Taxgirl Shares Nugget of Blogging Wisdom

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Last week I blogged about “Taxgirl” Kelly Phillips Erb’s coverage of the Richard Hatch tax debt controversy.  It was my observation that she had changed something about the way she reported the story after speaking with Hatch directly about his situation.  Well Kelly was nice enough to provide me with a little clarification, part of which I have reproduced here:

“One of the reasons that I’ve blogged the story so many times is that I’ve been fascinated by the history. Like you, I practice tax law and I have been trying to get my head around why this case didn’t stop earlier. This wasn’t an ordinary story. In fact, that was the point of my original piece: the IRS doesn’t, as a rule, just toss folks in jail.

One of the cool things about blogging is that it’s not static. Providing regular content to an engaged audience allows you to update stories as they happen. And I’d like to think that’s what happened here. It wasn’t my intention to “backpedal” or paint Mr. Hatch as a victim with my follow-up piece. I don’t think I so much “changed my (sic) tune” as I found out more about the story and reported what I learned.”

She’s right.  I hadn’t thought of it that way.  It’s great that she was able to tell Hatch’s side of the story and add something that we probably wouldn’t get through standard news outlets.  I also support the notion that a good blog is often dynamic and engaging.  Thanks for the perspective Kelly!

The comments are not very prominently displayed on our blog, so click here if you want to read the Taxgirl’s comment in full.

Blowing the Whistle on the Whistleblower Office

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The IRS Whistleblower Office, as we know it, was set in motion by legislation written by Senator Chuck Grassley, R-Iowa back in 2006.  Slow motion that is.  And Chuck is not happy.

Senator Grassley recently penned a stern letter to the Commish and Treasury Secretary Tim Geithner asking them to kindly fix whatever is broken at Whistleblower headquarters.  It’s the same story: they are taking too long to process these cases, and whistleblowers are patient, but they begin to lose faith in the system as the months and years pass on their claims without compensation.   If they don’t straighten things out over there, the IRS is going to miss out on a big opportunity to collect the tax debt of some of the biggest tax cheats in the country.  Whistleblowers will just stop coming forward.

According to reports, Grassley’s letter may have been prompted by recent intel that the director of the whistleblower program had spent time as a panelist at the Offshore Alert Conference — an errand seemingly outside the scope of his duties.  He can’t be abandoning his post for gigs like this given the current backlog of cases!  Of course, it probably doesn’t help his case knowing that the conference was held at the Ritz Carlton in Miami Beach!

What’s with Floridians and their Penchant for Tax Crimes?

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I recently blogged about how Florida is becoming a hotbed of tax crimes.  The US Department of Justice issued a press release this week about a Floridian who appears to be engaging in illegal tax activities right from his prison cell.  I say “appears to be” because, procedurally, this is still just a grand jury indictment, not a conviction.

David Marrero has been charged with corruptly endeavoring to obstruct the Internal Revenue Service (IRS) and filing false claims.  He filed false tax returns in hopes of getting a refund from the government.  He even went so far as to prepare bogus income docs to support his fraudulent refund claims.  Marrero also used other peoples’ financial information as part of his scheme — a common technique in the underground business of false return filing.  If you have tax problems, hopefully this story makes them seem small in comparison.

The IRS has promised to scrutinize return preparer certifications that are issued to inmates, perhaps they should also be taking a careful look at any and all returns filed from prisons.  I’m sure they already are, and that is probably why David Marrero’s strategy failed.  So much for getting out early for good behavior…

The Hatch Tax Saga Continues: Hatch vs. Erb

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Forbes contributor, Kelly Phillips Erb, blogged about ex-Survivor contestant/winner, Richard Hatch’s tax problems last week and this week she’s completely changed her tune.  What made her backpedal?  A personal call from Mr. Hatch.

The Tax Girl’s April 24th blog post portrayed Hatch as a quasi-celeb tax-dodging goofball.  Maybe its the commercial that makes him look like a goofball.  But nonetheless, Hatch called her out in a comment to her article, claiming that she didn’t bother getting her facts straight.  Then they spoke via telephone and Hatch gave her the complete rundown on what has happened in his fight with the IRS and the judicial system from the time he finished his stint on Survivor up to the present.  AND NOW, in today’s blog post, all of a sudden Hatch is a “victim” and a true survivor.  See today’s post here.

Whatever, I get it.  The phone call made her realize that Hatch is an actual human being suffering under the burden of a massive tax debt, and following his tax story through reports of the mainstream media may not have resulted in an accurate understanding of the controversy.  Heck, if Kelly were to call me in response to this post, I’m sure I’d do some backpedaling myself:)

What Makes the Tax Code so Long?

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This is the kind of thing that makes the tax code so long:

Any natural grape wine may be sweetened after fermentation and before tax payment with pure dry sugar or liquid sugar if the total solids content of the finished wine does not exceed 12% of the weight of the wine and the alcoholic content of the finished wine after sweetening is not more than 14% by volume; except that the use under this subsection of liquid sugar shall be limited so that the resultant volume will not exceed the volume which could result from the maximum authorized use of pure dry sugar only.

~ excerpt from 26 USC § 5383

IRS Updates Standard Expense Amounts

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If you incur a tax debt and are unable to pay back what you owe in one lump sum, you may need to disclose your financial information to the IRS to prove how much you can afford to pay on a monthly basis.  The same thing applies to the Offer in Compromise program.  Under no circumstances will the IRS agree to a settlement of your tax debt without first reviewing your financials in detail.  If you hire a tax attorney, he/she will present your financials in a light most favorable to you, the taxpayer, and will argue the finer points to help you get the best result possible.

What sort of financial information does the IRS request?  In the most general sense, they want to know about your income, expenses, and assets.  However, the questions often depend on the individual circumstances of each case: the amount owed, the type of resolution sought, the closeness of the Collection Statute Expiration Date, etc.  Sometimes the questions can be quite invasive.  But for some expenses, the IRS allows a set amount without questioning the actual amount spent by the taxpayer.  These are referred to as the “National Standards.”

The National Standards include an allotment for each of the following expense categories:

  • Food
  • Housekeeping supplies
  • Apparel & services
  • Personal care products & services
  • Miscellaneous

The current National Standard amount for all 5 categories combined is $565 for a household of one.  For purposes of determining how much you can pay under an Offer in Compromise or an Installment Agreement, the IRS will allow this full amount, even if you spend far less in reality.  The IRS allows $1,029 for a household of 2; $1,227 for 3; $1,450 for 4, and another $281 for each additional person beyond 4.  These are the new amounts based on updates done April 27, 2012 and effective retroactively from April 2, 2012.

The previous National Standard amount for a household of 1 was $534.  The National Standard amounts are based on data from the Bureau of Labor Statistics and are typically updated no more than once a year.

Supreme Court Rules in Favor of Taxpayer on Assessment Statute Question

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How many years should we be concerned about the possibility of an IRS audit?  Most people realize they are in the clear for taxes they filed in the 1990s.  The IRS can’t come back and audit you a decade later because audits and additional assessments are time bound by a 3-year statute of limitations.  In most cases you are in the clear after 3 years from the time you file or from the due date of the return.  However, there is an exception that allows the IRS to double the statutory period in cases where the taxpayer understates gross income by 25% or more.  The whole concept of understating income by 25% can be fairly convoluted as evidenced by the wide variations in how appellate courts have decided the question over the years.

But the highest court in the nation has recently sided with the taxpayer in a case that was expected by many to go the other way.  It was a tax shelter case.  The IRS wanted 6 years, but the Supreme Court ruled that the standard 3-year rule applied.  Some see this as a big win for taxpayers.  Apparently the circumstances that would allow the IRS to stray from the 3-year rule are fairly narrow.

The “Common Cause” Whistleblower Case

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You may have heard about the complaint filed by Common Cause against American Legislative Exchange Council (ALEC) asking the IRS to drop the organization’s tax-exempt status for engaging in lobbying activities.  What you may not know is this complaint was filed under the 145-year-old whistleblower provisions now codified in 26 USC 7623.

Has ALEC been exploiting the tax relief available to non-profits?

Common Cause is characterizing ALEC ‘s activities as an improper tax scheme and is asking the IRS to investigate and assess all taxes due.  If taxes are in fact collected from ALEC, it would seem that Dr. Robert W. Edgar, the president and CEO of Common Cause, stands to gain a large sum of money.  One of the requirements under the whistleblower statute is that the complaint be filed by an individual, and it appears to have been filed on behalf of Dr. Edgar.  Under the 2006 amendments to the whistleblower statute, the maximum award is 15% of the taxes and penalties collected (capped at $10 million).

So far ALEC has responded to the allegations by calling them a “harassment tactic.”

“[I]t’s clear to me that this is a tired campaign to abuse the legal system, distort the facts and tarnish the reputation of ideological foes….Without question, Common Cause is a partisan front group masquerading as an ethics watchdog.

~ Alan P. Dye, attorney for ALEC

IRS Summons

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If you have IRS tax debt, you probably receive more IRS mail than you care to admit.  Some of our clients receive so many IRS notices and letters that it becomes difficult to keep up with them.  Obviously, it is very important to open and read every single correspondence you receive from the IRS.  But one type of notice ranks right up at the top in terms of priority: the IRS Summons (Form 2039).

The IRS uses the summons to secure documents and records from taxpayers, normally only after informal attempts have been made without success.  The IRS is typically trying to ascertain the accuracy of a tax return, to determine the liability of a taxpayer, or to collect back taxes.

One way or another, you must respond to your summons.  One of the reasons the summons is so important is if you fail to comply, the IRS employee who issued the summons may seek to enforce it in court.  If so, a judge could hold you in contempt of court, which means you could be fined and/or thrown in prison.

If you receive a summons, you should seriously consider hiring legal counsel to help you to respond and to protect your interests.

Tax Crimes in the Sunshine State

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For whatever reason, sunny Florida is a hotbed of criminal tax activities.  Refund fraud is particularly rampant in Tampa, as described in a very interesting article appearing in the Tampa Bay Times over the weekend.  According to the author, Patty Ryan, the new generation of tax criminals either do not fear the IRS or do not believe what they are doing is all that bad when compared to other crimes like drug dealing.

“Frequently, when police find probable cause to search for drugs on a traffic stop, they find trappings of the tax refund trade.

A Nissan Xterra searched in a March 30 drug bust … in East Tampa turned up 48.7 grams of powder and rock cocaine, 100 grams of marijuana, digital scales, $14,957 in cash, four fraudulent tax return checks worth $32,165, and 67 TurboTax debit cards, along with ledgers of personal information for hundreds of people, police said.

The IRS has identified Tampa as an ideal location for a pilot program that would enlist the cooperation of local law enforcement in cracking down on tax cheats.  It’s easy to see why they chose Tampa.