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15 02, 2020

Letter from the Editor: A Tale of Two Tax Penalties

By |2020-02-29T19:34:15+00:00February 15th, 2020|IRS Collection|0 Comments

While the weather is still cold much of the time these days, now in early February, the days are already a little longer than just a month ago. And though it is often cold, after a string of 18 and 19-degree days followed by eight and nine-degree days, a 30-degree day feels downright spring-like. Almost t-shirt weather.red-heart

Any moment now it will be Valentine’s Day. Then at the end of February, major league baseball’s spring training starts. Alas, not long after that comes Tax Day, April 15th, and with it the annual ritual of gathering up one’s bank statements, W-2’s and 1099’s, and sundry receipts tucked away in wallets, desk drawers, and other places you’re trying to remember right now, so that we, on our own, or with help can prepare and file our tax returns.

Because I’ve worked with many a taxpayer who somehow strayed from the righteous path, to represent them so that they did not have to take on the IRS (or New York’s DTF) alone, I’ve heard many stories about how it was that things went wrong.

Frequently, part of the story of how a taxpayer finds him or herself sitting across a conference table from a lawyer, is that in addition to all the tax on income owed for all those years, there are also the tax returns themselves, which were never filed or were filed even a day late.

The taxpayer makes plain: “I didn’t have the money to pay the tax, so I didn’t do the returns either.” And also, occasionally, “I figured that if I didn’t file, they wouldn’t come after me as quickly.”

The problem with this strategy is that, to the IRS, as important as collecting tax payments is, a taxpayer timely filing his or her return is even more important.

How do we know this? The penalties the IRS imposes for failure to file are ten times higher than for paying late.

Late Payment Penalty: where a taxpayer has not paid or paid in full the tax due by the due date, the taxpayer will likely be subject to a late payment penalty of one-half of one percent of the tax due, for every month – or fraction of a month – that the tax is not paid.

For example, if a taxpayer owes $100,000 and it is not paid on time, that taxpayer becomes subject to a late payment penalty of $500 as of the day after the due date.

By contrast, if the taxpayer fails to file a tax return by the due date, the taxpayer will become subject to a Late Filing Penalty 10 times larger than the late-payment penalty, i.e., 5 percent of the unpaid taxes for each month or part of a month at that a tax return is late. So if that taxpayer who owed a $100,000 did not file a return on time, there would be a $5,000 penalty for the first month a tax return is filed late (as compared to the $500 late payment penalty). This late filing penalty is capped at 25% of the unpaid taxes.

Why is this so? Imagine, with Valentine’s Day almost here, that a gentleman did nothing on February 14th, and sometime in March finally got around to bringing his sweetheart flowers and chocolates. “Happy Valentine’s Day, Sweetie!”

Does anyone think this would be a success with this guy’s loved one? Considering the severity of the penalty imposed on taxpayers, not only does the IRS want you to be its gift-giving valentine, but it’s unhappiness seems to go into Fatal Attraction territory, for those of you who recall Glenn Close warning Michael Douglas, “I will NOT be ignored.” As he soon discovers, her threat was not an idle one, and she would cost him dearly.

Similarly, Congress has empowered the IRS, through these penalties, to make the actual filing of tax returns more important that the mere payment of tax, and the IRS is warning you, Dear Taxpayer: “I will not be ignored.”

Happy Valentine’s Day. Don’t ignore your sweetheart.

20 02, 2017

The Anti-Loophole: The “Voluntary” Tax Which is Not So Voluntary

By |2020-02-12T14:20:16+00:00February 20th, 2017|IRS Collection, Tax, Tax Crimes, tax evasion|0 Comments

Once again, we are confronted with the truth the our “voluntary” tax system is not entirely voluntary after all. As Dan Ackroyd said on Saturday Night Live in the 90s, playing then-presidential contender, Bob Dole as he berated then-President, Bill Clinton, “You know it, I know it, and the American People know it.”

But, apparently, North Carolinian, Chet Lee West, didn’t know it. Or so he acted. He was convicted in District Court of three counts of tax evasion. West, acting as his own attorney at trial, stated in his closing arguments that the jurors should ‘see the truth and set me free.” The jurors did not agree with his statement and reached the guilty verdict in only 1 hour.

Owing more than $52,800 in back taxes, West, claimed he found a loophole in the tax code that freed him from having to pay income taxes. West attempted to read from a book containing federal tax codes but the judge had him stop, explaining that she would instruct the jurors what the law is.

During the trial, West admitted that he had not filed taxes since 2000 and had sent a letter to the IRS explaining that he elected to not be subject to income tax.  (Now that is an election almost everyone could support – at least until one considers Supreme Court Justice Oliver Wendell Holmes’s take on this issue. Holmes famously said: “I like to pay taxes. With them I buy civilization.”) The IRS responded to West’s “election not to be subject to income tax” with a letter back to West informing him that American citizens cannot opt out of paying taxes.

Donald J. Kleine, the Federal prosecutor said that West knew he had an obligation to pay his taxes but, “just didn’t want to.”

West was sentenced to Federal prison for a term of more than 4 years and ordered to pay restitution to the Internal Revenue Service in the amount of $439,515.

21 10, 2015

Allan Pearlman Radio Interview: Tax Tricks, Trips and Traps

By |2020-02-12T14:20:16+00:00October 21st, 2015|Audits, IRS Collection, IRS Enforcement, Penalties, Tax, Tax Penalties, Tax Problem Solving|0 Comments

People and the news devote lots of attention to important dates like April 15th — tax return filing day — and October 15th — the second filing deadline for all the taxpayers who got automatic extension of the April 15th deadline. In fact for many of us, the IRS and other taxing authorities demand attention on many other occasions throughout the year.

And because there can be tax problems, tax controversies, tax disputes with the IRS that come up at any time, attorney Jack Tuckner, the host of a politics and current events oriented radio talk show, invited me in to talk about tax controversies — collection issues, audits, offshore tax issues, voluntary disclosures, offers in compromise, and similar Radio_noisyissues.

So, on Tuesday afternoon, October 20th, 2015, far, far away from April 15th, and after the October 15th deadline has passed, I met with Jack Tuckner and his partner in radio, Deborah O’Rell, to talk about the IRS and New York State’s Department of Taxation and Finance on there weekly show, Women’s Rights in the Workplace on the Progressive Radio Network, PRN.fm.

The original plan was to discuss the inner workings of the IRS, and how tax payers might best protect themselves from the eager claws of the government for a half hour. But before we knew it a whole hour went by.

The Women’s Rights in the Workplace show describes our conversation like this:

GrimDeath+IRS“Did you know that your wages can be garnished, your bank accounts and home can be seized, and even your driver’s license can be revoked due to back taxes? Join Jack & Deborah as they welcome to the show good guy tax attorney Allan R. Pearlman, who’ll provide insight, tips and “secrets” to avoid getting into boiling hot water with the taxman.”

The whole discussion, warts and all, is here:

28 12, 2012

Hollywood Nut to Hollywood Nut: Here’s $100K, Now Pay Your Taxes!

By |2020-02-12T14:20:18+00:00December 28th, 2012|Interest on Tax Due, IRS Collection, Tax Penalties|1 Comment

In a moment of apparent clarity and largesse, actor Charlie Sheen, a recent star of the television hit comedy, Two and a Half Men, and now starring in Anger Manage­ment, gave controversial actress Lindsay Lohan $100,000 to help pay down her blockbuster-sized tax debt.

Sheen and Lohan worked together recently, filming Scary Movie 5. According to TMZ, which first reported this story, Lohan used Sheen’s money for its intended purpose: paying Uncle Sam’s meaner cousin, the IRS.

Lohan, whose off-screen personal dramas have sometimes out shown her considerable talent as an actress, allegedly owed the IRS $233,904 in back taxes for 2009 and 2010, TMZ reported.

With Sheen’s gift, Lohan has substantially reduced the tax debt TMZ says she has (what a big bite she got to take out of that balance due!), though interest and penalty continue to accrue on that part which is still unpaid and past due.

 

 

22 09, 2009

IRS Extends Voluntary Disclosure Deadline for Secret Offshore Accounts

By |2020-02-12T14:20:19+00:00September 22nd, 2009|IRS Collection, IRS Enforcement, IRS News, IRS Power, Tax Crimes, Uncategorized|1 Comment

With 48 hours left before the final deadline to participate in a voluntary disclosure program designed get taxpayers with unreported foreign bank accounts to come back into the system and report their foreign income, the IRS has announced that it is extending the deadline from Wednesday September 23, 2009 until October 15, 2009.

The IRS reports that this extension was made in response to repeated requests from attorneys and other tax practitioners from all over the country.

In addition, an IRS agent working on a team evaluating the disclosures being submitted by taxpayers trying to participate in this program told me that there was a huge volume of submissions.

Within the guidelines of this program, taxpayers are given an opportunity to avoid criminal prosecution for tax crimes such as tax evasion and tax fraud.

Also, as part of this program, a taxpayer is subject to paying penalties on previously unreported income in foreign bank accounts under guidelines defined earlier this year, in March 2009. These guidelines are tough and expensive, but not nearly as tough or expensive as the sort of penalties a taxpayer would be facing if not working within this program.

1 09, 2009

Taxman’s Facebook Miranda Warning? Anything You Put on Your Wall Will Be Used Against You

By |2020-02-12T14:20:19+00:00September 1st, 2009|Audits, IRS Collection, IRS Enforcement|0 Comments

By now, as taxpayers, if we’ve ever had a scrape with the IRS or a state’s taxing agency, especially if we happen to be owing some, we are accustomed to getting letters, maybe getting phone calls, maybe even having some live person from the IRS show up at our door.

And we are familiar with the forms, and the questions: things like:

  • Where do you work?
  • Where do you bank?
  • Do you rent or own your house or apartment?
  • What is the rent?
  • What is the mortgage?
  • What is the maintenance or common charges?
  • Do you own stocks or bonds?
  • What are they worth?

All these questions, and more.

And, if you happen to get audited, the Revenue Agent (the IRS’s name for the person who does the audit) might send you a few pages of forms which ask you to provide specific information and documents to help answer these sorts of questions. The IRS calls them IDRs, which stands for “Information Document Request.”

If you don’t respond, and things get ugly, the IRS can drag you into court and have you explain to a judge why didn’t provide the information the IRS requested. You might have a good reason; you might not.

It’s all pretty low tech: letters, paper, phone calls, knocking on doors.

But according to an article in the Wall Street Journal, the Taxman is leaping quickly into the 21st Century and gathering information about taxpayers from Facebook walls, MySpace posts, chat rooms, and Google.

In “Is ‘Friending’ in Your Future? Better Pay Your Taxes First,” The Wall Street Journal’s Laura Saunders reports that state taxing authorities in Minnesota, Nebraska, and California have been catching long-time tax debtors and tax evaders who announce their professional and travel plans on social media sites. Other states are doing so as well, or at least thinking about it.

For example, one tenacious and inquiring tax collector found a delinquent taxpayer who was a “rigger of sails” by searching for his name and the phrase (“rigger…”). This search led him to a discussion board of local riggers, and in it, a discussion thread telling where this rigger went after his store closed.

With this morsel of information, the taxman located the missing “rigger of sails” and collected the unpaid tax debt.

While states are jumping into mine social media sites and more generally the internet, the IRS is playing its hand very close to the vest. It refused to comment on whether or how it might be using social networking sites.

27 05, 2009

Jobs Agency Owner Gets Temp Assignment (Some Call it a ‘Sentence’) to Federal Prison for Unpaid Employment Tax

By |2020-02-12T14:20:20+00:00May 27th, 2009|100% Penalty, Employment Tax, IRS Collection, IRS Enforcement, IRS News, Payroll Tax, Pierce the Corporate Veil, Tax Crimes, Trust Fund Recovery Penalty, Withholding Tax|0 Comments

A San Antonio, Texas, woman was sentenced to 41 months in federal prison and ordered to pay $1.5 million in restitution to the IRS for her role in a fraudulent tax scheme.

In addition to the prison term, United States District Judge Fred Biery ordered that Terrell Diamond be placed under supervised release for a period of three years after completing her prison term.

According to court records, Diamond, along with her now-ex-husband and co-defendant, William Diamond, conspired to defraud the IRS in the assessment and collection of more than $1.5 million in employment taxes due and owing from November 1996 to June 2003.

The employment taxes owed pertained to temporary employment agencies owned and operated by the Diamonds, including Ameriforce and Primo Labor.

Both Diamonds pleaded guilty to the same charge: one count of conspiracy to defraud the IRS.

6 05, 2009

Not Just for Bernie Madoff or King Tut, Business Owners Build Devastating Pyramids of Withholding Tax Debt Deducted From Paychecks But Not Sent to IRS

By |2020-02-12T14:20:20+00:00May 6th, 2009|100% Penalty, IRS Collection, IRS Enforcement, IRS Power, Payroll Tax, Pierce the Corporate Veil, Pyramiding, Trust Fund Recovery Penalty, Withholding Tax|1 Comment

What do they call it when a business owner withholds payroll taxes from his or her employees’ paychecks, spends that money on other expenses, doesn’t send the withholding tax payment to the IRS, then, does the same thing again, and then again, and then again?

The “again and again” part is called “pyramiding”: the employer is pyramiding its failure to pay one payment period after another, growing the company’s debt to the government astronomically.

Another way to describe it is digging the hole deeper, and deeper. (Recall Bill Clinton’s sensible advice: If you’re in a hole, first thing: stop digging.)

The act of failing to pay to the IRS (actually the U.S. Treasury) is a way to live especially dangerously for business owners, managers, and decision makers at the company. James Bond thinks he’s living dangerously? Feh!

The reason it is so dangerous is: The IRS has the power to hold the owners, managers, and decision-makers at the company personally responsible for the unpaid withholding tax with little more than the stroke of a pen. (This is called the “Trust Fund Recovery Penalty.”)

With this extraordinary power, the IRS can “pierce the corporate veil” with an ease unknown to ordinary creditors. Once it does, this liability is NOT deductible and it is NOT dischargable in bankruptcy. So there is a triple-whammy which can be devastating, and “pyramiding” the debt multiplies the problem.

This triple-whammy is then magnified further by the state tax dept, if the business is in a state which has an income tax; States have similarly huge, extraordinary powers and often the state is even tougher than the IRS.

25 03, 2009

The House (Probably) Can Tell Us Which Bailout Recipients Owe the IRS — And Should

By |2020-02-12T14:20:21+00:00March 25th, 2009|Bailout, Federal Tax Lien, IRS Collection, IRS Enforcement, IRS Power, Tax Policy, Tax Privacy|0 Comments

One has to wonder if the House Ways and Means Committee’s subcommittee on oversight got it right when it told reporters that it could not legally release the names of the companies who received bailout money while owing back taxes, two of which owe more than $100 million each. (See Associated Press article, “Some Getting Bailout Cash Owe Millions In Back Taxes,” in the New York Times on 3/20/2009 A19 col. 6.)

Ordinarily, a taxpayer’s tax information, whether it is an individual or a business, is treated as very private, very secret. In fact, IRS employees can be, and are, fired, criminally charged, convicted, and sentenced for the Unauthorized Inspection of Tax Return Information or Accessing of Tax Account Information.

But, when a taxpayer is late in paying a tax bill, these super-strong privacy rules don’t fully apply anymore.

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