Lies and the Lying Liars in the Tax Business (with apologies to Al Franken)

I have the good fortune of having professional friends and colleagues around the country who have law practices or accounting practices which specialize in defending taxpayers whom the IRS claims owe back taxes.

And so, when some thorny issue comes up I might talk to a brother or sister tax pro in Florida or Texas or New Hampshire or Washington State or a smattering of other places around the country, in both red and blue states.

Recently, I was working on a tricky issue relating the Trust Fund Recovery Penalty (to the uninitiated, this weird string of four words refers to one aspect of tax law that properly strikes fear into the hearts of business owners with employees everywhere or, if it doesn’t, either it should or the business owner has already dealt with the issue and taken steps to avoid or solve this problem; see, for example, 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/).

After brainstorming a bit on strategy for my Trust Fund Issue, my colleague and I started talking about life, the world, and business, generally.

She complained bitterly (and hilariously) about our still-new president Obama (I couldn’t disagree with her more on this, yet we still are able to find common ground elsewhere and get along just fine – like the Jets and the Sharks go bowling together).

Then, to my surprise, she told me that she is doing less and less tax work.

Honest Analysis Loses Out to Empty Promises

Her explanation: We can’t compete with these tax resolution companies who promise the sun, moon and stars in their advertising and then have telephone sales people who don’t know anything about the tax rules and say whatever the taxpayers want to hear.

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Jobs Agency Owner Gets Temp Assignment (Some Call it a ‘Sentence’) to Federal Prison for Unpaid Employment Tax

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.

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….

Dentist’s Pyramid of Unpaid Payroll Taxes and Unfiled Returns Bring Indictment

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.

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

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.