The almost-overnight sensation of the IRS offshore account voluntary disclosure program is about to close.

After the deadline was extended three weeks ago, from September 23rd to October 15th (see http://lifelawandtaxes.com/irs-extends-voluntary-disclosure-deadline-for-secret-offshore-account/), the final deadline is now only days away. See also the New York Times article, “Tax Evaders Face Choice: Pay or Pray” by Lynn Browning.

While touting itself as a program by which taxpayers with unreported income in foreign bank accounts can “come in from the cold,”  avoid criminal prosecution, and pay a penalty which is stiff, but not as severe as the penalties a taxpayer would be subject to outside the program, what seems to get lost in the discussion of this program is the fact that taxpayers who seek to participate are required to confess to a tax crime, waive their 5th Amendment right against self incrimination before knowing whether the Government will commit not to pursue criminal charges against them.

That is a danger of this program. Still, news accounts plus telephone conversations with IRS employees working in its criminal investigation division report that thousands of taxpayers are lining up to participate, submitting written disclosures in order to get that promise not to prosecute and the stiff but less horrible than otherwise penalty structure.

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.

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.

The IRS agent might become convinced that the taxpayer is trying to pull a fast one of some sort, or is lying, or cheating, or some combination of these or other bad things, and so treat the taxpayer based on these underlying impressions.

This has happened: for example, over the telephone one sunny afternoon, a New York State Department of Tax staffer snarled at me something like “Ms. Smith [the taxpayer] has had the unauthorized use of $40,000 of New York State’s money for the past five years, and I’m going to come get it.”

This Tax Department agent was ready to start freezing and seizing bank accounts, garnishing wages, using the Tax Department’s enormous power to reach in and grab whatever he could find, wherever he could find it. And, man, was he angry; angry at the taxpayer.

A powerful and common impression is that the IRS and, often-times even worse, the state taxing authorities, have auditors, collectors, and other staff who are all Terminator-like in their robotic, inexhaustible relentlessness, toughness, and harshness.

Ah Taxman! Ah Humanity!

Yet the humanity, fallibility, and frailty of those seemingly Terminator-like IRS employees are often contributing factors to their relentlessness and toughness.

This is one reason (there are several) to have a professional representative handle the case and speak to the IRS for the taxpayer, rather than have do it himself, or herself.

The old saying, “A lawyer who represents himself has a fool for a client” may apply here, to taxpayers who decide to represent themselves, on those difficult occasions when they get tangled up with the IRS.

Another example: an IRS agent complained to me about another taxpayer, saying that she, the IRS agent, did not “like” the taxpayer.

More than “not liking” the taxpayer, the IRS agent said she thought the taxpayer “cheats,” or, if not “cheating,” then something must be very wrong with the taxpayer’s business or her record keeping, or both.

This statement of deep distrust, suspicion, frustration and indeed, anger, was made to me, the taxpayer’s lawyer, at a meeting where the taxpayer was not present.

Despite these powerfully negative impressions of the taxpayer, this IRS agent ultimately reduced the taxpayer’s tax bill. She reduced the tax bill because evidence I presented which the taxpayer gave me, strongly supported the reduction.

Plus, because the taxpayer herself wasn’t present at this conference, she was not there to remind this all-to-human IRS staffer how much the IRS staffer had grown to distrust and resent the taxpayer.

Instead, with the taxpayer represented by counsel,  the IRS staffer was more able to focus on the evidence supporting the taxpayer’s case rather than getting caught up in the all-too-human emotions of anger, distrust, resentment and frustration.

Every time this IRS agent did stray from the issues, though, and started thinking about the taxpayer, the agent just saw red – and one thing you generally don’t want is to wave the equivalent of a red cape when the IRS is snarling angry-bull-style, in an all-too-human bull-snarl (do bulls snarl?).

*          *          *

People, businesses, entrepreneurs, freelancers, and regular salried employees all too often get into trouble with the IRS by making mistakes they didn’t even know were mistakes — find out how to avoid problem-creating tax mistakes with my free report, 7 Big Mistakes Taxpayers Make and How to Avoid Them, by clicking here, now.

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.

A revenue agent with the Internal Revenue Service has agreed to plead guilty to a federal tax fraud charge for filing a personal income tax return that claimed he suffered a loss in a real estate transaction when in fact he realized a substantial profit. (“Revenue agent” is the official title for the people at the IRS who audit tax returns.)

In a plea agreement, Jim H. Liu, 43, of Diamond Bar, Calif., agreed to plead guilty to subscribing to a false tax return — a charge that carries a penalty of up to three years in federal prison.

‘My Gain is Your Loss’ Shenanigan Uncovered and Confessed

Liu admitted he filed a false tax return for the 2002 tax year that improperly claimed a loss on his sale of a property in Pomona. Liu sold the property for a profit of more than $48,000, but he instead claimed a loss of more than $4,200.

The tax loss to the government, as a result of Liu’s filing, was approximately $14,642.88.

Can this guy keep try to keep out of trouble for even a minute or two?

Prosecutors allege Washington, D.C., Council member and former Mayor Marion Barry has failed to pay more $277,000 in back taxes.

In a recent court filing, prosecutors told the court the politician had not made a tax payment during a period in which he took a Jamaican vacation and ran for re-election to the Ward 8 council seat.

“There is no excuse for the defendant’s failure to make payments to the District of Columbia because, during this six-month period, the defendant nevertheless had enough time and money, for instance, to take a six-day vacation in Jamaica in Sept. 2008 as well as to run for re-election as a council member,” prosecutors told the court.

In 2006, Barry received three years of probation for not filing tax returns from 1999 to 2004.

If dentist Arlan R. Turley treated his teeth the way the Government alleges he’s treated his tax-filing obligations, he’d have cavities and one heck of a case of bloody, bad gums.

This 60-year-old Arizona man was indicted on two counts of willful failure to file a tax return and 20 counts of willful failure to pay over taxes. Turley operated the East Valley Dental Service in Mesa, Ariz.

The indictment alleges that the charges for failure to file are the result of Turley’s non-filing of his 2002 and 2003 income tax returns. In addition, Turley has not filed an individual tax return for a whole decade: 1997 to 2007.

The charges for failure to pay over taxes arise from Turley allegedly not turning over his employees’ payroll taxes to the government, again and again. (See http://lifelawandtaxes.com/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/ .)

If convicted, Turley faces up to five years in prison and a fine of up to $250,000.

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?