This article is part of the occasional series "Future Tech Today," which offers firsthand experiences from accounting firms, finance departments, and others putting cutting-edge technologies to work today.
Three years ago, Richmond, Va.-based accountant Louise W. Reed, CPA, knew little about blockchain. Today, she's launching a blockchain-based marketplace for tax credit transfers and looking to transition out of her traditional tax practice. Why the dramatic change? This is her story.
A couple of years ago, I attended a blockchain class at the CCH Connections conference. There were eight people in the class, and I was the only CPA. I had no idea what I was walking into, but I have a master's degree in physics and something about the math behind blockchain spoke to me. Over the next year and a half, I became increasingly knowledgeable about blockchain, cryptocurrencies, and smart contracts. I learned a lot at several different conferences, but it wasn't until I tried to help a friend sell $500,000 worth of tax credits that I realized how blockchain could apply to accounting (see the sidebar, "What Is Blockchain?").
You can't sell most tax credits, but some are legally transferable. Some states allow this to encourage certain types of behaviors. For example, the Commonwealth of Virginia offers land preservation tax credits to landowners who agree not to develop their land. However, you can't use tax credits to get tax refunds. That's a problem for a lot of farmers and other landowners who owe little-to-no Virginia income tax. To address this, Virginia lets the landowners sell their tax credits to individual taxpayers with a Virginia income tax burden, who can buy these tax credits at a discount.
Let's say that a farmer with a lot of land outside of Washington, D.C., decides to donate the land to a conservation trust, promising in perpetuity to preserve the land. After working with appraisers, lawyers, and the Virginia Department of Conservation and Recreation, the farmer might have $800,000 worth of tax credits. At that point, the farmer would go to one of the larger CPA firms to help find a buyer for the credits. Because tax credits are typically bought and sold in bulk, the farmer usually wants a CPA with access to buyers with a lot of state income who would be willing to buy credits at a discount to offset their taxes, although any state taxpayer can use the credits to offset their state income tax.
My CPA firm is not big. I have 50...