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Patent Attorney John Rizvi discusses intellectual property and how the tax code applies to the sale of ideas, plus experienced Construction analyst Shelly Armato discusses the state of construction and the ups and downs of investing in the construction industry.
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.
Chip Franklin:
Hello. Welcome again to another edition of Practical Tax with Tax Attorney, Steve Moskowitz. Steve, when you think about intellectual property … It’s funny. We were talking with an intelligence officer on one of the last shows we did, and I think about when people talk about intellectual property, it is interesting. If you were to purchase something that was intellectual property, if I wanted to purchase a copyright for somebody, does that have all of the same entanglements of a regular sale when it comes to tax and the federal and state governments?
Steve Moskowitz:
When you talk about tax and you talk about entanglements, the answer is almost always yes.
Chip Franklin:
Okay, fair enough. We’ll dive into that a little bit deeper. Our next guest is known as the Patent Professor. He’s an adjunct professor of patent law at Nova Southeastern Law School in Florida. He’s written two books on patents and John Rizvi is nice enough to join us here for Practical Tax with Steve Moskowitz. Hello, John.
Steve Moskowitz:
Hi, John.
John Rizvi:
Yes, how are you? Pleasure to be here.
Chip Franklin:
Great! I love that you have the Patent Professor and it has a little R on there on it. I tried to find that on my computer one day. On a Mac, you got to hold six buttons down at the same time. But let me ask you, do you have to … and I’ve heard this before with, I don’t know, copyrights or trademarks or patents … but when you get it done, you have to let people know that you have a patent on it, right? Or the rights to it can start to slip away. Is that accurate?
John Rizvi:
Yeah, so you have to put people on notice. So patents and trademarks are both different. Briefly, a patent protects an idea, like an invention, and trademarks protect brands. Whereas the patents, you would mark the product with US patent number and you’d have a patent number. With trademarks, and I don’t know if this is going to show up well on screen, I have a cup of coffee with me-
Chip Franklin:
Starbucks. We see it.
John Rizvi:
Yep. Everyone is seeing the R with the circle around it on the logo. And I don’t know-
Chip Franklin:
Gotcha.
John Rizvi:
[inaudible 00:02:28] knows what I’m talking about. For a trademark, that indicates that it’s a registered trademark. Now sometimes, you’ll see a TM and a TM is putting people on notice that you’re seeking rights to that name, but it’s not necessarily been granted yet by the trademark office. It’s very important to label and put others on notice. Otherwise … and there’s a lot of advantages … it eliminates the defense of, “I didn’t know that was a trade name.” For patent cases, there’s a defense of innocent infringement. It doesn’t get you off the hook as an infringer, but it at least makes it more difficult for a judge to award punitive damages because it makes it look like it’s an accident. But if you have your registered trademark every time you have your brand … You have it on your sign, your website, your business cards, letterhead … then it makes it really hard for somebody to say that it was accidental. The same thing with a patented product.
Chip Franklin:
Steve, when you have somebody coming to you and they want to start a new business, and they want to name the business, is there a process, a road you send them down to make sure the name they’re choosing hasn’t already been chosen by somebody else? And this is a question for you, John, in just a second. Do you have to go outside of your market to see if somebody in Omaha or something has that same name?
Steve Moskowitz:
That’s why I refer them to somebody like John.
Chip Franklin:
Interesting. Because it’s funny … It’s something that is so important, and I bet I’m going to guess that most of the small businesses that we all run into spend an inordinate amount of time trying to come up with a name for their business. And again, that’s just one aspect of intellectual property because we see this all the time in Silicon Valley with different type of software that’s created, and does it infringe on another? Here’s a question for you. If I sue somebody for infringement, okay?
John Rizvi:
Right.
Chip Franklin:
Steve, in the money of what I have to pay to that people, if I violated the law and I had to pay them, would that be tax deductible?
Steve Moskowitz:
Well, we have to see what’s happening and we have to be careful because a lot of times penalties are not. When you reach a settlement, a lot of times what you’re doing is, “What am I paying for?” And what you want to do is make sure you’re paying for something that is tax deductible. That’s true if you’re on the other side of the lawsuit, “What am I getting? Is it taxable, non-taxable? Is it ordinary income, capital gains?” So these are all things that are negotiated before you actually finalize it.
Chip Franklin:
John-
Steve Moskowitz:
Or should be. Most people don’t know because they don’t think about the taxes. But when they bring in a tax attorney, it’s the first thing we think about.
Chip Franklin:
Well you guys, obviously both being attorneys, I’m sure you cross over your interests all the time. I’m kind of curious about the field of intellectual property. Obviously, it’s changed dramatically since the internet, right? I mean, there’s probably people listening to us right now that have online newsletters, and they just go to Google Images and grab them and throw them on their page. Is that a worry? Would you advise somebody not to do that?
John Rizvi:
Oh, yeah. It’s an absolute worry. Sometimes, the internet is made a lot of things easier, but that doesn’t necessarily mean it’s made it safer. I think it’s made copying so much easier because, as you said, people go to Google Images and they’ll right click, save the image, and then use it on their website, and that’s copyright infringement. They might be lucky and it might be an image that’s part of the public domain and nothing happens, but it’s kind of a crapshoot. You’re taking a huge risk. It’s always better to get permission. Or worst case, if there’s an image, it’s safer to link to the image than to actually grab the image and put it on your website.
Chip Franklin:
Can I grab something from a government website and put it on there since I pay for the government? Does it belong to me? I’m not being facetious. I mean, does it apply pretty much for across the board? Will the government actually copyright things and trademark things as well?
John Rizvi:
They do. They do. In fact, there might even be patented ideas that’s owned by the government. That would not be a safe approach to assume just because it’s on a website that ends with .gov, that anything you see there is fair gain. In fact, sometimes they might have stuff on their website that they have licensed from a private individual. So that individual is given rights to the government, but they don’t transfer to you. That doesn’t mean that some third party sees that image on the government website and gets to take it.
Chip Franklin:
Is intellectual law keeping up with the sweeping changes in technology?
John Rizvi:
Well, the laws are always a little bit behind, and intellectual property’s no different. Perhaps it’s, in some ways, a lot more behind because things develop way faster online and it’s usually years before the laws catch up. For example, when domain names first became available, there were no laws preventing individuals from getting trademark domains. There were 18-year-olds registering things like mcdonalds.com and whatever, burgerking.com, and holding those names hostage, selling them back to the corporation sometimes for millions of dollars.
Chip Franklin:
It happens a lot. I mean, I know there’s a friend of mine, Malcolm Nance, who’s a regular on MSNBC. Somebody squatted on his name and he looked into it, and it would cost him $10,000 to get it back. You can go to ICAN … But it was a pretty long project to try to get that back. And I think that for businesses that are starting up, that don’t have a lot of money … We’ve all seen some businesses like restaurants and they’ll put some golden arches there, and I’ve seen this before. In fact, a famous one here in California, In-N-Out, has that. I don’t know if you ever noticed that, Steve, that it kind of has a golden arch to it. And I always wonder to myself that if they kept that up long enough and McDonald’s did not come to them and say, “Take that down,” would they sort of own it at the same time? Right? I mean, doesn’t the person who has that trademark, as I mentioned in the beginning, have an obligation to go out and stop them? A registered trademark?
John Rizvi:
Yes. The term of art in intellectual property, it’s called policing your mark. You have to police your mark. You have to look out for instances of infringement. If you don’t catch them, that doesn’t mean the alleged infringer ends up getting rights to it, but it certainly weakens. It gives them a defense. They couldn’t go and stop somebody else from using a mark that they’re on, but they would have a defense against your lawsuit for trademark infringement, claiming abandonment, that you basically abandoned the mark. It’s really similar, I don’t know how familiar you are with the concept of adverse possession in real estate. In real estate, if you have a piece of land and a neighbor plants, a row of trees or something-
Chip Franklin:
Right.
John Rizvi:
On your property … In Florida, there’s a period of seven years. If their encroachment on your property is adverse … It’s hostile, meaning it’s not with permission, and it’s open, it can be seen … then guess what happens after seven years? That person that planted the trees on the wrong side, or put his fence on your property, they end up getting rights to that property by adverse possession, by openly possessing it, because you didn’t enforce your rights. The purpose is they want some settlement to property disputes. They don’t want things left so that 20 years, 30 years later, somebody can come forward and say, “Oh, wait a minute. That driveway is on my property.” You have seven years to watch your property. And if somebody starts putting things or using your property, you have an obligation to take action, and that’s real property. But intellectual property, which is what I practice, the law of ideas, that’s not any different. You have a duty to police your intellectual property as well, whether it’s a brand or whether it’s a new idea.
Chip Franklin:
Well, I mean, a great example … This show is called Practical Tax. There are other shows in the world called Practical Tax. But obviously, we have Steve’s name to it as well, so it’s Tax Attorney, Steve Moskowitz with Practical Tax. It’s interesting to see. When I went around and I was researching it, it’s okay. If we’re not infringing on somebody, you can still have the same name. Like my name, Chip Franklin. There’s a guy on either TikTok or Instagram whose named Chip Franklin. I have a 100,000 followers. He has 50. He gets all these angry emails at him. They think he’s me. And I was like, “Wow, do I have any responsibility there?” He said, “Can you please take your name off your bio? Because everybody mixes it up with me.” And I go, “No.” I don’t know. I mean with taxes, it’s zeros and ones. And this is kind of zeros and ones and how you interpret a zero and one, right?
John Rizvi:
Yes, exactly.
Chip Franklin:
Yeah. John, great to hear. That was great stuff. Thank you so much. Really appreciate your time.
John Rizvi:
Yep. Pleasure.
Chip Franklin:
That’s the Patent Professor, John Rizvi. Again, we’ll put more up at the end of the show so you can find him. Thanks again. Somebody actually emailed this to me at one point. “I get paid in cash. How will the IRS know how much I get paid?” I mean, there’s a moral aspect to that and then there’s also the legal part. How will they know if ever?
Steve Moskowitz:
Very easy question. It doesn’t matter. You report all your income, whether you’re paid in cash or anything else. It doesn’t matter. Clean and simple. And it’s a felony, we’re talking about tax evasion, not to do that. So the bottom line is anybody that says something like that, my response is, “Don’t even think about it.” You get paid. You report everything that you got paid, whether you got paid in cash or anything else.
Chip Franklin:
If I win $100 in a poker game, I got to declare that?
Steve Moskowitz:
Absolutely.
Chip Franklin:
What if I lose $100 in a poker game? Can I deduct that?
Steve Moskowitz:
Yes, if you itemize deductions up to the amount of your gambling winnings.
Chip Franklin:
Okay. Oh, that’s interesting. So when you lose in Vegas, if you do that a lot, then in your file long form, there might be a way for you deduct that?
Steve Moskowitz:
You should keep record of all your gambling winnings and losses. So if you win a casino jackpot and you lost some money at the racetrack, you can offset one against the other.
Chip Franklin:
I love it.
Steve Moskowitz:
But remember, you have to report the gross revenue. And then in your itemized deductions, deduct it up to the amount of your winnings, unless you’re a professional gambler.
Chip Franklin:
And there, that’s a whole nother thing, right?
Steve Moskowitz:
Whole different thing.
Chip Franklin:
Yeah.
Steve Moskowitz:
Yeah.
Chip Franklin:
Well, that’s interesting. Does the same apply for market losses and all, as well?
Steve Moskowitz:
When you talk about market losses, then you’re talking about realized or unrealized. So you take a look at the stock market, you buy a stock for $100 today and tomorrow it’s $90. Although your stock’s worth $10 less, you haven’t sold it, so you haven’t realized anything. There’s nothing to report. Now if you sold it, then you’d have capital loss.
Chip Franklin:
One last question along those lines. What if I found a $1,000? Is that income?
Steve Moskowitz:
So what happens is it’s known as the accretion of income. It’s like people that go searching for treasure. So the bottom line is you have something more now.
Chip Franklin:
It’s interesting to walk around the city and to view construction undertake. I always wonder how long it takes to put up a building and the process of that. It seems to me that … Just watching, here, the Salesforce tower go up, that thing seemed to take forever. And then of course, we know the story of the Millennium Tower here in the city. For those that don’t know, we have a high rise in the city. Was it 50 stories about, Steve? Do you remember about that?It’s up there.
Shelly Armato:
It’s up there.
Chip Franklin:
Yeah, it’s up there and it’s tilting. You can go on the top floor and put a marble in the corner and it’ll roll across the floor. But it’s apparently safe to live in, and now they’re going to somehow go underneath it. The world of construction is, to me, not only fascinating, but in many times it’s also a reflection of how we’re doing as a city, as a state, and a country. Our next guest is Shelly Armato. She is the CEO of MySmartPlans, which is a certified, woman-owned business that works to make construction in the whole industry more efficient. And she’s managed over $12 billion in construction projects, and is also for a leading voice for getting more women involved in construction. Shelly joins us here on Practical Tax. Hello, Shelly!
Steve Moskowitz:
Hello! How are you?
Shelly Armato:
I’m good. This is Steve Moskowitz here. I’m Chip Franklin.
Chip Franklin:
Hi, Shelly.
Shelly Armato:
Hi, Steve.
Chip Franklin:
So let’s just jump right into it. What does construction tell us about the shape of our country, currently? And in general, I guess, too?
Shelly Armato:
Well, I have a different perspective than a little bit of the average bear. My husband was the largest commercial painting contractor in Kansas City for 43 years. One of his projects was just awarded the number two best train station in the world. He was an artisan and he bid a project and he bonded it for a million dollars, and the general contractor had no interest in doing the right thing and finishing the project and whatever. So anyway, we wrote a check for $800,000. We finished the project. It was a government project for the Corps of Engineers, actually. We started being curious. We believe life is happening for us, not to us, but we definitely were stung with the $800,000. So we started and we’re like, “How does this even work? How are we even bidding these projects?” And my husband had just done the same thing for 45 years. This is the way you bid. The general contractor brings you documents. You do favors for him. You paint his mom’s house. You paint his cousin’s house. You buy the paint, whatever.
And so we quickly realized that the unorganized, unacceptable process for construction was killing our country. I mean, killing our country. Every project is over budget, under-delivered. The side deals, the handshakes, blah blah blah. So we reinvented the industry. We’re third party custodians of all the construction data. What we’re doing is we are keeping the project completely organized and audit-ready 24 hours a day. We’re stopping construction litigation, which … I want to do a Netflix series on this because it’ll be so good. The things we catch are meeting minutes getting manipulated, documents, contracts. I mean, we track everything from A to B to Z to K, and keep everyone organized. I can’t even identify how much money we’ve saved our country. But our projects are finishing as much as three months ahead of schedule, no modifications, which in the Corps of Engineers, that’s unheard of. Yeah, I started a little garage. 700 square feet with $15,000, and I’ve bootstrapped it for 16 years.
Chip Franklin:
That’s amazing. For me, when I think of one of these projects that take two or three years, right?
Shelly Armato:
Yeah.
Chip Franklin:
And Steve, when you have a client that’s involved in something like that, obviously the controlling the financial flow is interesting, too. If I’m working on a project, Steve … It’s a construction projects that’s a couple years … and I get cash in to do work. If I don’t apply that cash that year, do I pay taxes on it if it’s a project that somebody’s giving me and I’m still going to put the money in? How does that work?
Steve Moskowitz:
It depends on your method of accounting because there are different methods of accounting to account for that or not. So again, that’s very detailed.
Chip Franklin:
Is construction having the same labor problems that seem to be bewildering the rest of the nation?
Shelly Armato:
Well, this is the perspective I have. Of course they are, because the general contractors have put so many of them out of business. So the big thing is give these minorities … I’m a minority, so I’m speaking of myself, also … Give them a chance on this project. Split up the contract. But they have to make decisions and they’re responsible to make decisions without complete audited data. There are also a lot of times we’re expected to bond a project because we’re just such high risk. I mean, it’s just such high risk to have these minorities on a project. And that’s bull crap. What the high risk is the unorganized documentation that’s just thrown out there, and everyone has to be responsible for decisions that they should not have to be responsible for because they don’t have the complete data. But they can never defend the claim.
So basically, they’re just subject to whatever they can get. So with us, everybody can defend their claim. I mean, it’s right here. We track all emails. We track everything, I’m telling you. Every drawing, every cut is linked to every detail. I mean, every phase of the project we have a tool that we’re capturing data. And then at the end of the project, one of the challenges that Steve would probably be familiar with is they’re trying to run their facility for the next 50 years. So the question might be, “Okay, we have this roof that we have this material on that we might have had illegal workers on the roof putting the roof on.” I mean, not that would ever happen. “But what’s the warranty on the roof? What’s the warranty?”
Well, the roof is leaking and you’ve had the project for two years and now, where are those documents? And so with us, point and click, there it is. Here’s all the people that were on your roof. Here’s the kind of material that was on your roof, la la la. It’s like that is what’s happening. So yes, there’s a shortage of labor. The general contractor should be ashamed of themselves. They have put so many small businesses out of business. One of the general contractors we met … I went up. I introduced myself. I was at the American Bar Association because a lot of lawyers refer our solution to the project. And I did the whole “hand the card.” I’m subservient because I have female parts. So I’m like, “Hello, sir,” and he goes, “I would never take your card.” And so he turns around and I thought, “He must not know who I am.” I mean, why can’t you just be kind, right. Go ahead.
Chip Franklin:
This is fascinating to me because what you’re talking about … I mean, actually, the construction of a building seems to be almost like a human being. Because when you started out, it’s like a baby, right? You got all the issues that a baby has and trying to figure out what it’s going to look like in the end, even though you have charts and plans. And then, of course, you have general contractors and subcontractors. And every subcontractor I’ve ever met hates GCs, right? I mean, not everyone. There’s great GCs out there, right?
Shelly Armato:
Yeah. They get drunk together and try to be friends.
Chip Franklin:
Chip Franklin:
Yeah. I mean, it’s interesting to see. I wonder if … As every step along the process with all these different people, that’s got to be miscommunication just happening all the time. And obviously, the project manager’s job is to deal with all that, right? I mean, that’s his or her job.
Shelly Armato:
Yes and no. The project manager’s also your friend, okay? Seriously, Chip, I mean, we are friends. I really like you. I really think you’re a good guy. Yeah, we might have some extra change orders, but there’s a supply chain issue. And Chip says, “Oh, yeah. I read about that in the news.” Well, show me your purchase order that you actually purchased this supply chain issue. Show me when you purchased it. Show me when it’s supposed to be delivered. And then, again, that’s in the archive. It’s like lying, cheating, and stealing on steroids.
And so this contractor I met, when I gave him my card, he said, “My job is to sue the Corps of Engineers and I always win.” I said, “Well, sir. Why don’t you just steal candy from a kindergartner, because that’s about the same mentality, because the Corps of Engineers cannot defend their claim. Because they don’t have the documents to defend their claim.” And so with us, point and click, it’s all right here. We just finished our first prototype project with the Corps three months early. No modifications and no pending litigation. Broke every single rule with just organizing and protecting the integrity of the document. Hello! Here I am!
Chip Franklin:
We’re talking to Shelly Armato on Practical Tax with Steve Moskowitz. Steve, not to talk about the Millennium Tower specifically, because I know we don’t know have the details for that. But when a building goes up and it’s not working out … if it’s a commercial building or residential … how is that loss amortized over a period of time? We’re talking about, now, some of these buildings that aren’t full because of remote working and all the things that commercial real state might face in the days away. How do you plan for something like that? How do you make a tax plan for failure when you’re, obviously, thinking the exact opposite?
Steve Moskowitz:
Well, that’s a toughie. And in theory, you’re supposed to plan for everything. In reality, unless you have a crystal ball, you can’t. So if something comes up … I mean, five years ago, who planned for a worldwide pandemic?
Chip Franklin:
Well, some people were planning. But I get what you’re saying. Yeah.
Steve Moskowitz:
And the bottom line is who thought we’d have all this remote working? That’s drastically changed commercial real estate. So the bottom line is you take the situation as it is. Oftentimes, contracts have to be renegotiated because you might be with a landlord who says, “Well, your contract or your lease says you have to pay so much a month.” And they say, “Well, look. The building’s empty now and I can’t do that.” You’re a restaurateur and all of a sudden you have an empty restaurant and you say, “Well, look. Maybe we can renegotiate the contract.” The landlord says, “Well, you signed the contract. Why should I do that?” Because if not, somebody goes bankrupt and you get nothing.
Chip Franklin:
Right.
Steve Moskowitz:
So you have to have business principles here [inaudible 00:26:10].
Chip Franklin:
So if I’m a business and I have to renegotiate contracts with residents, that’s a loss for me, right? I can deduct that as a loss, generally?
Steve Moskowitz:
It depends what type of accounting you’re on. If you’re on the cash basis of accounting, something like most small businesses are, there’s no loss to deduct because you haven’t reported anything as income. It’s the full basis of accounting that you’re talking about, which usually bigger businesses use.
Chip Franklin:
That’s back to our “Ask a Tax Attorney” question, that one of the advantages of doing everything straight up and keeping solid records is in situations like this, when you really need that.
Steve Moskowitz:
Solid records is so important.
Chip Franklin:
Interesting. Shelly, so let me just ask you a big question here, looking forward. How would you grade the state of … at least through your experience here in the Midwest, in Kansas City, if I’m not mistaken. Missouri, excuse me … How would you rate where we are and what you’ve seen on a macro scale for construction of this company? Are we moving forward? Is it stalled? Do you feel optimistic?
Shelly Armato:
You know what, if you knew me, I’m the most optimistic person in the world. Everybody’s my friend. But we build a lot of airports across the country. We work for a lot of state governments. And honestly, the budgets are just blown out of the water because they can’t hold the contractor accountable. So my professional opinion is that we have to reign that back in with, of course, stronger contracts, but so that they can defend their contracts. We have this whole library. Somebody described it the other day. They were like, “You’re like Tesla. It looks like a car, but you’re actually collecting data.” I’m like, “Yeah! We have all this data.” And so we have all these contracts and we’re like, “Gosh, look at the variation of these contracts. There should be a best practice for all these contracts.” So those are the things that we’re always contrasting and reviewing and considering, and being the place for education.
It’s been so alarming, honestly. I started this thinking I was just helping people be organized. And now, 16 years later, I’m so mad because the likes of the corruption … Because they have to go through us because we’re gatekeepers, so they have to send an email like, “Hey. Will you open this closed ASI? We need to make some more comments.” And we respond, “Just a moment. We’ll ask the owner.” “Why didn’t you ask the owner?” “Well, because they’re trying to get around it.” Or, “Here’s a new contract. Replace it with this old contract.” “Just a moment. Let us ask the owner.” Or you’re [inaudible 00:28:40] minutes. I mean, this stuff is like seriously people! Do you take a class for this? How do you go home and tell your kindergartner, “Oh, you know what mom or daddy did today? Well I cheated, but I got a new truck.” Just like he was talking about, report your income.
Chip Franklin:
Shelly, [inaudible 00:28:55] your website is great and I would really recommend people look at it if they want to understand a little bit more about the construction industry. And I think what you do, trying to get more women involved, is a great thing, too. Because obviously, when you just bring in fresh eyes, things always get better, I think.
Shelly Armato:
That’s right.
Chip Franklin:
Thank you so much, Shelly! Be well!
Steve Moskowitz:
Thanks so much.
Shelly Armato:
Thank you. Nice meeting you!
Chip Franklin:
Bye-bye now. Yeah, that’s Shelly Armato from MySmartPlans.com. Boy, that was interesting. That was another edition. And by the way, you can see the previous editions of Practical Tax by going to moskowitzllp.com, or just look us up on YouTube. Again, for this edition of Practical Tax with Tax Attorney, Steve Moskowitz, Chip Franklin. You have a great one, Steve.
Steve Moskowitz:
Thanks, you too. Bye-bye.
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.