Allan Pearlman Radio Interview: Tax Tricks, Trips and Traps

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:

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

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.

IRS Staff Are Human, Too Human

Not scorpions, not reptiles, not hairy poisonous spiders, not jackals, not piranhas, not hyenas.

And while some taxpayers may swear that the IRS agent they talked to was worse than the mythical Leroy Brown (that is, “meaner than a junkyard dog” and who was “bad, Bad!”

fourteen years before Michael Jackson was “Bad”), experience suggests (and were a study conducted, empirical evidence, I believe, would support) that the people who work for the IRS are human, all too human.

The significance of this to a taxpayer in a jam is that if some IRS (or corresponding state taxing authority) staffer has been trying for months or years to collect a back tax debt, or just get the taxpayer to file one or more missing returns*, that salaried government employee just might develop an all-too-human negative impression of the taxpayer.

(*If you find a tax advisor who says you don’t have to file a return, hang on to your wallet, and run, don’t walk, to someone else!)

The Taxman’s Human? What’s the Downside?

Even if the taxpayer has one or one-hundred-and-one unassailable reasons to explain how it is that he or she wound up in this situation with IRS agents giving chase, and it all makes sense, the all-too-human IRS employee might form a decidedly negative impression which can affect how that employee might treat the taxpayer.

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IRS Insider Information: More Multi-Year Audits Coming

Recently, in an attempt to resolve a dispute with the IRS before taking it to Tax Court, I met with an IRS auditor who had already slammed my new client with an additional $36,000 in tax interest and penalty by disallowing $90,000 of business deductions he claimed for his little company. My mission: persuade the auditor that many, most, or all of the deductions she had disallowed were legitimate, and that she should which should be recognized as legitimate.

Policy Changes Which Affect Everyone Revealed in Conversation About One Taxpayer

In the course of talking about my taxpayer’s business and deductions, we discussed more generally tax rules and policy. And in that part of the conversation, this auditor told me that starting now, more and more audits will involve multi-year examinations (what many of us call a “tax audit,” the IRS calls an “examination” — audit, examination, both words refer to the same thing).

So, for example, three years ago, a taxpayer might have been audited (or “examined”) for tax year 2005, now, it is much more likely that if the IRS initiates an audit, the audit will involve not just 2005, but also ‘06, and ’07.

IRS Uses Old TV Commercial Logic: “How Do We Do it? Volume!”

Why? Simple: it’s cheaper by the dozen! Three years in one audit costs the IRS less than doing only one year.

In fact, this auditor explained, doing multi-year audits has always been the official policy, but often it was not carefully supervised by the layers of internal management at the IRS. But now that the federal government needs money severely, the IRS is looking to get as much of a bang for its audit buck as it can.

Happy(er) Ending for Client

Meanwhile, over the course of 6 hours or so, I persuaded the this auditor to recognize more than half of the disallowed expenses as being legitimate, resulting in reducing the additional tax, interest and penalty from more than $36,000 down to about $6,000. The taxpayer considered that a very good result.

And, a Word to the Wise Taxpayer

And, so, a “take-away” for everyone else, be aware: multi-year audits are on the rise. One way to start being ready if you become a target of audit is to keep and have good records. It may be a great time to review your record-keeping system, or to develop one if you don’t have one!

Filing Your Tax Return Early Won’t Do You Any Good

Here we are in the thick of tax season and lots of people are getting their shoeboxes full of reciepts together, organizing their credit card statements and cell phone bills, so that they prepare their tax returns or go to their accountant to do it for them.

Some of us — the enviably well organized — may already be done. Maybe they’ve even prepared their returns already. So now, to file now and get it done? Or to wait until April 15th? Certainly you don’t want to be late (or if you have to be late, you want to file for an extension of time to file), but now the question is: on time or early?

What? No Gold Star? Three Ways Filing Early Might Help

Surprisingly, except three narrow situations, in most circumstances, filing early does you no good. You don’t get extra points or anything.

What you might get, if you are owed a refund, is your refund sooner than if you filed later. That’s one of the three situations: get your refund sooner.

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When Does the Statute of Limitations Run Out for IRS Tax Audits?

A visitor to my website found it by asking this question in a search on Yahoo: “When does the statute of limitations run out for audits?”

The shortest answer is three years.

So the IRS Has Three Years – Three Years Starting When?

But that’s not quite enough information all by itself. The first, next question is: three years from what? What event makes the clock start ticking and counting down?

The shortest answer is that the clock starts counting down, when you, the taxpayer, file your tax return. But that’s not quite the whole story either:

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