Mr. Pencil

Consider the sad case of Joyce Linzy. She ran a little tax prep business out of her house. We all know how frustrating this line of work is, and how important it is to get away for a few days. But IRS has no mercy, and insisted the vacation was not a business expense. They wouldn't even let her deduct her losses, even though she gave them the casino statement! In fact they disallowed everything including her home office, citing some obscure tax code about substantiation or some such nonsense. Then they looked at the rest of the return. Actually they probably started here; anyway, they dinged her for Social Security Disability benefits which was totally unfair because she had to pay back three years of otherwise tax-free Met Life payments. They insulted her, too--said she was "negligent" and stacked on penalties. Naturally she appealed. She argued the case herself, and the judge was impressed that she "credibly testified." But he was just stuck on that tax code thing. [TC Memo 2013-219]

I appreciate what you said earlier about serving your client's interests professionally without regard to the ethics of failure to pay. And I agree entirely, having no knowledge whatsoever of the facts. I still don't see that you are properly positioned for an Offer in Compromise. First, I want to clear up a definition. The Trust Fund Recovery Penalty includes only the payroll taxes that were actually withheld from employees' wages. It does not include the employer half of FICA or any penalties related to the company's failure to pay. You are right to recommend she pay that personally, because she is probably going to have to anyway. Although you continue to confuse me on this point, it sounds like the Offer in Compromise will be filed by the corporation, not the shareholder. The IRS will probably look at the shareholder's relationship if corporate assets (including compensation) were transferred to her. Even if the IRS closes the corporate account, that may not protect your client. This is something you need to think through. You seem to have a goal of getting the debt discharged rather than compromised, but that doesn't make a very strong offer. I mentioned the difficulty of correctly identifying the debt to be compromised. Another caution is that the IRS will apply any payments in a way that benefits the government, which is very likely not what you would choose. There may be ways to control that; again, you have to think about this carefully.

Two businessmen had an appointment with me to do their partnership return. They operate a small food stand with all cash receipts. Just as we got started one jumped up and blurted out, “Oh my gosh! I forgot to lock the safe back at the office!” “What does that matter?” assured the other. “We’re both here, ain’t we?”

Thanks, KC. Note that these are only for employee reimbursement under an accountable plan, not Schedule C. They only cover cost; you still must substantiate time, place, and business purpose. They are effective October 1 and can be used for the last 3 months of 2013 with certain limitations. It is a substantial increase, so worth considering. The reason we still need the 2011 Rev Proc is that it doesn't get updated every year. The new rates are published in an annual notice, which I guess is a simpler thing for the IRS rule-makers. But I do see one important change in Section 2. Local taxicab is no longer included in incidental expenses. From now on it can be deducted or reimbursed in addition to the per diem rate. Finally, I'm proud to report that my own home town has made it onto the list of high-cost localities.

One of the most overlooked security problems is your pets. Dogs are loyal but they don't understand the larger picture and can be, well, petty. As for giving them an RFID chip, are you nuts? Cats just don't care one way or another, so never let them know important things like how long the house will be empty. You can trust horses as much as you can trust any blackmailer. Birds of course are such gossips we have cliches like sing and tweet for tattletale. That's why I only have a goldfish.

Always keep moving when using a cell phone, so nobody can listen in or watch your texting. Cars are really the safest for that which is why the government spies will arrest you if you try to hide that way. Around here everyone rides a bicycle or skateboard while texting.

Also, when sending U.S. mail always seal the envelope flap. Use Scotch tape so it can't be steamed open. And obviously never send a picture post card..

DISCLAIMER. I made this up. It is not true. Maybe it could be true. Maybe it should be true. But it isn't. I made it up. Losses Prove It’s a Business When the IRS challenged one taxpayer’s consulting business, he decided to use his business skills to fight back. John Bethesda developed classes to teach card counting, probability theory, and other mathematical approaches to gambling. Because of high travel costs his expenses exceeded income for several years. The IRS characterized it as a hobby under the presumption that losing money for three years shifts the burden of proof to the taxpayer. Bethesda cited Small Business Administration and Treasury Department statistics that show that 85% of all new businesses fail within three to five years. He argued that his losses proved that he is in the majority of activities defined as a business. The probability of his failure is a normal and expected business pattern. The Tax Court agreed after the IRS was unable to present any additional evidence. IRS attorneys said they would not appeal because the odds of winning were low.

Not true. If you don't like the exchange, don't use it. I won't--my insurance is already in place. Many currently uninsured can take advantage of the expanded competitive market without qualifying for subsidy. And some will stay self-insured. Your choice.

I'm not clear who your client is, an individual or a business entity, what the relationship is, or how the tax debt is assessed. All of this must be spelled out in an OIC, so you are not off to a good start. Also, an OIC must cover all amounts together, so you can't run a payment plan for some and compromise the rest. Well, unless the business is a separate entity maybe, but an OIC or payment plan for one will NOT protect the other. In other words, they can compromise the Trust Fund Penalty, and STILL go after business assets for the whole amount. So now we're talking TWO Offers in Compromise, with upfront payments on both. Apparently the business is still functioning. You need some REAL analysis of its prospects for the next five years. IRS might agree to a carefully structured OIC that will put the company back in black. But if the business is likely to default on the OIC (such as late filing or non-payment) it could end up worse off. It sounds like you don't have much to offer at this time. A payment plan is probably your only realistic option anyway.

I'm not sure what you mean. IRS was very lenient allowing the taxpayer to work out his problems, but did that somehow make the problems worse? Trust Fund is a hard debt to clear. Reasonable cause doesn't usually apply, because the IRS won't believe the taxpayer's circumstances prevented payment. The IRS position is that the taxpayer HAD the money in hand, having actually withheld it from paychecks, but chose to spend it on something else. So you don't get much sympathy. Including it in a compromise is possible but difficult. Since payroll taxes are assessed quarterly, you must carefully allocate the debt to each period. I would recommend negotiations be handled by an experienced practitioner.

And so we can! There's no legal restrictions on what used to be called adultery or sodomy. The obligations and benefits are only applicable if the adult lovers freely CHOOSE to involve the government . Of course, most religious organizations include government registration as an element of faith, but religion is also a free choice.

I can't answer that, except that sexuality is not a very logical thing. I will say it has never had much to do with marriage. Other factors like politics or economics or social standing have always been powerful elements. In fact, marriage is a classic cover for homosexuals! My point in this thread was that exclusive state laws are not sustainable. It's a basic right under the Constitution that every state must accord "full faith and credit" to the laws of other states. It already works with common law, underage, and first cousin marriages, so let's get used to it.

That sounds like the reason we need a complicated tax code is that the tax code is so complicated! And I think that is right, and it's the reason we will never have a flat tax. Our tax system is not only about raising revenue. It is about social policy. We defer taxes to encourage saving for retirement, but then we have to account for all the deferrals. Currently we want better health insurance so we put a big chunk of that business into the tax code. Similarly, tax policy is at the heart of the new marriage equality--the Supreme Court ruling on DOMA was about taxation of estates. So we seem to be in a growth industry. But I don't think we should be too critical of IRS employees making mistakes, until we embrace higher standards for ourselves.

I found this one really troubling, so I looked up a few more facts. Gavin ran her game for four years; then it took another four years to bring her to justice. Meaning, letting her plead to two misdemeanor counts that (I guess) won't even affect her pension. She was so brazen, using all her employees, and her profits were more than three times the fine, so it doesn't seem like much of a deterrent to others who know how to be more discreet..

I've been thinking of this for a few days. It's not hard to find instances of technical errors in the IRS. Although that doesn't support all the political claims of harassment, it does support calls for simplification. Why exactly do we need an "Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits"?

You haven't been in California very long!

You mean Texas would make me get divorced even though they say I was never married in the first place? Talk about having it both ways!

U.S Court of Appeals for the District of Columbia will hear arguments tomorrow.

Yes, and they're both community property states--I can't wait to see the new Form 8958 http://www.irs.gov/pub/irs-access/f8958_accessible.pdf !!

What if I get married in California, but then move to Texas where that marriage is not recognized, so I marry somebody else?

This makes it sound like us guys are scamming the system? Way down near the bottom they admit that they haven't found even a single case where that happened. According to the article, the (potential) problem is only with IRS attorneys THEMSELVES who for lack of supervision are able to pick & choose their own assignments. So I agree with the IRS this time--they need better internal controls because they can't trust their employees to provide "prompt, unbiased, and legally correct interpretations of the law."

That older notice sounds like it only refers to relatives, but it actually includes any household member who received more than 50% support regardless of the dependent's gross income. See if the client can qualify by putting dependent's earnings into savings, etc. Otherwise they will have to take a vacation to someplace where they can get legally married. Even then, who knows? If the employer is a state university it still might not offer the benefit. It's going to be a while before we can advise clients without a lot of disclaimers. Domestic partners are in a particularly confusing situation, since they may not even be eligible to get legally married.

Why is business mileage like Christmas cookies? Same as last year.

You guys talk funny! But you're not a REAL pirate unless you graduated from this school, like I did.