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.

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.

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.

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.

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.

One of the several extraordinarily powerful tools at the IRS’s disposal for protecting its claim on unpaid taxes and ultimately compelling payment, even from the most unwilling and uncooperative of debtors, is to publicly file a Notice of Federal Tax Lien.

Notices of Federal Tax Lien are filed with public recording authorities – where deeds, liens and UCC documents are filed – all over the country. In many places, that recording authority is the county clerk. In New York City it is the office of the City Register.

Once a Notice of Federal Tax Lien is filed, the unpaid tax debt becomes public information. Anyone can know that a taxpayer has an IRS back tax debt claim against him or her, or, in the case of companies owing north of $100 Million, it. Also, the previously confidential debt shows up on credit reports and public record searches.

And the IRS is not shy about using this tool: it files lots of Notices of Federal Tax Lien. For example, in the last 30 days, in Manhattan alone, the IRS filed 601. The filings for all five boroughs were almost 1900. Based on this, in New York City, the IRS files an average of 89 liens every business day.

While the IRS’s internal procedures manual suggests filing a lien when the past due tax reaches $5,000 or more, the IRS will sometimes file liens on amounts due which are much smaller. Just a month ago, in mid-February, the IRS filed a Notice of Federal Tax Lien against a taxpayer where the past due amount owed is $41.06. This tax was assessed only four months earlier, in October, 2008.

You, me, anyone can now know all about this taxpayer who owes $41.06: that it is a company not a person, its name, its street address (in midtown Manhattan), when the tax debt was assessed and when the lien was filed.

Do you think the IRS might have exercised the same power to publicly file a lien on a $100 million debt, since it did not hesitate to do so on a debt of $41.06?

On the other end of the spectrum, public filings allow us to know that Tiffany and Company – yes, the blue box, “Breakfast at” and Audrey Hepburn people – had a $3,723,680.76 federal tax lien filed against it in August, 2008, and that the lien was released three months later, in November 2008.

If the IRS exercised its discretion to publicly file a Notice of Federal Tax Lien on these bailed-out $100 Million tax debtors, then the House Subcommittee’s position that it is legally barred from revealing their identities is mistaken – the horse is already out of the barn, as President Obama recently said. (Unless the TARP bill or other legislation created some new and additional tax debtor privacy provision, though this seems unlikely, and would be difficult to square with pre-existing public records.)

Considering the size of the tax debts involved here (well over $41.06; well over $5,000), it would seem, without knowing more, that the IRS would likely be quick to file Notices of Federal Tax Lien to help secure it’s interest in collecting these hundreds of millions in unpaid tax. (“Woulda-coulda-shoulda” as Hillary Clinton said, in a different context, a decade ago.)

So, the questions now should be:

• Did the IRS file Notices of Federal Tax Lien on these tax debtor companies which received bailout cash?

• If yes, what law prevents the House subcommittee from releasing these companies’ names? (Probably no law.)

• And, if no law prevents the releasing of these names, how about telling us, in another bold stroke toward “transparency”?

• Finally, if the IRS has opted not to file Notices of Federal Tax Lien on these companies, why not?

The short answer is “3 years.” But, three years from what? I will shortly post a fuller discussion about how much time the IRS has to decide whether or not to audit someone and then do something about it.

A taxpayer searching around the internet asked this question. It is a very good question because it asks about the reach — and the limits — of the IRS’s power to reach into our lives whether we like it or not.

Liens 101: What is a Lien, Anyway?

For those unfamiliar with the term, a “lien” is essentially a claim — someone claims you owe them money.

In certain situations, the person (or business, or government agency) making the claim can file a document announcing this claim with the County Clerk or other public records authority.

By filing a lien with the County Clerk, the claimant announces to the world (and especially to credit reporting agencies) that the claimant says you owe it money.

It’s like taking a private debt (or claimed debt) and shouting from the rooftops to everyone around: “you owe me money!”

And Why Should I Care?

This can have the real and negative effect on your life by damaging or even ruining your credit score, making it harder, more expensive, or even impossible to get a loan, mortgage or other credit. It can also make you ineligible for certain jobs.

The IRS uses the federal tax lien as part of its set of tools to make sure it collects taxes it says are owed. The IRS files a lot of liens. For example, in the last month, in New York City, on the island of Manhattan alone, the IRS filed 580 liens. That’s almost 27 liens filed every business day.

Don’t You Have to Owe a Lot to Have an IRS Lien Filed?

How much do you have to owe for the IRS to file a lien?

It is amazing how little it can take: it took owing as little as $41.06 to get the IRS to publicly file a federal tax lien. This $41 dollar lien, by the way was filed today (the date of this writing), February 12th, 2009.

The largest lien filed in Manhattan in the last month was for over $8 million dollars.

So, with that background, getting back to the reader’s question, putting it into Q & A form:

Q: Can the IRS file a lien without going to court?

A: Yes. The IRS does not have to go to court to file a federal tax lien.

One of the things that makes owing money to the IRS (and most or all state taxing authorities) so dangerous to taxpayers, whether they are individuals or businesses, is that the IRS has powers to compel payment that reach far beyond the powers of ordinary creditors.

If you owe the IRS back taxes, first, think of the IRS, the government as your creditor, like a department store, or a credit card company, your car company, your landlord, your bank that gave you a mortgage on your house.

Then, second, notice the difference between the IRS and your banker, your landlord, your car company: the IRS does not have to sue you and get a money judgment against your to file a lien against you.

For the IRS, It’s as Easy as 1-2-3, A-B-C, Do-Re-Mi

Apologies to the Jackson 5.

But, seriously, all the IRS has to do to be able to file a lien is (1) determine that you owe money, (2) tell you that you owe it and ask you to pay it, and (3) wait ten days. If you have not paid in full by the time those 10 days are up, the IRS has the power and authority to file a piece of paper — a notice of federal tax lien — with the local public recording authority, be it the County Clerk or other.

While, generally, the IRS does not file a notice of federal tax lien on the eleventh day, it certainly does have the power to do so, or to do so at any time after those three standards are met.

The filing of a notice of federal tax lien makes what was the extremely private matter of your taxes very, very public. And the IRS is empowered to do all this by only meeting the three criteria described above. The IRS simply does not have to walk through even a single door of a single courthouse to do this (unless the County Clerk is in the court house). No law suit needs to be filed, litigated, or won.

Where other creditors have to prove their case and persuade a judge, a jury or both, all the IRS needs is, by contrast, the stroke of a pen.

In the IRS’s own words:

Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that we have a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.

The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).

This power and ease to file a lien is enormously different from pretty much all other creditors. It is one of many reasons why you don’t want to owe money to the IRS, and why you probably would be better off owing money to almost anyone else. And, why if you do owe money to the IRS you want to take action to change that.

You can find out more about avoiding trouble with the IRS (or starting to get out of trouble, if tax trouble is already here) by getting my free special report, “7 Big Mistakes Taxpayers Make and How to Avoid Them to (Legally) Keep the IRS OUT of Your Wallet, OUT of Your Bank Account, and OUT of Your Paycheck,” by clicking here.

Nashville, TN — A Tennessee man who operates a business installing complex sound systems in church auditoriums nationwide, pled guilty to two counts of failure to pay federal income tax. As part of his plea, he admitted that he owes the federal government more than $300,000.

After admitting guilt in August, 2008, the sentencing hearing took place in January 2009. The court sentenced Charles Grecco, 44, of Franklin, Tenn, to serve 6 months in prison, followed by one year of supervised release, and to pay restitution of $300,141.82 to the Internal Revenue Service.

According to the government, Grecco failed to pay more than $67,000 in federal income taxes for years 2001 and 2002 which was only two of the six tax years involved.

During the plea hearing, Grecco admitted that while operating the business, Sterling Group Audio, he did not make estimated tax payments as required by law even though he had funds to make those estimated payments on or before the due dates for making estimated tax payments..

The government’s investigation revealed that Grecco lived a lifestyle which prosecutors described as “lavish” during the time that he failed to pay his tax obligations.

Living a “lavish” lifestyle while not paying taxes drives the IRS crazy. Spending money on something else when a tax bill is due seems to make IRS agents’ and federal prosecutors’ blood simply boil. (Some may argue that living any life, even an un-lavish, plain one, while not paying taxes, may make more than a few IRS workers’ blood boil, but that’s something to take up on another day.)

Getting back to “lavish,” unpaid estimated taxes, and what it does to the IRS and prosecutors:

Think: indignant, huffy, angry, riled.

Think: red-cape-waved-in-front-of-snorting-bull.

Think: the girlfriend you broke up with when she didn’t want to break up with you.

Think: “Hell hath no fury ….”

(Then, though, it’s hard not to think of Ralph Waldo Emerson’s observation that “Of all debts, men are least willing to pay their taxes; what a satire this is on government.”)

Satire or not, though, Grecco did build up a significant tax debt.

And, satire or not, prosecutors made sure to identify what Grecco was spending money on rather than paying his estimated tax bills: Lasik eye surgery, elective plastic surgery, church donations (“generous” donations, to be sure), dance lessons, home-school tuition, several luxury vehicles, two expensive homes and a vacant lot (you know you’re really living it up when you splurge on a vacant lot!).

Grecco admitted that as of May 17, 2007, he owed more than $300,000 in taxes, penalties and interest for tax years 2000 to 2005, and then, to cap it off, during the sentencing hearing it was also revealed that Grecco had not paid taxes for 2006 or 2007.