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On today’s episode, Steve is joined by Grant Norwood, a leading voice in the oil and gas industry, to talk about energy inflation, while Colleen Gregerson of San Francisco’s legendary club, The Battery, shows the upside of charity.
Episode Transcript
Intro:
Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.
Disclaimer:
The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.
Steve Moskowitz:
Hello, everybody. Welcome to Practical Tax. I’m tax attorney Steve Moskowitz, and I’d like to introduce you to my co-host, Chip Franklin. Chip, take it away.
Chip Franklin:
Thanks, Steve. Welcome to Practical Tax, everybody. Steve’s recovering a little bit from COVID, so I’ll do some of the heavy lifting here at first. Today on Practical Tax, we’re going to talk about the business of oil, and more to the point, why we’re paying these astronomically high prices at the pump. Joining us right now is a CEO from the Norwood Energy Corporation, Grant Norwood. He joins us here. Grant, you’re down in Texas now, right?
Grant Norwood:
Yeah. Fort Worth, Texas, actually.
Chip Franklin:
The Lone Star State.
Steve Moskowitz:
See, I think of it as a state with no income taxes.
Grant Norwood:
That is one of the things we’re known for.
Chip Franklin:
All right, Grant. Can you help us here? Why is the price of oil, or gasoline for the rest of us, so high right now? I understand about market forces and supply and demand, but come on, man, seven bucks a gallon.
Grant Norwood:
I mean, it’s a lot of supply and demand. You had the supply greatly outweigh the demand for about a year and a half. So that brought the supply down, and now that the demand’s back, the supply doesn’t come back that easily. So you’ve got some technical hurdles as far as an actual well and its production. And when it gets disrupted in its life, it just might not come back. So, I’d say about seven to eight times out of 10, it didn’t hurt a thing, and sometimes even comes on a little bit stronger, but those other two or three, they don’t come back. So anyways, it doesn’t take much of a imbalance for the prices to greatly sway in one direction or another.
Chip Franklin:
So Grant and Steve, can you tell everybody why California’s paying more than $2 a gallon than the rest of the country?
Steve Moskowitz:
So that the state of California can maintain the over $100 billion surplus, and that’s something that really needs to be addressed. One of the other things, there’s so much political debate about energy and environment, but tell me, Grant, with the high cost of oil, what’s the status of oil and gas exploration in the United States?
Grant Norwood:
Well, it’s a perfect storm for a lot of us that did make it through the storm. We were still working throughout the downturn and now we’re able to turn wells on and benefit much more than we would have had this price increase not happened. But you had so many shareholders of some of these big public companies that actually moved the needle, that want to see some returns. They’ve been sitting in these companies for years and it’s been growth at any cost. And with the last administration, everyone was, “Hoo rah, let’s go,” and then you change the administration and it’s like, “No, let’s pull back.” And a lot of these big companies have said, “Okay, well, we’re going to listen to the administration a little bit.” They’re causing a few extra hurdles. And then we’ve also got our investors, our shareholders that are also telling us, “Hey, it’s time to reap some of the rewards for our investments.”
So what they’re doing is they’re slowing down on the drilling side and they’re cleaning up their inventory of ducks, and that’s a drill done, completed well. You’ve got public companies with several thousand of them that are just going through and completing them, so they’re not drilling. So, a lot of the times the price is determined on what they anticipate the supply to be. And just because they’re not increasing rig count, doesn’t mean they’re not increasing supply, and that’s a big disconnect. These traders just anticipate what that balance is going to be and get it wrong. That’s why you’ll have these wide swings from one week to the next. But overall there has been a lack of drilling and that’s because investors are trying to see some returns and they’re speaking up, and these big public companies are listening.
So you’ve got less going into exploration from the bigger companies that make up a lot of the production. So you don’t have a lot of that big swinging growth volumes that we’ve had in the past that keep up with new demand. COVID sunk demand, but as a whole, the underlying factors that increase every year still went up. So then when the demand came back, it came back higher than it was before. That’s just the market. And then as a globe, production itself declines about 15% a year. So a lot of the new drilling just offsets declining wells that are a little bit older. So, you see a bunch of new drilling, you’ve got to replace what’s coming offline. I guess it’s just enough to offset the decline. It’s not enough to keep up with the demand. So, here we are in this little pickle. You had a few things going on over in Europe to the mix, and there’s a lot of uncertainty. So, the oil market’s pretty hot right now.
Chip Franklin:
Let me ask you real quick a question. Steve, you obviously will have an idea on this too. The longterm incentives to investing. I was talking to you earlier, before we went on the air about a company that I worked with in Texas that was trying to get investors for oil wells, and we helped them do really well. And then when the price dropped, they were gone. How quickly can these others get back into production? And what about refinery capacities?
Grant Norwood:
So the refinery capacity is not really my space. I’m kind of aware, a little bit up to speed on it, but I’d say that there’s probably better people to answer that than me. But what I can say about some of the small players, such as maybe the group that you worked with before, depending on their experience and how they went down when the prices were, they might not come back. You’ve got to be able to find fresh new capital that’s ready to go again. The assets had to have been somewhat maintained throughout, I guess maybe it was a bankruptcy. I’m not sure, but if there wasn’t some receiver or bank that took over and maintained those assets, they could have been run into the ground and they’re no more, or they would take a lot of work to get back up and running.
And here’s a huge thing that’s going on in the oil market right now. We have a huge labor shortage. We have a huge supply shortage. So tubulars, for example, casing for a well, something you can’t drill a well without, where you were getting it for anywhere between nine to $11 a foot last year, about six months ago it was $19 a foot. Now it’s anywhere between 24 and $27 a foot, depending on what state you’re in. So the cost to fix these wells, to drill new ones, everything’s up so much. And then you can’t find the help you need to do the work. So you’ve just got to consider that in your business model. And if you’re paying all this money to get this stuff on and you don’t believe that the prices are going to be up for long, it’s really hard to commit that capital under today’s economics when tomorrow’s economics could be 20% less.
Chip Franklin:
That’s a great-
Steve Moskowitz:
What about producing energy? To win conflicts, we need the energy.
Grant Norwood:
We do.
Steve Moskowitz:
But then there’s a lot of people that are bringing up climate change. So how can we still produce energy and deal with the people that are very concerned with the science of climate change?
Grant Norwood:
I’m not sure. There’s a lot of controversial topics and-
Steve Moskowitz:
What’s your feelings on it?
Grant Norwood:
I mean, we obviously need the energy. What’s more important, human flourishing, or the dark ages? And that’s really what it’s-
Steve Moskowitz:
Literally, literally.
Grant Norwood:
Literally the dark ages. I mean, solar panels, windmills, all that, that’s all things wished for and hoped for, but it doesn’t work. It’s not economic. People are trading tax credits to try to break even, and they fail miserably at doing that. You have all these left behind projects that are just abandoned, and oil and gas has that problem too. There’s a lot of abandoned oil wells from people, like all these cycles we go through, like the one last year. So people that went out of business, they didn’t remove those pump jacks, plug those wells, remediate that surface and leave it prettier than they found it. It’s probably still sitting there for the state to clean up.
Well, the wind and solar stuff, a lot of that goes to the wayside as well, and they’re leaking more oil than the actual oil wells. But what do you do about it? I’m really not sure. It’s something I’m passionate about because I know we need it. Because you run guys like me off, and then what are you going to do when prices go from 120 a barrel, where we’re at now ,to 150 to 200 to 250? Then you’re going to want us all back and you’re not going to … It’s just not that-
Chip Franklin:
Do you really see that happening? Where do you see the cap per barrel in the next year?
Grant Norwood:
Well, I really don’t think that the green initiative makes enough waves to actually run us off. Is it annoying? Yes. Will they succeed? Absolutely not. It’s annoying to hear about and it’s annoying when somebody buys into that and you have to have a conversation with them. But that’s really not going to run us off. I mean-
Steve Moskowitz:
Go ahead.
Grant Norwood:
Okay. But I mean a lot of my own personal feelings, and I’m waiting on others to catch on and speak this too, but as we continue to develop our shale reservoirs here in the states, if there’s no meaningful new discoveries, and that’s a big problem because of the lack of exploration, like we just talked about a few minutes ago, when you start drilling up your tier one acreage and you have to move to tier two acreage, you’re spending the same money for half the reserves. So an oil well’s productive and economic lifespan’s much shorter and it’s the same cost, then that just means the price per barrel to justify drilling that well goes up tremendously. The United States producing 13 million barrels a day, somewhere between six and eight million barrels of that coming from shale, you start cutting shale down by 50, 60%, $120 is going to be cheap.
Chip Franklin:
Yeah.
Steve Moskowitz:
What do you see the future of crude and natural gas?
Grant Norwood:
I guess in what sense, just overall?
Steve Moskowitz:
Well, how it can live profitably with the green technology.
Grant Norwood:
I mean, green technology makes up, for a decade, it made up less than 3%. I think it’s sitting around four and a half, 5% now. Give them another 10, 20 years, they might make up 10%, but you’ve got to understand, if we’re consuming somewhere around 108 million barrels a day right now, our consumption’s going up by about anywhere between a million to a million six barrels a year. And it’s going up as the energy mix is changing, but it’s still going up. So the energy mix isn’t even replacing the increase in demand. So it’s not going to affect anything. [inaudible 00:11:54].
Chip Franklin:
Hey, Grant, what percentage of crude goes into the gas pump and what percentage for heating homes, businesses and other areas? I mean, because we all just think about the gas pump, but obviously this transition from non-renewable to renewable, it’s not going to happen overnight and it’s going to have to happen in cooperation with people like you. Right?
Grant Norwood:
Well, it definitely would. It’s not going to happen overnight. I don’t know, and I’m not just saying this because it’s my industry, I don’t think it can happen. I’m more of a fan of figuring out a safer way for nuclear to come about because if what I’m saying about shale is right and we don’t have any new, meaningful discoveries, where are we going to get our power?
Chip Franklin:
You’re right. No, I-
Grant Norwood:
Because I’m not going to be able to deliver it to you. My colleagues aren’t going to be able to deliver it to you. Wind and solar, my dying words will be, it won’t come close. Does it offset it a little bit?
Chip Franklin:
But you’re right about nuclear. I mean, nuclear has no carbon footprint.
Grant Norwood:
Nuclear has no carbon footprint. A few freak accidents scare everybody. But it’s the only real solution to creating this carbon footprint. But if people are scared of it, it’s worse than oil and gas, but it can do what wind and solar can’t. It can do what oil and gas can’t. That was the big scare. A lot of my peers that are around my age group, which I’m relatively young in the industry-
Steve Moskowitz:
We all are. Everyone on this is.
Grant Norwood:
Absolutely. No doubt there, but-
Chip Franklin:
You should hear me getting out of bed in the morning. You wouldn’t say that. I sound like a dog that just fell down the stairs.
Grant Norwood:
But it’s such a popular thing in topics of conversation today to talk about the green initiative, that a lot of my peers that buy into that are like, what are we going to do 10 years from now? And that was the fear the people that came before me said about nuclear in the ’80s. And then you had a few freak accidents and nuclear was worse than oil and gas. I think a lot of the studies are going to come out and show just how dangerous wind and solar are. It’s going to become the new witch hunt, but maybe I’m wrong. But it’s, either way, not enough of a solution.
Chip Franklin:
Grant, I mean, it seems to me and Steve, that most of the investments that we’re making, I think people just have to understand that this is not an overnight solution and that we can’t-
Grant Norwood:
It’s going to take while. Maybe there’s some technology that’s not out there yet, that’s being developed still. I hope so. I don’t want to have grandchildren that don’t have energy, because I know that eventually there is an end to this side of it. It’s drawn out, it’s over time, and it’s going to take a while because there are certain wells that do produce for 70, 80 years. So even if we stop drilling tomorrow, there will be some oil produced. You were asking me what the statistics are. Some of the ones you’ll read will say 15% go into the gas tank. Some of those studies you read will say as much as 40% go into the gas tank. The rest of it goes to a whole host of different products. There’s not anything that we use today that doesn’t have it-
Chip Franklin:
Forbes just had an article and they said 18%, essentially, or something like that.
Grant Norwood:
18. I think it really depends on the country.
Chip Franklin:
Yeah. Well yeah, they were talking about the US.
Grant Norwood:
It’s hard to quantify all of them and then believe that the statistics are accurate. Most of the globe was sitting at home a couple years ago and we still had 95 million barrels a day of demand, down from, I think at the time, somewhere around a 104 million barrels per day. It didn’t demand as much as it slowed down activity of everything going on. So it makes up a small percentage, and that’s what people don’t realize. It’s great. So if every car and every truck came off the road, you dent demand, call it 15, 18, 20%.
Chip Franklin:
You’ve still got a problem or an issue, yeah. Well I just bought a Tesla and I got solar panels, so we’ll see.
Grant Norwood:
That’s awesome. Well, hey, I jumped into an Uber that was a Tesla leaving the Mavericks game, the one that they lost in [inaudible 00:16:27]. I enjoyed it. That was the coolest thing I’ve ever been in.
Chip Franklin:
Look, the thing is, is that green and non-renewable shouldn’t be enemies. We should have a discussion.
Grant Norwood:
They shouldn’t. They shouldn’t because there’s a lot of great minds in oil and gas. It’s the most difficult, simple business on, on earth. There’s a lot of great thinkers and there’s lot of great problem solvers. So to blend the two together, there’s solutions out there.
Chip Franklin:
Well, you’re a good spokesman for it, Grant. People should check you out. Again, it’s called norwoodenergycorp.com. Will you come back and talk with us again soon?
Grant Norwood:
Anytime you want. Absolutely. Thanks for having me. I enjoyed it.
Chip Franklin:
Thanks again, Grant. Really appreciate your time. Again, that’s Grant Norwood from the Norwood Energy Corporation. Still to come, we’re going to talk about taxes and philanthropy, and they’re not as far apart as you might think. But first what’s the latest on cryptocurrency?
Steve Moskowitz:
Cryptocurrency is so fascinating in concept. Some years ago, somebody created a currency. Now what is a currency? A currency is something that people will exchange of value, and in modern life, it became very convenient. In the old days, if you were a farmer and you raised wheat and your next door neighbor was a rancher, you would exchange some grain for some meat. And that worked really well. And then somebody on the area on your other side made clothing and you wanted to exchange some wheat, but he didn’t want wheat. He wanted meat. So somehow you had to exchange something that the rancher used so you could get meat for your clothes. That got complex quickly. So the idea of currency came about, where everybody accepts it as value. Now what’s happened is it’s a variation of what was called barter exchanges, where people say, “Look, I want you to paint my house. In exchange for that, I’ll repair your car.” So, that works fine.
But even at that point, the IRS stepped in and said, “Barter is taxable.” So for example, let’s go back to that transaction where one person says, “I’ll fix your car and you paint my house.” The IRS says, “Okay, the fair market value of what you receive, that service or that product, is the same if they’d paid you in cash.” Even if the law provides for it, it’s far more difficult for the IRS to audit and keep track of it.
Again, cryptocurrencies can be good for a lot of reasons. However, it’s the currency of choice of a lot of law breakers too. You will see that sometimes an extortionist will demand payment in Bitcoin. And some people believe that if they use something other than US currency, Bitcoin or other cryptocurrencies, it would be a way to avoid reporting to the IRS. It is just as much a crime to evade your taxes because you use cryptocurrency than if you used money or anything else.
So, what we have here is a system that the government’s now going after cryptocurrency. Think of cryptocurrency just like cash with all the same tax rules. If you break the laws on cash, you can be subject to criminal and civil punishments. The same with cryptocurrency. So if you go to work for someone, he pays you a $100 in cash, you report wages of 100. If he gives you cryptocurrency worth 100, once again, you report the same 100 as income and he or she has the payroll taxes. Suppose somebody gives you a gift of cryptocurrency. Well, that’s not taxable to you, as long as it’s truly a gift.
Suppose you now have this share of the X stock that you earned at $100, and then you go ahead and you go to the grocery store and your market basket comes up to 110. And the proprietor of the store says, “I will accept that share of the X stock as full payment.” You’ve now made a sale of 110, but you have a basis of 100. So you have a capital gain, like you sold any other stock, of 10. That’s why it’s so important that you go ahead and you have to keep the records because I will tell you from experience, if you don’t have a record to say, “Look, I have no idea what it costs.” The IRS says, “No problem. We’ll value it at zero.” Obviously in my grocery store example, you don’t want that crypto being valued at zero and paying tax on 110. You’re only paying tax on the 10.
This reminds me of 2009 when the government found a way to enforce the laws on international taxation that had been the law for many, many years, like FBARs had been the law since 1970, but the government didn’t find a way to enforce it until 2009. The government got very good at that. And what I see now in 2018 is that the government is using a lot of the principles they used for the foreign bank accounts to [inaudible 00:21:31] out people with the cryptocurrency accounts. And there’s a lot of good records kept with cryptocurrency too. So the bottom line is the people that think they can use cryptocurrency to evade the taxes are going to be sorely, sorely mistaken. And I believe the government is going to come to a point in cryptocurrency like they have now with the foreign accounts, but it’s not going to take them nine years. They’re there now.
What our law firm does to help cryptocurrency clients is everything, as any other client. For example, the preparation of tax returns and the representation. And here, the representation becomes a lot more intense because the IRS doesn’t question what a check for $100 was, but the cryptocurrency, there’s a big question on the valuation. The record keeping can be challenging. And not to mention, it’s not just the IRS. It’s the Financial Crimes Enforcement Network, and then we may be dealing with the state people for income taxes, sales taxes, payroll taxes. Essentially when you think about cryptocurrency, it has all the same responsibilities as cash, but there’s a lot more to it. For example, someone can take a little bit of cryptocurrency today and it turns into a lot of cryptocurrency tomorrow. Well, what’s the tax ramifications of that? How’s that going to be taxed? What are the taxing authorities going to say? That’s why you need the representation that’s familiar with it and how it worked. This is a new area and there’s a lot of learning and there’s a lot of precedent to be made.
Chip Franklin:
Hey Mr., can you spare Bitcoin? All right. Coming up next on Practical Tax, we’re going to talk about philanthropy and the tax applications. Steve, what are some of the reasons why people give?
Steve Moskowitz:
Well, there’s multiple reasons to contribute. One is for the good itself.
Chip Franklin:
Right.
Steve Moskowitz:
However, the government makes it sweeter because you pay less taxes, and charitable giving can be part of an estate plan and an income tax plan where you can really benefit from something. Let’s take a look at this. Suppose you have somebody that lives in a house and they say that they want to live in that house for the rest of their life and the rest of their spouse’s life. But when the second spouse passes, they would like the house to go to the charity of their choice. Well that’s nice, but there’s no tax benefit to that. Instead tax wise, you can have something called a charitable remainder trust, CRT. And what happens is physically everything stays the same. That couple lives in that house for the rest of their lives, however long that may be. But when they pass, the charity gets the house. That provides an income tax benefit for that couple right now, and a big one.
So, think about it physically. They do everything they want to do. They want to live in the house for the rest of their lives and then the charity gets the house. But now because of their kindness, they’re paying a lot less taxes all by setting up a charitable remainder trust. Welcome to my life, Chip.
Chip Franklin:
But that’s amazing. 99% of the people watching this have no idea that stuff exists. We’ll obviously have a longer conversation about philanthropic tax planning, because I think you’re right. At the heart of it, it makes you feel better about who you are. Joining us right now is Colleen Gregerson. She is from Battery Powered. She’s the Executive Director. That is an innovative philanthropic model here in the Bay Area. She’s nice to tell us a little bit about it. I love the Battery by the way. Hello Colleen, how are you?
Colleen Gregorson:
Hi, how are you? Nice to see you both.
Steve Moskowitz:
Thank you.
Chip Franklin:
Well, it’s great to be here. Steve is battling through post COVID, so his voice is somewhere in the ether.
Colleen Gregorson:
Sorry to hear that. Hope you’re on the mend.
Chip Franklin:
Yeah, it is. Yeah, it’s good.
Steve Moskowitz:
So, you have to promise to come back to us so you can hear me how I normally sound. Chip and I did radio for years. He knows what I really sound like. This is a mystery voice.
Colleen Gregorson:
Okay. I’ll be glad to come back.
Chip Franklin:
Well, you’ve got some blood in your cheeks, Steve, so that’s good. First of all, let’s talk a little bit about the Battery and tell people what the Battery is. I mean, I can, but it’s not going to sound the same.
Colleen Gregorson:
Sure, happy to. The Battery is a social club based in San Francisco on Battery Street, creatively named, and it’s been around for about eight years. It was founded by Michael and Xochi Birch. They’re software engineers. They were living in London and really loved the clubs that they had there, but when they came back to San Francisco really wanted to have the same kind of special place in their hometown. So, they established the Battery. It was very important to them from the get go that it not just be a beautiful place to have a drink and dinner and meet new friends, which it is.
Chip Franklin:
Which it is.
Colleen Gregorson:
Which it is.
Chip Franklin:
I saw Tom Petty out getting into your place one night, right out front, because I worked across the street. So it was a happening place and just inside the people were friendly. There was none of this, oh, you’re not from around here kind of thing. It didn’t have that feel at all.
Colleen Gregorson:
It’s a community for sure. It’s definitely a community. So it’s all of those things, but they wanted it to be a place where people could come together and fund social impact and give back in a meaningful way. So Battery Powered was established as the vehicle through which to do that. So, that’s a little bit about the Battery, but I’m happy to jump in and tell you more about Battery Powered then as well.
Chip Franklin:
Well, yeah, let me ask you this. So when you guys start to put together this philanthropic arm, how do you decide where to go or do you just go out there and see what the need is?
Colleen Gregorson:
So, we are a giving circle, if you’ve ever come across that concept before. Members of the Battery, they decide to participate in the giving program. It’s optional. They make a donation into our nonprofit organization. We are a 501(c)(3) nonprofit. Those donations are pooled into a pool of capital, and then we jointly decide how to give that money away to other organizations over the course of the year. The way that we decide how to do that is we start by choosing issues that we’d like to focus on for that year, and that’s decided by our members. We have about 520 members who participate in the program, and they choose the issues that they’d like to focus on.
Oftentimes those are local issues. For example, we recently completed a giving theme on housing and homelessness in the Bay Area, but sometimes they’re national issues like journalism and the media, or even global issues like climate action. I heard you talking about energy before. So they choose the issues. Then we spend a lot of time doing a deep dive into understanding that issue more so that we can become more informed citizens before we start making decisions about how to fund organizations that are offering solutions in that space.
Chip Franklin:
I mean, obviously it’s difficult because there’s going to be a lot of organizations that are going to come to Battery Powered and say, “Can you help us?” How do you triage those?
Colleen Gregorson:
Yeah, we do. So we get many amazing applicant organizations for each of the themes that we take on, and we do three per year. So we have three grant cycles per year. We get many wonderful applications and we do a professional job of reviewing and evaluating each organization that comes to us. But it depends on the topic that we’re working on. Because for example, the issue of scale might be very important to some issues, but maybe not as important to others. So, we modify the criteria by which we evaluate organizations based on the topic that we’re focused on. We do a lot of work, me and my team, to narrow it down to 10 organizations that become our finalist organizations, that we then introduce to our 500 plus members who get to meet them, get to hear from them, get to learn about their work more deeply before we make decisions about how to allocate our funds to them. But I will tell you that there are always far more amazing organizations than there is funding that we have to give away.
Steve Moskowitz:
Basic economics.
Colleen Gregorson:
Yeah, economics. We’re always looking to grow the membership so that we can fund an increasing number of those organizations.
Chip Franklin:
Steve, let me ask you a question. Do you ever run across a charity that maybe is having a hard time raising funds, but then you find maybe a way through taxes to help reduce their costs? Does that happen?
Steve Moskowitz:
Yes. I call that the anti running away from you position.
Chip Franklin:
The what? The anti running away from you?
Steve Moskowitz:
The anti running away from you, because sometimes when fundraisers come, people see you and they run in the opposite direction. And I say, “You actually want them to seek you out.” The tax law has so many benefits for charitable giving, that one of the things I explain to the clients is charitable giving is good in and of itself, but the government makes it so much sweeter because with the tax law and charities as it is, both parties can have a benefit that neither party would have otherwise. The charity gets a benefit, but the giver gets a tax benefit as well, and everybody benefits. And just before you came on, I was explaining to Chip that works in estate planning, that works in income tax planning, and there’s so much that can be done.
Sometimes you’ll have a situation where somebody will say something like, “Well, wait a minute. I wanted to give my house to charity, but the kids say, mom and dad, what are you talking about? I thought you were leaving the house to me.” How can you make everybody happy? And I say, “Oh, we can employ something called an ILIT,” I-L-I-T, Irrevocable Life Insurance Trust, where physically the couple lives in the house for the rest of their lives. When the second one passes, the charity gets the benefit. While they’re alive, the couple has a huge tax benefit. They pay a lot less taxes because of this. Physically nothing’s different, except they’re paying a lot less taxes, and the kids are taken care of because through insurance, although they don’t get the house, they get the value of the house. So, everybody’s happy. And then there’s other things that you can do with the ILIT too, to control the money that benefits people, including some people say they want to keep the money within the bloodline.
Chip Franklin:
Colleen, when you’re meeting with the other board members and trying to make these decisions, I would imagine it also provokes an awareness. There’s got to be a benefit from this. So even when you’re not giving to that particular business, others in the Battery and their friends and people outside that community, they see that motion toward helping others, and it has almost a contagious effect, right?
Colleen Gregorson:
It does. And I add two points to that. One is many of our members, they meet an organization through Battery Powered, through our process, and they go on to have an independent relationship with that organization. They fall in love with them, meeting them through our work, but then they go on and maybe they give to them directly or join the board or volunteer for that organization. So, that’s happening all the time. But on top of that, I just say that we’re very proud of what we give, but at the end of the day, we’re not a huge funder. We’re doing between three and $4 million a year in grants on very big, complicated, hairy issues. So the money is meaningful and it makes meaningful change, but the education that our members are getting as well through this process, because we spend four months really learning more deeply about it, the tentacles of that I think are tremendous.
It’s why we spend so much time on the education, because many of these people, they own businesses or they’re executives at big businesses. What business decisions are they making differently that can have an impact on that issue that we’ve just learned about? Or what different decisions are they making in their personal life? Maybe the car that they’re buying. I heard you just bought a Tesla for climate reasons. So, what are all the different choices that they’re making differently because of what they’ve learned? So those are the impact beyond the dollars that we get.
Chip Franklin:
Can I throw one more thing in Steve? I don’t know if you guys ever read the Johnstown Flood. It’s a story essentially in Johnstown, Pennsylvania. There was a resort high up in the hill and the dam that held the water in there was older and older and they didn’t replace it, and it broke and it killed 1000 plus people in the town below. Carnegie was one of those members, and it so changed his life. Many people think of Carnegie now as a philanthropic man of some distinction. It didn’t happen until there was a moment in his life that he saw something and it caused him to act. And that’s what I think is great about what you guys are doing.
Most people go there, they may not be aware of Battery Powered, but they go there and they learn through that. They meet these people of significance who have this ability to either do it themselves, or to bring other people together. When I read about Battery Powered, that’s why I wanted get you, Steve and I were talking about this, that’s why we wanted to get you on the show.
Steve Moskowitz:
Chip, I would just add to that. It’s so true because in business, contacts are so important. Somebody does something good, they make a charitable contribution, but they meet someone they never would’ve met. They meet them in a different circumstance. And all of a sudden, they find they’re doing business with them and they’re making far more money than if they held onto their little dollars within and kept every cent. You can actually sometimes make more money by giving some money away.
Chip Franklin:
Who’d have thought you’d be talking about this on a show about taxes?
Colleen Gregorson:
I was surprised too, but I’m delighted.
Chip Franklin:
Well, will you come back again, please, and talk more? We’d love to continue this conversation.
Colleen Gregorson:
I will come back anytime. We are focusing on the future of food next. Then we’ll be working on how we can help Bay Area youth find pride, purpose, and joy in their lives. So that’s what our docket looks like for the rest of the year. Lots of exciting organizations we’re going to meet. I would be delighted to come and share any of it with you.
Chip Franklin:
We are your allies. Thank you so much.
Steve Moskowitz:
Thanks so much.
Colleen Gregorson:
Thank you so much.
Chip Franklin:
Yeah, that is the-
Colleen Gregorson:
Get well.
Chip Franklin:
Bye-bye now.
Steve Moskowitz:
Thank you.
Chip Franklin:
That’s Colleen Gregerson, the Executive Director for Battery Forward. All right. Thanks, everybody. We’ll see you next time.
Outro:
Thanks for joining us on the Practical Tax podcast with tax attorney Steve Moskowitz. To hear more and view more podcasts, go to moskowitzllp.com/practicaltax.