The Truth About Taxes

How the Wealthy Elite Play a Different Game

Sean Briscombe

• Editorial: Author Academy Elite
• Año: 2021
• ISBN:
  9781647467708
• Edición: 1
• Categoría: Business
• Categoría: Business General

This book exposes the black box secrets of the wealthy elite, showing the reader how they legally and ethically keep their tax dollars, grow that wealth, so that they can give back more, and create a legacy.

"In America, there are two tax systems, one for the informed, and one for the uninformed, and both are legal!"-Judge Billings Learned Hand

“I believe people have to follow their dreams—I did.”

- Larry Ellison, former Oracle CEO

Chapter One
My journey of discovery

In 2008, I was newly married, passionate, and ready to conquer the world. My wife and I had one desire: to start our family. Naturally, we were ecstatic when we found out my wife was pregnant. We picked out the name Charlie before we knew if we were having a boy or a girl, but I secretly hoped we’d have a girl. Our excitement built as we set up the nursery for her arrival. We could not wait to start this new chapter of our lives. Everything in our young marriage was going as planned.

Ever since I was a boy, I lived my life according to plans I made in order to check off the next box and accomplish my next lofty goal. I grew up the son of two middle-class parents, who worked hard from 9 a.m. to 5 p.m. I trained at a high level as a diver my whole life, and I eventually earned a scholarship to dive for Southern Methodist University. My aspirations were to be on a Wheaties box and win an Olympic gold medal. In college, I started out as a biology major, but diving took priority over studying. If you had told me I would eventually get into business, finance, or anything related to my current profession, I would have thought you were crazy. I had no interest in anything related to that line of work. Biology didn’t really interest me either, though. Since I focused on fitness so much and enjoyed training others, I ended up majoring in physical therapy, and I got a job with a practice right out of college. In exchange for 10-hour days, I earned a salary, received health benefits, and started contributing to a 401(k).

That is what middle-class Americans are expected to do, after all. That is what I was taught safety and security looked like. You work hard in school, land a good job, earn a salary, and contribute to a pension—all to retire with a gold watch and a 401(k). I was educated to be a great employee, not to think like a business owner, which is how the wealthy elite educate their children. They pass down knowledge of marketing, accounting, investments, tax code, and much more from generation to generation, as you will soon find out in great detail.

By the time I got married in 2008, my career had taken several turns, and I had my own real estate and mortgage company. However, the economic collapse from the subprime mortgage meltdown soon forced me to shut it down, and my losses were accumulating. I had been in real estate lending and investing for six years at that point, and I was becoming more uncertain and fearful about the industry. How could anyone win the game of investing if this was our new normal?

The bottom fell out from under me later that year when we lost our daughter, Charlie, due to a miscarriage. I was telling myself the story of self-pity, that I’d never become a dad or create a legacy. Everything my wife and I had hoped for when we got married earlier in the year seemed like a distant dream. Our plan went off the rails, and we fell from cloud nine into a pit of despair.

For years, my wife had been told she could never have children. When she was 20, she had been diagnosed with interstitial cystitis and endometriosis. Her doctors wanted to remove her uterus, which she did not allow. When we first met, she told me she didn’t believe she could have children, yet she held onto hope that one day she would have a baby. Knowing how far-fetched her chances of getting pregnant were made the miscarriage even more devastating. Little did we know that it wasn’t about our plan, it was about God’s plan.

As you can imagine, I was desperate and in bad shape mentally and emotionally, but we weren’t ready to give up on our dream of starting a family. Through our church, we became friends with a couple who had started going through the process to get their foster care license. They approached us to see if we wanted to go through the classes with them. We were reluctant, as our wounds were still fresh from our loss, but we decided to explore the option. As we moved on with our lives and became friends with this couple, we began to imagine ourselves with a family again.

While we were taking classes to become foster parents, we also decided to try in vitro fertilization. We made several attempts to get pregnant, but we weren’t successful at that time. Despite these setbacks, we were still hesitant to become foster parents. We were just so afraid of the unknown. Ultimately, though, we decided to finish the licensing process.

We were also persuaded to become foster parents when we learned some devastating statistics about the children who needed our help. According to the most recent numbers available from Pathways Youth and Family Services, in 2018, there were 17,500 Texas children in foster care. The state also had 280,911 reported allegations of child abuse or neglect. I guarantee the COVID-19 pandemic has made those numbers dramatically increase. Buckner International Foster Care and Adoption, an agency based in Dallas, reports that 62% of children in the foster care system were removed from their homes due to neglect, and 36% due to parent drug abuse. Thirty-five percent of the children in Texas foster homes have been bounced around to more than two placements, according to the Kids Count Data Center. Some of the youngest children need help the most, as 48% of children in the Texas foster care system are five and under.

The children in my state need loving homes more than ever, so my wife and I stepped up to help. In our experience, Texas Health and Human Services needed foster parents right away. Almost immediately after getting our license we received a phone call about fostering two sisters, ages 2 and 5. They had been rescued from a one-room apartment where they lived with their parents and four other siblings. When their parents were busted for cooking meth (which is a huge problem in Texas), Child Protective Services took all six children to a group home. The home did not have enough beds for the two youngest sisters, so we ended up getting the call. My wife and I took care of them for three months before they went to live with their aunt in Dallas. We still keep in touch.

After they left, we were contacted about fostering a three-year-old girl, who we were later blessed to be able to adopt. The police found her hiding in the bathtub of a hotel room surrounded by food wrappers and half-eaten jars of peanut butter marked with her finger prints from scooping it out like a spoon. A SWAT team had swarmed the hotel after suspecting meth activity, and they stumbled upon the largest check fraud scheme in Texas history, run by the little girl’s birth mother and grandfather. She was hiding under a blanket, and the police said it looked like she used the bathtub as her bed and occasionally had food thrown in to her by an adult. All of her teeth had been capped with silver, as many children in similar situations are fed juice in bottles from infancy, instead of milk or formula. There was also a scar on her back from some sort of sharp object.

Child Protective Services placed her in short-term care for a few days until they alerted us that there was a child in need of a permanent place to live. We gave her the first real place she could call home. Her mother had been in and out of jail, and the poor girl had been bounced around between friends’ homes. After fostering her for a year, we went through the adoption process and gave her a forever home. Our daughter, like many children in the foster system, was originally diagnosed with Oppositional Defiant Disorder and Reactive Attachment Disorder, a condition in which an infant or child doesn’t establish healthy attachments with parents or caregivers, according to the Mayo Clinic. It develops when a child’s basic needs for comfort, affection, and nurturing aren’t met. We didn’t learn that this was a misdiagnosis for 10 years, after more comprehensive psychological analysis was done. A new, and more accurate, diagnosis of Disruptive Mood Dysregulation Disorder, immediately made us reexamine our parenting strategies. Due to the misdiagnosis, we thought that her mood swings and defiance stemmed from anxiety and control issues. However, it turns out that she is so afraid of her own emotions that she doesn’t want to talk about them, or even feel them, which is why her brain disrupts them.

She desires to please us more than anything. For example, if we told her to clean her room, she would go upstairs and stuff everything under her bed. After all, we didn’t tell her how to clean it, and it was, technically, clean. For 10 years, my wife and I attributed this to being oppositional. We thought she was trying to control the situation and “stick it to us,” since she didn’t want to do what we asked. We would find everything piled underneath her bed and get confused, then we’d become angry with her when she was just trying to please us. There is no way to tell how common this type of misdiagnosis is in foster children, since these are all common disorders that result from experiencing childhood trauma, but it shows how important mental health care is for these children.

We soon received a call about caring for another pair of sisters, a two-year old and a nine-month old. The sisters had been abandoned by their birth mother with the infant strapped into a high chair. When the police entered their tiny apartment, they found the two-year-old trying to feed her sister Cheerios. After they stayed with us for a year, we considered finding another family for them. The foster system deemed our home “full” with three children, and we desired to help more children. Eventually, we found another family that we were all comfortable with, but we still see them all the time. In fact, we are their Godparents, and our daughters consider them sisters.

Later, we fostered and adopted another infant. She came to us after her birth father shot her mother in front of her when she was five months old. When the police arrived, her father put her under blankets and clothes to attempt to hide her in the closet. Her parents were also involved with meth, which led to abuse and neglect. When children don’t have basic needs, such as nutrition, love, attention, and touch, met it affects their brain chemistry and how they interact with the world. Now, she is a well-adjusted child. Later, my wife became pregnant and gave birth to our third daughter to complete our family.

As soon as we started fostering, we knew that was what we were meant to do, and it became our mission. I began to research how to set up a 501(c) (3) for the purpose of helping more children. I wanted to start an organization that would provide resources, training, and support to kids in foster care and the adults who cared for them.

I was still struggling to grow my real estate lending and investing business, and it seemed impossible to provide for my family and set aside enough money to help more foster families in the way I desired. My challenge was that the more money I made, the more I owed in taxes. Due to the additional tax deductions at the business level, I had to spend more of what I earned just to lower my tax burden. This didn’t help me keep my money, grow my money, or give back to foster children. I didn’t see how I could be of much help to the kids who needed it.

Hunting an elusive strategy

Throughout my career in finance, I have been hunting for better strategies for my clients and myself. I was searching for something, but I had no idea what it looked like until I stumbled on it by accident.

In 2010, I was working with an entrepreneur who would soon become a legend in the internet marketing game. A few years earlier, he made a small fortune doing marketing work for companies, and he started talking to finance professionals about how to invest. The big financial companies all told him to invest in mortgage-backed securities (MBS). At the same time, he was committed to making wise choices with his new-found financial gains and was skeptical about what he was seeing. He couldn’t put his finger on it, but he knew something was wrong with the real estate market, so he kept his money in cash. When Lehman Brothers crashed, he knew he had dodged a bullet.

In response to the housing-market crash, he created a financial education platform to teach people the black box secrets that the wealthy use to manage their money. He brought me in as one of his first advisors. He also hired Tom Wheelwright, a leading expert in wealth and tax strategy, as a CPA. Wheelwright had worked with some business heavyweights, including Robert Kiyosaki, founder of Rich Global LLC and author of Rich Dad, Poor Dad: What the Rich Teach Their Kids about Money That the Poor and Middle Class Do Not. Wheelwright has written several tax strategy books, and is still viewed as the go-to guy for tax strategy in the internet marketing game. He was able to bring a ton of tax strategy content to the platform to show members. Needless to say, the group was a financial dream team. The thing that kept bugging me, though, was that all of the strategies these guys promoted operated in the 1040 tax system and revolved around LLCs, S corps, and C corps. In my opinion, these were not black box secrets, they were just regular tax strategies.

Everyone involved in that platform made a bunch of money, but I was left still searching for elusive and revolutionary strategies. My journey brought me to a CPA from Missouri who had some unique methods. He was the CFO for a clean coal production company that had the technology to extract nitrogen and sulfur from piles of laid up coal, which could then be used as fertilizer. Each ton of clean coal produced a certain amount in tax credit. The company raised capital by transferring credits to investors at 50 cents on the dollar. It was a unique way of lowering taxes by investing in clean energy. I ended up hiring him as the internal controller for both of my businesses and to handle my personal finances. This turned out to be a huge mistake; a few years later I found out that he was running a Ponzi scheme.

My wife and I were in panic mode because our finances were in such disarray, but the worst part was learning that the mess we were in was not uncommon. A lot of people find themselves in similar situations because they put blind trust in their CPA and aren’t actually watching what’s going on. When you sign your tax return, you take responsibility for everything in it. If the IRS knocks on your door, you have to decide whether you’re going to fight the audit process or help the IRS do its job. Trust me, based on my experience, all IRS agents want to do is close a file and move to another one in their huge stack. We weren’t trying to hide anything from the government. We just hired a guy who didn’t do his job, and we made the mistake of trusting him. Let me rephrase that: he lied about doing his job and created fake evidence so we wouldn’t become suspicious.

I continued to do a lot of research while we were cleaning up our financial mess. While I was working with the IRS, I stumbled upon information about trusts and foundations. After looking into what types of trusts were out there, and discovering that there were more than 86 unique types or structures, I began interviewing CPAs, attorneys, and other experts searching for the best structure to accomplish my goals. I was shown a type of structure that not a lot of tax experts know about. In fact, this information is typically reserved for tax professionals known as Enrolled Agents. This is the highest accolade the IRS gives to tax professions. Enrolled Agents are federally licensed and can prepare taxes in any U.S. state or territory. The vast majority of tax professionals are only licensed to work in a single state, something we will go into much more detail about later. My mission became tracking down an Enrolled Agent. Through a long line of networking, and introductions from extremely wealthy people, I finally found one.

My quest for a brilliant strategy ended when I met with an Enrolled Agent, and a personal journey of transformation began. This wasn’t some new trick to add to my 1040 tax return, it was a whole new system: the 1041 system. A 1041 tax return with a specialized private trust can help you keep the money you earn and grow it in a system of trusts and foundations.

I wanted to jump in right away to save my money from Uncle Sam, grow that wealth, and use it to benefit and to bless the foster community instead. I also felt that I needed to teach others to do the same thing so they could support causes they were passionate about. I was pumped to get started, but first I had to fix my own tax mess. I had to clean up several calendar years of taxes. Before I could teach it to anyone else, I needed to clean my own house and successfully implement the system myself.

I also had to convince my wife that moving to the 1041 system was the best move for us. It sounds like a no brainer, right? The end game is saving the money you would have paid the government, growing it with uninterrupted compounding interest, and funding a cause you’re passionate about. But there’s a catch. Another discovery I made about the system is that you must give up ownership (without giving up control) of all of your assets. This is the part a lot of my clients get stuck on, and was a point of contention with my wife, as well. We had just gone through a nightmare financial situation, were lucky to make it out with any assets left, and all of a sudden I was pushing to give up ownership of our house, cars, incomes, and everything else. She came around after some tough conversations and became more open to the idea after learning that if we gave up ownership of all our stuff, we could no longer be hunted by the IRS.

The next hurdle we’d need to clear was explaining what we were doing to our family and friends. Most of them thought that we were crazy. A lot of them still can’t make sense of it years later after seeing our success in the 1041 system. They can’t fathom how we went from such a low period in our lives, with the loss of our baby and the audit, to the pendulum swinging the opposite way, collapsing time, and now living in abundance with our focus on philanthropy.

Funding our passion

You’ll soon discover that a major theme in this book is discovering your purpose. I’ll present potential strategies you can use to set up your finances, but you will only be successful in this journey if you have a desire to fund those passions. We stumbled into becoming foster parents due to tragic circumstances, and we were hesitant if it was the right decision for us, at first. Now, I can’t imagine life any other way. Thanks to the 1041 system, we’ve been able to, and will continue to, bless countless foster families. There are approximately 20,000 children bouncing around the foster care system in Texas. Our family foundation has magnified the impact we’ve been able to make.

My wife and I started The Kind Foundation in 2017 to do exactly what our mission and purpose statement says: To “Help kids heal from life’s hurts.” A huge part of what we do deals with the mental health of children in foster care. We are dedicated to preventing misdiagnosis, like our daughter experienced, and getting these children the best level of mental health care. Our foundation provides donations, gifts, and grants for all types of training and neuroscience research, which allows foster children to rewire their brains. The development and understanding of how trauma affects the brain, and brain chemistry, is changing the way therapists are approaching the issues of trauma and neglect and helping those children heal. Children in foster homes often grow up believing that nobody loves them, thinking ‘even my mother must not have loved me enough to keep me around,’ convinced that they have nothing to contribute, and feeling that nobody wants them in their forever family. We contribute to agencies that help kids shift and rewire neuropathways so these negative stories can be interrupted so ...