow. So, over 20 years. China was a completely different world back then. It seems to be evolving at a very rapid pace, but particularly southern China, Shenzhen, Guangzhou. We’ve seen Shenzhen just sprout up like a crazy weed across the border.

Larry: Jay, you have no idea. There are no words available, no visuals that can really describe living in Shenzhen and watching a small town of 350,000 people grow to 14 1/2 million people.

Jay: That’s incredible.

Larry: Double-digit growth over a sustained period. It never occurred any place in the world like this before. It was just amazing. It was mind-boggling. If you think Shenzhen is mind-boggling now, you should see how it has transformed. It’s an utter miracle.

Jay: I know that you’re licensed as a CPA in China. Is that correct?

Larry: That is correct. In 1999 I was president of the American Chamber of Commerce, South China. This was about the time that there was a trade dispute. Basically, the United States bombed the Chinese Embassy in Belgrade when Yugoslavia still existed. There were virtually no communications. I represented, not the American government, but the American citizenry. I was de facto chairman of the International Business Community in Guangzhou.

I put AmCham, must to the consternation of the U.S. State Department, into a summer-trade fair. It turned out that our booth was the most widely visited and at the end of the trade fair, they had a banquet. They put the U.S. Consulate General at the rear of the room, sitting with the Shenzhen trade people. They put me up on the dais at the head table.

I looked at my wife the next morning and said, “Let’s take advantage of Guangzhou. I’m owed after apparently giving an awful lot of face.” One thing led to another, and I eventually got the same business license that the Big 4 Accounting Firms had. I only then discovered if I wanted to expand upon that, I’d have a problem. I would have to hire people. I had basically been a one-man show since 1981, and I did not want to change that.

Jay: A solopreneur, if you will. Chinese accounting is an interesting subject area because, from an investor-financial standpoint, it always is the one area that no one can figure out. It’s the one area that people—it deters them from actually investing into Chinese companies because of “shoddy-accounting standards,” if you will. I’m not sure exactly how that differs from what you’ve seen either on the personal tax level or on the corporate level. I’m sure it’s strong enough that sophisticated investors are hesitant to enter the market.

Larry: Way back when, you visited a small town or village, and the accountant for the company town recognized the fact that the company was technically bankrupt. What do you do? Do you be an honest accountant and put the entire town out of work, or do you fudge things? This is how accounting grew. Obviously, now there’s far more accountability, and you can’t get away with that, but this was the rule of the game way back when. I can’t honestly say that Western accounting is any different. When I get my training, I won’t mention the name of the company, but we just played around with inventory. Nobody ever picked it up on the certified audits. I honestly don’t trust accounting and financial statements anywhere, especially after Sarbanes–Oxley, when there can be off-the-balance-sheet assets and liabilities. Of what value is the balance sheet truly if it’s not really reflecting the entire company?

Jay: That’s a great point, actually. I think that a lot of Americans or Westerners are influenced by mainstream media and have a negative perception of China, but being someone that does live over here, myself — and you obviously have lived here for a long time — you’re right. All accounting can be manipulated to whatever you want your end-goal is. That’s quite interesting.

Larry, I want to dig into—obviously, one of the big reasons that I wanted to get you on the show is to talk about the current tax environment for the U.S. I think a lot of people living abroad in the last couple of years, whether they like it or not, have been quickly brought up to speed about foreign tax reporting requirements. That’s due to stuff like FACTA and FinCEN and all these buzzwords that we hate hearing as U.S. taxpayers because it just makes us scared.

Maybe you could just give us a brief overview of how things have changed in the last five-plus years with reporting requirements for U.S. taxpayers abroad. Then, we can maybe delve into a little bit about how things have changed since the beginning of last year when President Trump took office.

Larry: Oh, this is going to be fun. Let’s start back in 2010. HIRE was the name of an act that was passed by Congress in March of 2010. It was a job’s act. Congress was functioning at 2:00 in the morning prior to adjournment, and Senator Chuck Grassley of Iowa shoved into the bill a 77-page tax act rule known as FATCA on behalf of the IRS. Not one of the 435 members of the House of Representatives, nor the 100 U.S. Senators actually read what they voted upon, and you got FACTA, which now, in essence, precludes Americans outside of America from being able to open up bank accounts.

They can find a bank that will open up an individual account, but just try to open up a business account owned by Americans. You can’t do that anymore. Nor, for that matter, can you open up a brokerage account overseas. U.S. brokerages, if you have a current account but a foreign address, will be glad to sell your stocks for you but will no longer buy stocks for you anywhere; any U.S. brokerage.

Jay: This was all because of—

Larry: Because of Chuck Grassley and FACTA and double-taxation avoidance agreements that the IRS, hell-bent on signatures, got from every place. Among other things, the agreement that was signed in Hong Kong is far worse than, I believe, was signed anyplace else. Hong Kong gave away everything and got absolutely zero in return.

Jay: I’m just trying to digest and dissect this a bit because basically… If you could, as short and as quickly as possible, summarize what exactly are the requirements of FACTA that deter banks from wanting to deal with any U.S. customers?

Larry: Basically, banks now have got to report, on an annual basis, who they’re U.S. accounts are — account name, account number, and, in essence, failure to do so would subject the bank or the brokerage house to a 30% penalty of all income they’re making anyplace. If you’ve got an HSBC earning millions of dollars from investments in the United States and they don’t adhere to this, they can basically find themselves with a 30% withholding and no chance of getting the money back because it’s a penalty. HSBC, Citibank, the big banks overseas can handle it. What about the small banks? The easiest thing for them is to say, “Okay, no more Americans.”

Jay: Right. I think that’s incredible that the U.S. was able to essentially bully all these banks into signing it. Is it basically all the major countries around the world have signed this?

Larry: They signed it and agreed to adhere to U.S. rules. They had to because they didn’t want to get into a financial fight with the U.S. government.

On the basis of reporting information, the OECD came out with their own common reporting standards. Now, you’ve got something that 19 of the 20 G20 members have adhered to, and they’re following rules and procedures in user-friendly English while Americans have to adhere to FACTA. I defy anybody to sit down and read the rules and regulations of FACTA and tell me what the heck they mean.

Jay: I’m certainly not going to do that.

Larry: That’s why people hire me because—

Jay: Exactly. That’s why I have you.

Larry: You give me this material at 3:00 in the morning when I am wide awake because, unfortunately, I wake up in the middle of the night, and I’ve got two or three hours where I’m bright-eyed and bushy-tailed and what can I do? I read tax stuff. Tax is a holistic sleeping pill. It will eventually put you back to sleep.

Jay: This is very true. This is very true. You’re not going to get liver cancer from reading tax documents. Hopefully, not.

I think this is a big issue especially for people in Hong Kong. I’ve been in Hong Kong for over a decade. One of the biggest gripes, obviously, is for start-ups that are trying to open companies here. They don’t have a lot of resources, and they literally find it very difficult to open bank accounts because I think, like you said, most bank accounts, they just won’t do it because they just don’t want to deal with the headache. If you have anyone in your company that is remotely linked to the U.S., they’re just going to be like, “You know what? I’d rather not deal with the U.S. Find somewhere else.” This is actually a big problem for the ecosystem here. It has caused a lot of good companies to actually move away or start up in other places that have more friendly tax regimes. I think that this is an issue, and I don’t know if it’s actually going to get any better.

Larry: It’s not going to get better. It’s only going to get worse.

Jay: Yeah, exactly. Every year I read your tax letter that you send out to your clients. When I see the email come into my email box, I have a glimmer of hope that maybe something good has happened in the last 12 months. But, usually it’s only gotten worse in that direction. On that note, let’s talk about the new administration and how things have changed under our dear President Trump.

Larry: First of all, we’re heading towards the brand-new Tax Cuts and Jobs Act of 2017. The formal name is something completely different. I don’t call it the Tax Cuts and Jobs Act. I think it goes much better when I’m talking to people about Trump Tax.

Jay: Right.

Larry: Let’s take a look, even before we look at Trump Tax, how was the last major U.S. Tax Act enacted? This was 32 years ago, the Tax Reform Act of 1986. I was 44 years old at that time. I did not have a proverbial pot to piss in, and I took advantage of the Tax Reform Act because there was such complete and utter chaos for three, four years. In essence, I financed three kids through university because of Reagan and the tax act.

That tax act actually got underway right after the 1984 Congressional elections when the stars for the Republicans were already in alignment. There was a Republican-controlled House, a Republican-controlled Senate, a Republican president. They started work on a tax act and found that the equivalent, way back when, of the Tea Party Republicans wouldn’t go along with that, and it became a bipartisan effort, so it became a permanent bill. When the act was passed around March 1986, the IRS had eight months to prepare for the new act. The IRS actually went ahead and hired 2,100 temporary employees to aid in the transition.

Let’s look at this year. The entire time frame for the act was 50 days, from the day it was first introduced in the House to the day it was signed by Trump on December 22nd. But, on the 2nd of December, when the Senate passed its version of the act, prior to going to the conference committee, that act was 469 pages. Twenty days later, the act that Trump signed was just under 1,100 pages. Those additional 600 pages primarily came from lobbyists.

There are things in a very non-transparent act that we’ll never discover that were favors to people who can afford to pay for it. Is it wrong? No. Is it right? No. This is the way U.S. government functions.

Jay: In essence, a lot of people don’t know what that Tax Cuts and Jobs Act is — as you call it the Trump Tax, which people are more familiar with. In essence, what does it do, because people think that it should help the economy and create jobs and this sort of thing? But, what is this really all about?

Larry: It initially starts out with a $1.5 trillion tax cut without figuring out how to maintain the U.S. Treasury. When you’ve got a a $1.5 trillion tax cut over the next 10 years without the adequate funds to do anything else, you’re basically printing money. Will it bring in jobs? I doubt it, but it will spur on the economy for a temporary period. Will it overheat the economy? I believe so.

Will Rogers, in 1932, coined the term trickle-down economics. Trickle-down economics has never worked, and I’m not saying that it won’t work now, but I sincerely doubt that it will work. It means, in essence, everything that’s being done is with fiat money. It’s printing money without any backing. It will ultimately, I feel, decrease the value of the dollar vis-à-vis the other economies in the world.

Jay: I think that’s the stance that a lot of the experts are taking. The eventual effect is going to be that. I guess only time will tell. He’s certainly a radical leader that sort of flies by the seat of his pants, so to speak, especially on Twitter. I think it’s all things that we have to consider, especially as U.S. citizens living abroad.

One other topic I wanted to quickly jump into is the IRS itself. Another thing, I think we all grew up, especially for people that are living abroad, grew up in fear of this entity known as the IRS. “You’ve got to get your taxes done on time. You don’t want the IRS to be coming after you.” You’ve mentioned before, we’ve talked about how there are massive budget reductions over there in the IRS, and the IRS has also come under a certain bit of scrutiny a few years ago. I believe they were accused of targeting certain types of taxpayers for their audits and this sort of thing. What is going on over there? Should we be as afraid of it as we are? What’s the feature of that entity?

Larry: I don’t fear the IRS. The IRS in 2010 had an operating budget 21% higher than it does now. In 2010 there were 30% more compliance officers working within the IRS than there are now. What that means to me, basically, is that the IRS has had to become far more of a collection agency going after wherever it felt it could make money. The small American entrepreneur business person living outside the country is not what they’re targeting because the IRS doesn’t have the full capability of going after them.

Yet, if you do something wrong, the chances are you’re going to get an IRS letter. The first problem is trying to read the letter and figuring out what the hell they’re talking about. After that, it’s trying to figure out how you can reach the IRS and get something accomplished because, frankly, the whole system has broken down.

Jay: I remember getting a tax letter, actually a few years ago. I had moved away from North Carolina where I went to college. That was 17 years ago, or whatever, and I remember getting a tax letter, 12 years after.

Larry: Seventeen years ago, that’s relatively new. It’s hard to believe, I graduated University over 50 years ago. Can I be that old? Apparently, I am.

Jay: I just remember getting that tax letter. It said, “You’ve haven’t paid taxes in the state of North Carolina.” Blah, blah, blah. I remember thinking, “I haven’t lived there for over a decade. Surely, you must know by now.” But, I guess they hadn’t, and it had just gotten buried under paperwork.

Larry: Anybody listening to this, if you file U.S. taxes and you had an old address that’s incorrect, file a Change of Address, Form 8822 with the IRS, because otherwise, they’ll send correspondence — if they have correspondence to send to you — to the wrong address. You’ll never find out about it. You’re going to find that your accounts are levied because you never replied.

Jay: There you go. A nice little tasty-morsel treat. A freebie from Larry.

I have one final topic of discussion that I want to talk to you about today. It’s a very buzzy and relevant one. It’s cryptocurrencies and investments within that space, because I know that a lot of us are dabbling into that and no one actually knows how to deal with the taxes or what the ramifications are. For a while, people just thought it was the wild, wild west and didn’t even keep track of this sort of thing. From your standpoints, how are cryptocurrency investments or transactions going to be taxed? From my standpoint, it’s just going to be a nightmare trying to keep track of all these trades and stuff like that if people haven’t done it already.

Larry: That’s where you’ve got the problem. The IRS this year said, “You have Bitcoin, or Ethereum, or any of the other ones, you sell it. It’s not a trade. You sell it. Then, you buy something else. They will not let you trade and make it tax-free. Each and every transaction has to be shown on its own, and this is where people are in trouble now because they assumed “We can trade and it’s all tax-free.” The IRS said, “No! It’s a transaction by transaction basis. There are no tax-free trades.”

Jay: When did they say that? When did that come out?

Larry: Late 2017, and they have come out with procedures for handling this. Those who are dabbling heavily in cryptocurrencies now have seen this, and they’re waking up to the fact that life isn’t the way they thought it was going to be.

Jay: I’m curious. I’ve dabbled a little bit. Luckily, I haven’t dabbled heavily. So, are there going to be things like short-term and long-term capital gains?

Larry: Yes. Absolutely. It’s treated like a stock, like a commodity. It’s subject to orthodox capital gains and loss procedures.

Jay: This is really interesting because I think there’s a lot of these transactions that end up just disappearing because let’s say you sent it to the wrong address. It’s a novice mistake, but you just end up losing that. So, I guess you could just write that off? It’s really strange how this is going to work.

Larry: What can I say? It is really strange. The IRS issued rules, regulations, and procedures, but for every rule, regulation, and procedure, I can find an instance where you fall out of that standard deviation and what do you do then? My advice to people is sit down, document whatever you have. If you believe in something that falls within the guidelines that the IRS has given you, then take the liberal approach to it because, if worse comes to worse, all that is going to happen is you’re going to be challenged.

Jay: Right. I think that all these exchanges now, you should be able to download your trade history. I guess that’s the first step.

Larry: What happens before you have all these exchanges? What happens if you’re dealing with an exchange that’s not part of the U.S. tax system? How do you report it then? There are so many inconsistencies that have to be covered. My best advice is if you have any documentation, list it. The more heavily you document something, the less likely the IRS is going to try to read it.

Jay: That’s the other thing. Most of the world’s cryptocurrency-trading volume is not in the U.S. It’s in Asia. Korea, Japan, China are the heaviest traders of it, and a lot of those exchanges are not onshore. I can see that maybe the IRS will start requiring the U.S. exchanges — like the big U.S. ones like Coinbase and that sort of thing to basically report their—and I think they already have.

Larry: They already have and are doing it.

Jay: How are they going to deal with U.S. citizen’s trading on foreign exchanges because there’s also—this whole cryptocurrency thing started with Bitcoin, which is a very anti-institution. To have those guys, to actually require them to report, let’s say, a FACTA-type thing for cryptocurrencies, that’s going to be interesting to see how that shakes out and exchanges will actually comply to that.

Larry: It remains to be seen what will happen. I honestly don’t know. I learned a long time ago that when it comes to investments, I’ve discovered the law of reverse alchemy. If I buy it and it is gold, you don’t want to know what it turns to so fast it isn’t funny. With the exception of long-term real estate, unfortunately, I adhered to reverse alchemy in virtually everything I did. Long-term real estate is an exception. I’ve done well in that. Thank God, for that.

Jay: There you have it. Larry, it’s been such a pleasure having you on. Thanks for coming on and sharing your insights. I know that before we part, I just wanted to ask, you’ve obviously written a number of books on tax. You can Google Larry Lipsher, tax. You have — how many books have you written now?

Larry: I’ve written seven books. They have been critically acclaimed, but they’re absolute worse-sellers in the world. Nobody in their right mind voluntarily wants to buy a tax book.

Jay: I was going to say, you talked about Guinness World Records. You might be challenging the Guinness Record of number of tax books written by a single individual.

Larry: No, I’m sure there’s somebody who came out with more, and I’ll tell you, I stop at seven. No more.

Jay: All right. Stop at seven. Anyone who’s written a book knows how difficult it actually is. The one thing that I do appreciate about your books is they all have very colorful covers, sort of cartoons and this sort of thing.

Larry: If you put an orthodox cover on a tax book, nobody will buy it.

Jay: Yes, that’s very true. At least you’re increasing your odds. Are there any exciting projects you’re working on this year other than enjoying your life and traveling and being a digital nomad?

Larry: I’m having a ball doing what I’m doing. I never thought a) that I’d get to be my age, b) that I’d be as active as I am, and c) living in Asia, which is where I want to be.

Jay: I think that you’ve deserved the life that you’ve created for yourself. The last question I have for you and I’m not sure if you’re actually taking on more customers at the moment.

Larry: Yes, I am. My wife, Catherine, is an enrolled agent. She’s been working with me for the past five, six years just on taxes. We’re at the point where we actually are going to take advantage of Trump Tax and taking on more cases.

Jay: Excellent. So, what’s the best place that people can find you or connect with you if they are a U.S. citizen living abroad and they want some tax advice?

Larry: prctaxman@yahoo.com.

Jay: There we go. rctaxman@yahoo.com. I’ll have that all linked up for people in the audience and the show notes. Larry, thanks again. It’s been such a pleasure, and I am looking forward to—actually, for the audience that is based in Hong Kong or come through here, I know that, Larry, you give a couple of talks every once in a while at the FCC and those are pretty good. Do you have another one scheduled up anytime soon?

Larry: First of all, the FCC one I did on March 14th. If you just go to YouTube and type in my name, Larry Lipsher, you’ll get that immediately. In total, it was a 37-minute show with questions and answers. It was a good video. I’m doing another performance, so to speak, in Shanghai on April 17th, tax filing day.

Jay: Great. Anyone up there—

Larry: Dinner starts at 6:30. All the booze you can drink. I want a ruckus crowd because if they heckle me, I heckle back, and it’s a helluva more fun that way.

Jay: Excellent. Thanks again, Larry. We really appreciate your time and take care. We’ll speak to you soon.

Larry: Marvelous. We actually made it through before your kids woke up.

Jay: Absolutely. We did it.

Larry: Have a great day, Jay, and I know I’ll be speaking to you soon.

Jay: All right. Take care.

Larry: Okay. Bye. Bye, now.