The new 1040, California does its own GDPR, and better education for accountants

donny-shimamoto.jpg

Donny Shimamoto [LinkedIn] joins the podcast to chat about the IRS's new "postcard sized" 1040 form, the potential consequences of California's new privacy law for businesses, and the Houston CPA Society's efforts to improve education and outreach to accounting students.

Stories in this episode:

      Cloud Accounting Podcast S02E10: "The new 1040, California does it's own GDPR, and better education for accountants"

      Welcome to the Cloud Accounting podcast, a show for accountants using technology to make their jobs more strategic and impactful. I'm Blake Oliver.

      And I'm David Leary.

      Joining us today is Donny Shimamoto, CPA. He's the founder and managing director of Intraprise Techknowlogies, a CPA firm focused on organizational development and advisory services for the middle market, nonprofits, and SMBs that think big. As of March, Donny is also now the director of innovation of the Houston CPA society. Thanks for joining us today, Donny.

      Hey, glad to be here guys. Thanks for having me on the show.

      It's our pleasure. So I was excited to hear that you're the director of innovation at the Houston CPA society. But I was a bit confused at first because isn't your CPA based in Hawaii? How does that work?

      We are. I actually currently split my time between Hawaii and Houston. So I spend about half my time in Houston, a quarter of the time in Hawaii and the other quarter is actually wherever there is a conference or perhaps some other type of meeting kind meaning that I have to attend.

      So that explains why I see so many pictures of airplane wings on your social media accounts.

      Oh come on. There was just one on airplane wings so far.

      Now you're pretty good about it. Some people overdo it a little bit. So David, what's new this week.

      Well it was Fourth of July, right. So... did you guys do anything fun?

      Well, I have a 3 year old. So we just put him to bed and then watched fireworks on television. And honestly it was the best night.

      It's a little hot here in Tucson so the wife and I just went to a restaurant in the foothills and watched — city view — and watched fireworks from — you can you hear them, right — so far enough away where you couldn't hear them. But it was kind of nice to have dinner and watch the fireworks while we were sitting there eating.

      That sounds better than than mine. It was actually thunderstorming. I'm in Houston this week. It was thunderstorming here. So it was actually a nice day to kind of just lay on the couch and catch up on some thinking.

      So I think in the news though this week it was kind of at the end of last week and I think it's — with Fourth of July — it's the most American thing we could talk about which is the new 1040 tax form. I don't know if you guys saw or not but the 1040 tax form is being reinvented physically — like the physical paper is being reinvented from a sheet of paper, sheet and a half paper, down to almost like a large postcard. And then it's going to have like six add-on forms. Do you guys see this at all?

      Yes.

      Yep.

      It's kind of ridiculous, right? I mean, something like 90 percent of Americans are filing their taxes online. So why are we redesigning a form so that it can be mailed in?

      That's true but if you think about it what it really represents — in my mind it represents tax simplification and that's something you know some people when see "CPA" they think taxes and then... I've had people tell me "oh and you guys want taxes more complex" and I'm like "no," we actually want things simpler and I've actually gone with the AICPA and my state society to The Hill and been like "hey, we're we're trying to fight for tax simplification. We don't want it to be crazy." So, I kind of see this postcard or poscard form in that light. It's going toward simpler.

      So you feel that that the Tax Cuts & Jobs Act has simplified the code because, you know, I'm not a tax guy so I just take what I read online and seems like it really at least what I've read doesn't seem that much simpler. Or am I wrong?

      I'm not a tax guy either. So take what I say with a grain of salt. When I look at and when I read some of the intention I think the intention is there. What we're seeing right now I think in the news is a lot of confusion on the implementation and the rule-making, and this is where I think we see a lot of problems with a lot of the laws that we have or even tax code that we have where there's a particular intention but as we're trying to get into a rule-making and figuring out what is right or what is — maybe not what is right but what it applies to, what it doesn't apply to that's where we're going to start to see some confusion because perhaps definitions weren't clearly made like the entertainment expense. That doesn't seem to have been made very clear in the way the law was crafted and so now there's a lot of talk about what that impacts. I think the intention is there at least I want to give the benefit of the doubt that this intention is there.

      It's interesting... The article from the Journal of Accountancy, it references how there's now this... It's going to attach to six possible schedules as needed, but then those schedules are basically linked to a bunch of supporting schedules that will continue to exist in their standard form. And you might have to attach to the other six new schedules. So, is this really going to be simpler, or, going back to what Blake said, does this matter? I was really trying to think of the last time I physically touched a paper 1040. And I'm not sure... maybe 20 years ago? And then maybe with Turbo Tax I printed one out 15 years ago and printed, then signed, and mailed it. But who really from the physical standpoint is touching these anymore?

      So David, given your..,

      Age? [laughter]

      Given your position inside of Intuit, do you feel that this change will accelerate growth of Turbo Tax online tax filing. I did read one article — and I'll try to find that and put that in the show notes — saying that this is going to hurt H&R Block and accelerate the move toward Turbo Tax and other solutions.

      I think there's a quote from Brad Smith on this and I think the summary is, if it keeps getting simpler, more more people are going to be even more confident they could do it themselves. They're probably not going going to do it on paper; they're probably going to use software, right? So obviously Turbo Tax could have a huge benefit from this.

      Well yeah, I'm not a tax guy but I can figure out to do my taxes on Turbo Tax.

      Which is the opposite of Donny's... Feedback he was getting from people. Because people assume that Intuit and Turbo Tax want taxes super complicated. But actually the opposite is true. The simpler they are the better it is for everybody, including us.

      Right, because then it's easier to do it yourself with the software assisting you.

      I think sometimes we're a little biased because all of us are very active in the technology world and we forget — you know David was mentioning earlier, who's filing the paper — there's a lot of senior citizens, perhaps people that are in more rural areas, that again, are probably in the older age that are still actually using this stuff. So there is a benefit at least to them.

      That's true. We can't forget them.

      Yes. I think you're right. It's almost where if they're a senior citizen; they're on a fixed income. They're never using any of these schedules. I could see popping in, boom boom boom, and they're done.

      So, speaking of legislation, something kind of slipped by in the news that actually could have massive implications in the United States for privacy law. California unanimously passed a historic privacy bill recently. It's called The California Consumer Privacy Act of 2018. It was passed unanimously. And it basically — well Donny, I think you're familiar with GDPR in the EU. Have you taken a look at this bill?

      Only briefly. A lot of people are actually pointing towards GDPR and saying that this is basically GDPR. or actually, I've seen some where it says that this is actually broader than GDPR coming in to the States. So it does raise some concern in that GDPR was interesting in that it reached beyond what we traditionally think of — in the U.S. — traditionaly think of being protected, which is financial account information people's identity like Social Security numbers and health records, and the GDPR — and it looks like the California bill is also incorporating things like behavioral indicators and the ability to see what — to actually see what data someone has about you and then that right to be forgotten. So how do you actually delete data or are you able to delete data of a customer that's says "hey I want you forget that I was ever your customer," or even not even a customer I came and browsed your Web site. That type of thing.

      Well yeah, it's going to create a lot of administrative work for tech companies in California. I mean, most of them are based here and they've got millions and millions of users here. So they're going to have to create ways for California residents to opt out of data collection and sharing, which basically — sort of like the automobile market — if you increase mileage requirements in California basically the rest of the country has to follow along. Right?

      Well, remember too that these are written like the identity theft laws so they're not just applicable to California. They actually apply to California residents for any business that has the California resident's information. That right is extended out to them. It's the same thing with GDPR — It's not just countries, businesses in the European Union — It's businesses doing business with someone that's in the European Union. And so it actually does start to reach out quite quickly because again — think about all these large tech companies even though it's not based in California that have customers or anybody that's [unintelligible] in California. This is potentially affecting them.

      So if I'm a cloud accountant in Arkansas and I have clients in California, and I have their information in my CRM tool — and then maybe I would sync to an automated payment, recurring payment situation, right. I'm going to have to disclose to my customers why I'm storing their data in my CRM. It feels like this is very broad and far reaching.

      And that's why they're saying that it's scary and like with GDPR it's scary because it is very far reaching.

      Well and it's interesting because as as the economy moves more towards subscription models for transactions rather than a transactional model this is one of the things that the founder of Zuora talks about, that Jeff Bezos talks about, is that to successfully run a subscription-based business you have to know as much as possible about your customers. So that means collecting a lot of data about them. So it's going to create a challenge. I know, just for us at FloQast, we collect a good amount of information about our customers using Salesforce and then aggregating data from other sources. It helps us provide a great service and reach them and find them. But also now we're going to have to comply with those requirements about disclosing.

      And think about — how would you reach across — if I came and I said I want you to show me all the information you have about me. How would you actually do that across all of these different systems?

      Yeah. Definitely we have to figure out how to get all of that into Salesforce so that we have one record where we can actually show somebody what we've got about them

      And maybe this is, again, kind of like the sales tax play we talked about last week, right, where there's going to be some small businesses that are going to take the risk, right, of like, "good luck, come after me." Right. And until they go after the Facebooks and Googles, and AT&Ts and the Verizons and all the big players, how many years is it going to take until they start going after small businesses for compliance issues like this.

      Well the good news is that it only applies to... let's see... there's some thresholds...

      As you're looking for that, the other thing that we see though... So I specialize in working with small and midsize and when I give talks about this type of stuff they're normally, like, "Well this is all big guys, it doesn't apply to us." But then I start to tell them, think about, do you have any contracts with any bigger companies? Because the contract — if you're a sub-source or something, or you're providing a service adjacent to a bigger company that is subject to this, they're going to push those requirements down to you because you're dealing with their customers. And that normally is where people start to go, "Oh, wait, it is going hit our small business. It is going to reach us."

      Okay here's the thresholds. Three thresholds. 1) Annual gross revenues of twenty-five million. Actually pretty low. 2) Obtains personal information of 50,000 or more California residents, households, or devices annually. And that's also quite low. Or, 3) Fifty percent or more annual revenue from selling California residents' personal information. So that's interesting because that's a lot of businesses right there. Especially the 50,000. Another interesting fact from the from the law is the penalties that are now in place with this law. For data breaches consumers can sue for up to $750 for each violation while the state attorney general can sue for intentional violations of privacy at up to $7,500 each. So, imagine millions of consumers having a privacy violation. That's going to put you out of business. And for both consumer and state lawsuits, companies have to be given 30 days to fix the problem.

      For something that, like you said, it's so far reaching — It's not an easy solution. I'm glad to hear the intentional piece was built into that. That was something that they've done on the GDPR side. We're hearing and we've been recommending to clients — Try and just at least demonstrate that you tried to comply because even if you don't get it completely right, at least they're seeing that you're actually making an effort. The thought is that the regulators will be a little more lenient on that compared to — I guess we could draw the analogy to the IRS since we were talking about the IRS, right? If you didn't intentionally defraud them, I guess in a sense, then they tend to be a little more lenient when they come after you.

      So Donny, what have you been up to lately. Any interesting talks, anything on your plate. What's your latest churning in your brain right now for 2018?

      Well Blake mentioned I took on this role of Director of Innovation for the Houston CPA Society. So innovation has been top of mind in a lot of different ways. I took that position. I was actually previously the outsourced Chief Innovation Officer for them and that was primarily focused on really revamping their entire backend systems, getting them completely to the cloud. So we basically took them from all desktop and servers and are now completely on a cloud stack except for the accounting system which is the last piece that we actually have to get out of there. But they're looking at that now and trying to figure out where they're going to go from there. But this whole innovation and the concept that innovation is beyond — So I mentioned that the technology piece was my first step, was essentially modernizing them and now we're actually switching and looking at everything else. So I'm working with the way that they are approaching their conference planning, the type of content they have. And really looking at helping them relook at their leadership programs both at the professional level or practitioner level and also working with them on a pipeline and looking at students and how they're engaging students and getting them interested in the accounting profession. So it's been pretty fun working with a bunch of different things.

      That's awesome I'd love to hear more about what you're doing or planning to do with students.

      Now I've got to think, what can I tell you, it's so top secret. [laughs] I'm actually really impressed with the way the Houston chapter has this set up. Their student group is actually a campus-agnostic group. Most of the student clubs are are chartered on campus. This is a non campus one. So they actually cross multiple campuses and they collaborate with, for example, Beta Alpha Psi or the accounting societies on the individual campuses as well — it looks like they also work with [unintelligible] alpha and try to design things that are really bringing the practitioners and professionals from the CPA side together with students from multiple campuses and really giving them exposure that "Hey, we're not just tax accountants, we do a lot more," so like I've spoken for them to raise awareness of the role that CPAs can play in I.T. and innovation. I know they've had some speakers on cybersecurity and then also litigation — what happens in there and valuations. It's just a lot of awareness.

      So you really taking people from that stereotypical CPA. You said yourself, right, you have the CPA title but you're not doing any tax but for everybody else, they just think "tax," so I imagine that students doing their freshman year college, they're like "I want to be a CPA. I must have to do tax," but you're really opening their eyes up to a whole world of possibilities you can do in this profession.

      Completely. And really the profession is just a starting point. So get that base, understand really what we do as CPAs is understand how a business operates, where the risks, how you manage risk, and then how do you support better decision making. That's the way I think of it. And at least that's what I do for my clients and sometimes it's financial. And there's definitely a big financial piece because we all end up having to pay taxes and work with money, and we need cash flow, but then it's what are we doing with other things like within operations within H.R. within leadership, within innovation, which could involve business processes and knowledge and learning.

      Well that's very refreshing to hear that you're helping out the students in Houston learn about that possibility. Because I'd never heard about that when I was studying.

      And that's exactly why I love what they're doing because we need to really let people know that, "Hey, there's a lot of us out here that don't do taxes and and frankly don't do audits or basic bookkeeping either."

      So Donny, we're coming up at the end of our show. Before we go, I'd love to give you the opportunity to share out how people can find you online and get in touch with you and learn more about Intraprise Techknowlogies.

      Oh, wonderful. Sure. The company website is intraprise.us. We've got a lot up there. But on this theme that we've talking about, the nontraditional accountant — I also have my own blog: donnyitk.com where I'm sharing as well and the students are actually going to end up on my blog in a little bit really looking at what's happening there. So, I would say those as the two starting points and I'm always available — donny@intraprise.us. If you want to shoot me a email and would love to chat with people about what they're trying to do within innovation and really helping change the profession.

      Well, thank you, Donny, so much for your time today and enjoy your Fourth of July weekend. David, I look forward to seeing you as always next week for our next episode.

      And how would people if they want to send us an article for next episode or get ahold of us? How do we get ahold of you, Blake?

      I think they should just tweet at us. I'm @BlakeTOliver.

      And I'm @DavidLeary.

      And we look forward to hearing from you. Drop us a line.

      Bye.

      Bye everybody.

      Automatically convert audio to text with Sonix

      Blake Oliver

      Los Angeles, California, United States