Bakery Owner Can’t Have His (unpaid tax obligation) Cake and Eat It Too

macaron cookieOne baker seems to have gotten caught with his fingers in the cookie jar:

Owner of Kasia’s Bakery in New Britain, CT Marian Kobryn pled guilty to tax evasion by operating his business on a cash-only basis and not reporting the cash income or (of course) paying tax on it. From 2010 to 2013, sales totaling $730,860 were deposited into personal bank accounts usually under $10,000 to evade bank’s currency transaction reporting requirements (another illegal practice known as “structuring.”

Pleading guilty to one count of making a false statement of a federal tax return, Kobryn was sentenced to time served due to serious health issues, Kobryn has been ordered to pay restitution in the amount of $435,00 to cover back taxes owed, hence being compelled to restore that raided cookie jar.

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:

The Sin of Snipes, Replayed: Mayor Pleads Guilty to Failing to File Tax Return

The mayor of Mount Vernon, N.Y., just north of Manhattan, has pleaded guilty to failing to file corporate and personal income tax returns. Failing to file tax returns is the same crime for which Hollywood film star Wesley Snipes famously was convicted and for which he spent nearly three years in federal prison.

Mayor Ernest D. Davis, 76, faces up to two years in prison as a result of his plea agreement.

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Letter from the Editor (Post-Mayan Apocalypse Fizzle): A New Life for the Newsletter, Life, Law & Taxes

(From the vault: A slightly different version of this post was published in the paper newsletter, sent to subscribers through the regular U.S. mail, in January 2013, on the occasion of the paper newsletter being revived to monthly publication, after a hiatus.)

It has been a while since the last edition of the through-the-regular-snail-mail Life, Law and Taxes, was completed and mailed out to you.

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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!

One reason to want to be paying taxes

This is obvious but, with all the dread, resentment, and busywork that frequently comes along with the chore and expense of preparing tax returns and paying taxes, it is all too often overlooked:

if you’re paying taxes it means you made money.

Not owing (and so, paying) taxes generally means you aren’t making money. And that’s worse. (Let’s leave aside, for the moment, the issues surrounding “tax haven” countries like Leichtenstein, the Caymen Islands, Andorra, Monaco, etc., where we’ve been reading in the news recently that profitable companies avoid taxes through foreign subsidiaries incorporated in one of these offshore places).

It is a where-there’s-smoke-there’s-fire causal connection (or putting it into achievement test comparison: Income taxes are to making money as smoke is to fire (and again, following the metaphor, we leave aside the smokeless fires of off-shore tax havens for the moment).

The basic reality is, again, if your paying taxes, you’re making money, and that’s a good thing. (Thank you, Martha Stewart.)

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Post Script:  At risk of blowing a punch line (not that this is funny), this paying-taxes-because-you’re-making-money-and-that’s-a-good-thing message makes me think to mention that I recently started a second blog, on a completely different topic, which is relevant here:  the other blog is called “Marketing and PR Lab” and, instead of discussing law or the government or taxes, it instead focuses on ways of improving one’s business and so, income, by improving your marketing methods and getting known.

So as you think of ways to have the “smoke and fire” problem described above, that is: “I have to pay taxes, Dang! But that means I made money — Great!” you might want to go to http://marketingandprlab.com to see if there are things there that can push your business and income-earning forward, or leave a comment to share your experiences, or both.

Something to think about when you’re not thinking about taxes – Miles Davis

We can’t be fretting over Internal Revenue Code 6662 (the accuracy-related penalties, 20%, 40% depending on how inaccurate your tax return might be found to be) all the time.

There are alternatives. To be especially self-punishing, one look at § 6672 (the “Trust Fund Recovery Penalty,” formerly known as the “100% penalty” and think “oh how lucky I am to be only exposed to liability under § 6662 and not § 6672).

Better yet, and less punishing, just think about something else entirely.

For example, one timeless, but all to often overlooked alternative, there’s Miles Davis.

Below is video of a part of a concert at Montreaux, in 1973.

In this clip, Miles is in his late 60’s/early 70’s period which critics and some fans seemed to love (or loved) to hate. One theory: they are (or were)  apparently stuck in the 50’s when he did those great recordings with the quintet, Kind of Blue and Round About Midnight, etc. (not a bad place to get stuck, but now 40 years later some might argue that the late 60’s/early 70’s electric Miles is still ahead of his time).

So, below is the clip….

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

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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IRS Clarifies Position on Tax Consquences of Ponzi Schemes

In the wake of the unravelling of uber-Ponzi schemer Bernard Madoff’s scam, the IRS has announced new guidance on how it will handle the tax consequences of being a victim of a Ponzi scheme — whether Madoff’s or any one else’s.

Yesterday, March 17th, IRS Commissioner Doug Shulman described the agency’s position in testimony before the Senate Finance Committee:

  • The investor is entitled to a theft loss, which is not a capital loss. In other words, a theft loss from a Ponzi-type investment scheme is not subject to the normal limits on losses from investments, which typically limit the loss deduction to $3,000 per year when it exceeds capital gains from investments.
  • The revenue ruling clarifies that “investment” theft losses are not subject to limitations that are applicable to “personal” casualty and theft losses. The loss is deductible as an itemized deduction, but is not subject to the 10 percent of AGI reduction or the $100 reduction that applies to many casualty and theft loss deductions Continue reading