DARRIN T. MISH: Welcome to the IRS Solution Attorney show, I’m your host, Darrin T. Mish. Click here to watch or read more information on IRS Back Taxes.
KATRINA MADEWELL: And I’m your co-host, Katrina Madewell, welcome to the show. If this is your first time joining us, welcome. We have a great show lined up for you today.
DARRIN T. MISH: We do. Some really interesting big government, big brother, 1984 stuff going on today with inside our government. Not a conspiracy theorist or anything. This is actually real, Katrina. Scary.
KATRINA MADEWELL: Ok, so the first topic, the outline…I looked at this going whaaat? I never knew this. This is brand new signed in to law? Is that what it is?
DARRIN T. MISH: Yeah. So proof positive that…
KATRINA MADEWELL: When did this get signed?
DARRIN T. MISH: Just in December I believe. December of 2015. This is actually proof positive that party politics don’t really matter much anymore because both parties tend to vote for big government, Orwellian sort of schemes. What happened is President Obama signed a bill into law. It’s a five year infrastructure.
KATRINA MADEWELL: They all have time limits, right?
DARRIN T. MISH: Basically what it is is the IRS is now going to have the authority to revoke your passport if you have what they deem to be a seriously delinquent tax problem. What fascinates me the most is, that’s a lawyer phrase, right?
KATRINA MADEWELL: Yeah.
DARRIN T. MISH: Seriously delinquent.
KATRINA MADEWELL: What are they considering as seriously delinquent?
DARRIN T. MISH: $50,000. To some people listening to this show, they’re like, ok, 50 grand, that’s a lot of money, how could you ever end up owing 50 grand to the government.
KATRINA MADEWELL: If you listen to the show, you know that $50,000 is a very small minute amount compared to the tax issues you deal with.
DARRIN T. MISH: Typically. I do have some $25,000 cases and things like that. But when you’re considering them, a lot of these cases, half of the 50,000 is interest and penalties. We’re not talking about a very big tax problem in my world at all when you’re talking about $50,000.
KATRINA MADEWELL: Darrin likes to deal with the five million dollar stuff. Just kidding.
DARRIN T. MISH: I like a challenge like anybody else.
KATRINA MADEWELL: Just curious, what was the biggest tax bill you’ve ever dealt with?
DARRIN T. MISH: We should save that for the IRS train wreck of the week.
KATRINA MADEWELL: Alright, let’s save it.
DARRIN T. MISH: That’s a doozy. I’m going to write that down.
KATRINA MADEWELL: Now you have to stick around for the IRS train wreck of the week and we usually do that close to the end of the hour, so roughly about ten ‘til. And those are always good stories.
DARRIN T. MISH: The outcome in that case is almost unbelievable. I can prove that it actually happened. Let’s just say as a teaser, it was way over a million dollars. Many many multiples over a million dollars.
KATRINA MADEWELL: Let’s just break this down for a minute for the layperson listening. Somebody like me thinking, of course I don’t have a tax problem but if I did, I’m just thinking what that means if you have a revoked passport. So you’ve got plans you’ve made. Let’s say you visit family regularly in Costa Rica or wherever you’re going.
DARRIN T. MISH: What’s interesting is we don’t exactly know what it means. Let’s say you go down to Costa Rica, for those of us in Florida, it’s not really that long of a trip, a lot of people do it. I’m always shocked looking at social media at how many people go out of the country for weekends. At least down here. You’re down in Costa Rica.
KATRINA MADEWELL: Some of the flights from Florida, Darrin, they’re only like $100.
DARRIN T. MISH: I know.
KATRINA MADEWELL: It’s not that hard to leave the country over the weekend.
DARRIN T. MISH: No, I know, it just seems kind of exotic.
KATRINA MADEWELL: It does seem weird, doesn’t it?
DARRIN T. MISH: Yeah, a little bit. Especially since we live in such an incredibly awesome place. Except for in August. Not so awesome. So you’re down in another country and a lot of these countries you can clear customs and immigration in that country. Have you ever been to one of those airports? Aruba’s like that. Kersau and some of those countries down there, you actually clear customs down in the foreign country. I always that that would be a pretty cool gig if you were the customs guy. You probably get paid more too. To live in Aruba for six months at a time or something, but I keep digressing.
KATRINA MADEWELL: It’s so fun.
DARRIN T. MISH: You’re down in Costa Rica and they run your U.S. passport and it comes back as revoked. What does that mean? Are you stuck? Are you going to come back?
KATRINA MADEWELL: Well, if you have a tax problem, they probably want you to come back to the U.S., right? But I’m thinking maybe the guys with the guns, the IRS guys are going to be waiting in the U.S. for you maybe?
DARRIN T. MISH: I would think it would be a logical assumption that they would want you back so you could pay back the debt.
KATRINA MADEWELL: And they would like snatch your passport out of your hand kind of thing?
DARRIN T. MISH: Perhaps when you land they’re going to revoke the physical possession. I’m not really sure. I don’t think anybody knows at this point because the regulations, the final regulations haven’t been promulgated or whatnot.
KATRINA MADEWELL: But think about it, they want them here.
DARRIN T. MISH: For sure. I think they clearly want them here. There’s another kind of interesting scenario and there are several states, Louisiana, Minnesota, New Hampshire, and New York. Their driver’s licenses have been certified by the homeland security department. Their driver’s licenses are not secure enough to use for air travel. Even domestically. So now the citizens of these states are going to have to use their U.S. passport in order to get on an airplane to fly from New York to Michigan or something.
KATRINA MADEWELL: That doesn’t even make sense. I just totally either I wasn’t hearing you right, or I don’t understand what you just said.
JEFF: Not everybody has a passport, only people that travel.
DARRIN T. MISH: Right, it’s expensive.
KATRINA MADEWELL: I don’t understand that.
DARRIN T. MISH: Especially for kids, it’s a horrendously challenging proposition.
KATRINA MADEWELL: How would you be required of a passport to go from Mississippi to Michigan?
DARRIN T. MISH: There’s these four states, Louisiana, Minnesota, New Hampshire and New York that the TSA has deemed their driver’s licenses not to have the correct security features.
KATRINA MADEWELL: Oh, so like in Florida we get the star. Once we verified the post 911 they know who we are.
DARRIN T. MISH: And we have a bar code on the back they can swipe it and they can tell your driving record and all that stuff.
JEFF: So why don’t they do the same thing?
DARRIN T. MISH: In these states, I’m not sure why. Some of them are for political reasons because they want to be able to give a driver’s license to undocumented individuals. I’m not sure because these states only two of them are liberal and two of them are conservative, so I have no idea. The driver’s licenses are being basically decertified and are no longer appropriate for domestic air travel. So the issue arises and then ok, the frequent travelers in those states are going to have to use their passports. `
KATRINA MADEWELL: That would be fun to watch.
DARRIN T. MISH: Well, and I have traveled domestically on a passport and it’s funny because you get these odd looks from the people. You show your ID like five times before you get on the airplane and you get funny looks and whatnot. These people now are going to have to use their passports to travel domestically and then we know statistically, I don’t know, 5-10% of them are going to have a tax problem and could end up with their passports revoked. It’s fascinating. We’re not really clear. I think it’s just another example really of lawmakers, hey it sounds like a good idea, let’s do it! Without considering all of the ramifications.
KATRINA MADEWELL: I travel a lot so like something that I always think is, if I lost my id and I have my passport with me, at least I have another form of I.D., you know?
DARRIN T. MISH: I have a briefcase right here in the studio with me and I carry these briefcase, it has my computer and stuff like that. I carry it with me every time I fly someplace and my passport is actually in this bag, for exactly the reason you’re saying. Because the odds of my losing my wallet with my with my driver’s license in it, and my briefcase at the same time, are relatively slim, right? So I have a passport in there. The other thing that’s always been fascinating to me about passports is they have an expiration date on them, right?
KATRINA MADEWELL: Yeah, like ten years I think for adults and shorter for kids. Five years.
DARRIN T. MISH: I think it’s five years for kids. But why is the thing no longer good if there’s six months left on it? That always makes me scratch my head.
KATRINA MADEWELL: Yep, that is weird.
DARRIN T. MISH: So there’s an expiration date and then there’s a secret expiration date.
KATRINA MADEWELL: Because you might accidentally get stuck and not be able to come back by six months because your flight would be delayed so long.
JEFF: You can always get the new passport chip.
DARRIN T. MISH: Yeah, the RFID chip.
JEFF: Someone didn’t believe me and I had to get them a brochure and it shows the guy racing through, one guy with all his bags and the next picture is the guy racing through waving his arm at the machine and it’s an RFID chip in your arm that has your passport.
KATRINA MADEWELL: What? I didn’t know that.
DARRIN T. MISH: Oh, in your arm? No.
JEFF: Oh, yeah.
DARRIN T. MISH: Ok, I think we’re going to…
KATRINA MADEWELL: you have a chip on your passport? I don’t have a chip on mine.
DARRIN T. MISH: I think we’re going to get you a special hat there, Jeff.
JEFF: No, no, no. I’ll bring you the brochure.
KATRINA MADEWELL: In a radio studio that might not be a bad idea.
DARRIN T. MISH: You know, Jeff never gets introduced on the show. Jeff is our loyal and trusty producer. He helps all of this actually happen so that you could listen to us.
KATRINA MADEWELL: And he breaks it up if we get too boring.
DARRIN T. MISH: Yeah, well, because he’s not boring. He brings up stuff like implanted RFID chips.
JEFF: I’ll bring you the brochure. Actually the Dade city courthouse as you walk in the passports. It’s on the right side.
DARRIN T. MISH: So there is a security concern revolving around RFID chips right now and that is…
JEFF: On the driver’s license?
DARRIN T. MISH: No, just in general, especially on the passports. There’s concern that terrorists will be able to figure out how to identify somebody’s nationality and then make a remote control bomb that only goes off when a person of that nationality walks by.
KATRINA MADEWELL: Oh my goodness, with technology, anything is possible.
DARRIN T. MISH: So yet another unintended consequence I think. Getting back to the revocation of passports, it’s fascinating because I don’t think anybody knows how it’s going to work. I would doubt seriously that it’s going to have much practical effect in increasing collections because typically, it might actually increase the number of…
KATRINA MADEWELL: I mean, if you’re a drug lord or something and you’re going between the U.S. and Columbia and you’re invading taxes or something I could see where that might be beneficial. The average person, I don’t know what that’s going to do. You love the stuff I make up.
DARRIN T. MISH: Another example if a criminal is going to follow a law so he could continue engaging in his criminal behavior.
KATRINA MADEWELL: Really, he’s got his own transportation, like private jet. He doesn’t need your. He doesn’t need your commercial airline passport.
DARRIN T. MISH: Another issue that comes up, not to break up this laugh fest. Another issue that could come up is that American Expatriates who live overseas, they already have lots of challenges where they have to declare their foreign bank accounts every year. Which really isn’t that big a deal if you’re not doing anything shady. It’s really not that big a deal, but people don’t know about it.
KATRINA MADEWELL: I don’t like it. It irritates me. I can’t even move my own money around without big brother watching? That irritates me. I’m a law abiding citizen that pays taxes.
DARRIN T. MISH: Well, as long as you file the F-bar form that says you have the foreign bank account in Costa Rica, which apparently is where you hide your money.
KATRINA MADEWELL: I don’t. Maybe I should. I don’t know.
DARRIN T. MISH: Now what the U.S. Treasury did is they bullied every country on earth to have special recording requirements for Americans.
KATRINA MADEWELL: They bully every country?
DARRIN T. MISH: They did. The literally did. Remember when we were kids, there was always movies about Swiss bank accounts and all you needed was a special number. Well, the Swiss have been a bastion of banking secrecy since the beginning of time practically. Since the beginning of banks at least. The U.S. government actually did bully the Swiss, the Swiss banks, into not only changing their laws, which regards to Americans, but also bullied them into disclosure of all Americans who had bank accounts there. This is a big deal.
KATRINA MADEWELL: I was going to say, it’s theoretically really a violation of privacy anyway.
DARRIN T. MISH: Oh, for sure. But the courts would most likely rule that you don’t have…I don’t know what they’d rule. Because we’re interesting into this realm that freedom is not really free. Without being too overtly blunt.
KATRINA MADEWELL: When did that happen? I didn’t even know that existed.
JEFF: A few years ago.
DARRIN T. MISH: It was post 911. It was a knee jerk reaction to terrorism and banking…
JEFF: Isn’t it always?
DARRIN T. MISH: …and stuff like that. Yeah. Well when the patriot act passed post 911 I could remember very clearly in my mind, seeing ok the guys preventing terrorists from moving money around and funding terrorist activities but very soon it will be used as a weapon for domestic law enforcement and yet another erosion of our privacies here in the United States. There are people who would say in response to what I just said, well, if you’re not doing anything wrong, what do you have to worry about? Well, ok, I agree, but what if you are the convenience store owner that has 15 grand in cash that wants to go deposit in the bank and the government decides to seize it and make you prove when that cash came from? We end up in the situation where we have to continue to overtly prove that our behavior is innocent as opposed to what the burden is supposed to be, which is…
KATRINA MADEWELL: You’re innocent until proven guilty.
DARRIN T. MISH: Exactly.
KATRINA MADEWELL: Think about a lot of those nationalities, not to stereotype anyone, but the ones that own some of those stores and people that come from a lot of Asian cultures and Indian cultures, they have a lot of cash like that. So it’s not uncommon for them to do that or lend money back and forth to family members. So it just seems a bit unfair that they would seize their money.
DARRIN T. MISH: There’s different cultures and ethnicities that don’t trust banks. There’s regular Caucasian wasp people in the United States who are older or might have been raised by somebody who lived through the Depression. They remember soup lines and runs on banks and things like that that don’t like banks either.
KATRINA MADEWELL: If you think about that, there was a lot of things that changed from that. If people lived through that it was for a good reason because FDIC insurance was created after that time because when the banks went under, they lost their money.
DARRIN T. MISH: Exactly. That’s now why we have things like too big to fail. When we come back, we’re going to have some questions from listeners and maybe even a live call or two.
KATRINA MADEWELL: Don’t forget, you can catch Darrin on Twitter twitter.com/darrinmish. Isn’t it darrin_mish?
DARRIN T. MISH: It is darrin_mish.
KATRINA MADEWELL: See I’m paying attention even though what we’re looking at, our bullet points are wrong.
DARRIN T. MISH: Welcome back, I’m your host, Darrin T. Mish, the IRS Solution Attorney.
KATRINA MADEWELL: And I’m your cohost, making it fun, not the attorney, Katrina Madewell.
DARRIN T. MISH: Katrina Madewell, real estate agent extraordinaire. Real estate agent to the stars of Tampa Bay.
KATRINA MADEWELL: Well, since half your customers are real estate agents and luckily I never have been, I gotta make it fun.
DARRIN T. MISH: Yeah, you never have been. That’s good, actually. I love my realtor, real estate agents I guess is the proper term, right?
KATRINA MADEWELL: Realtor is what you call the national.
DARRIN T. MISH: That’s how you say it real-a-tor?
KATRINA MADEWELL: No, no real-tor. Real-tor.
DARRIN T. MISH: Real-tor.
KATRINA MADEWELL: Real-tor.
DARRIN T. MISH: Ok. So I love my clients that are in the real estate business. They’re really interesting people. They’re sales people. They don’t get the math part, they just don’t get the organization part. So assuming they’re willing to do what they need to do, in terms of that, then they can be really easy to fix.
KATRINA MADEWELL: A lot of times, some of these real estate agents are part time, second career, stay at home mom decides they want to a pro realtor just don’t have any of those skills.
DARRIN T. MISH: Yeah, for sure. I’ve hear d it. I’ve heard it a lot. It’s just like anything, when we decide to open our business, or any business it’s often because we’re a good baker so we open a bakery. We’re a good cook so we open a restaurant. We have to remember that a very significant, perhaps a majority of what goes on in a business is administrative in nature, not actually doing the thing.
KATRINA MADEWELL: Organization and those logistics that are going to keep your business open and running.
DARRIN T. MISH: Right, and profitable.
KATRINA MADEWELL: The stats that small businesses fail…
DARRIN T. MISH: Within the first five years.
KATRINA MADEWELL: …within the first couple years…are pretty high.
DARRIN T. MISH: Yeah because not enough of that infrastructure is put into place. Jeff, I think we have a caller, is that right?
JEFF: Hello there caller, you’re on the air.
John: Hey, Darrin, it’s your client John. I’m listening to the show, I thought I would call in with a question I have for you.
DARRIN T. MISH: Hey, John.
John: How you doing?
DARRIN T. MISH: I’m doing well, how are you?
KATRINA MADEWELL: You’re not a regular customer, are you, John? Because Darrin doesn’t like repeat customers.
DARRIN T. MISH: Now, hold on a second.
DARRIN T. MISH: I love repeat customers, it’s just a little bit discouraging when you help someone with a six or seven figure tax problem and they come back a couple years later with the same thing. It’s a tiny bit discouraging, but don’t worry, I love repeat business.
KATRINA MADEWELL: And I’m just teasing you anyway.
John: Well, the only repeat business I’ll give you, Darrin, is doing our taxes for our business and our personal taxes every year, so I’ll give you that, but I promise I won’t get in trouble again. I’ve been through this…this whole process has been numbing. I definitely don’t want to repeat it.
KATRINA MADEWELL: That’s what you want to hear.
DARRIN T. MISH: Thanks for the plug. By the way, we do tax returns both federally and for every state in the country, so if you’re listening to this podcast or some other means or you’re in California, don’t worry. I can help you with a California tax return.
KATRINA MADEWELL: And a lot of your people kind of get in that space because they haven’t filed returns.
DARRIN T. MISH: Oh, for sure, so if you need six or seven years of returns done and you live in Nebraska, don’t worry, we can hook you up.
KATRINA MADEWELL: There you go.
DARRIN T. MISH: Sorry, John, I keep digressing this morning. What’s up?
KATRINA MADEWELL: We’re having fun.
John: Yeah, well, I’m used to it. Here’s my question, estimated tax payments. You’re working on my case, I know I have to stay current. I’m worried about falling behind because I’m apt to do that. I’ve showed that in the past. Is there any way that I could pay my estimated payments on a weekly basis? Or monthly? I would almost rather do it daily. I just don’t want to fall behind. That’s my question.
KATRINA MADEWELL: I’m going to guess and say the IRS would probably take your money any time. Am I wrong?
DARRIN T. MISH: No, you’re not wrong. You’re absolutely right. John, killer question. Let’s break this up in to easy math because I’m actually really good at easy math. Let’s say your estimated tax obligation was $3,000 a quarter, so it’s a $1,000 a month, even I can do that math at this point.
KATRINA MADEWELL: Thank goodness.
DARRIN T. MISH: And I think I can do the math down to the week. That’s about $250 a week, right?
KATRINA MADEWELL: Roughly.
DARRIN T. MISH: I actually need a calculator at this point to divide 250 by 7, but you could literally make those estimated tax payments every day. If you wanted to. You could theoretically do them multiple times a day.
KATRINA MADEWELL: They don’t get confused by that? That wouldn’t totally mess them up?
DARRIN T. MISH: No, because it’s all sort of like, every tax year is a very much analogous to a different credit card at the same bank. So lots of people have more than one credit card at Bank of America or more than one at Wells Fargo, that kind of thing. So if you’re going to go ahead and make an estimated tax payment, particularly if it’s being done electronically, John, you could pay $35.71 a day. I’d round that to $36. You could pay $36 a day. Somebody actually did the math for me.
KATRINA MADEWELL: I did too. Great minds think alike. I was going to say $36 too.
DARRIN T. MISH: But when you have almost complete control of the mic, I can’t be doing divided attention stuff here. So $36 a day, you could do it that way. But another kind of follow up thought to that is our realtors that we were just talking about. Real-tors.
KATRINA MADEWELL: There you go. You’re trained already. Quick. I love it.
DARRIN T. MISH: So, the challenge with these guys and lots of people in similar kind of businesses where they’re commission only is it’s feast or famine. So you do a closing and maybe it’s going to be a month before you do another closing. It could be three months, I mean, who knows. What a typical person who’s not thinking about the tax ramifications would do is they would bank that cash, let’s say your commission was five grand. You bank the cash, and you kind of slowly spend it on life’s necessities over time and there’d be nothing left, in air quotes, for taxes. So what I tell my clients in that situation, John, and I won’t divulge what you do for a living, but what It ell my clients in that kind of situation is, let’s pay some reasonable amount of money, some reasonable amount of percentage right out of the closing proceeds. So let’s dedicate 20, 25 percent, 28 percent, whichever bracket you might be in right out of the closing proceeds and then if you’re closing check was supposed to be for five, now it’s for four, but at least you’ve already banked that estimated tax money and it’s really just a way to sort of try to stay on top of it so that you don’t end up with a tax problem at the end of the year.
KATRINA MADEWELL: That was actually a good question. I didn’t know they would literally take money every day or every week. I would think it would jack them up.
DARRIN T. MISH: John only asks good questions.
John: It would be great if they took PayPal, then I could just go right from my account and hit a button and it would be therapeutic, I could go work out, I could read my Bible, then go pay my taxes for the day, then take my vitamins, I would love to do that.
KATRINA MADEWELL: Didn’t Darrin teach you how to bill pay when you were in his office?
DARRIN T. MISH: Well, there is a way you could use PayPal, come to think of it because PayPal issues you a credit card, right? Or you can.
KATRINA MADEWELL: I think they’re getting away from that or cancelled it.
DARRIN T. MISH: Did they do away with the PayPal credit card?
John: It’s a debit card.
DARRIN T. MISH: Ok, it’s a debit card, but it starts with a 4 or a 5.
KATRINA MADEWELL: I thought they were getting rid of it, though. Is your card current? Your debit card? Do you have one? I had one, but I thought they said they were 86ing it, getting rid of it.
John: I hope not. I live off that card.
Jeff: How come you just don’t use your bill pay and set it up on pre-paid bill pay, where every seven days, automatically, $35 comes out of your current.
KATRINA MADEWELL: Every day. $36.
Jeff. No, every week, or whatever it is you feel comfortable with? With your bill pay? I use Wells Fargo and I can pro-pay my stuff weeks, months in advance, without me even just hitting one button and it’s done. I know for the next six months these payments are going to be paid. Wouldn’t that be easier?
KATRINA MADEWELL: I don’t know.
John: That’s a good idea.
KATRINA MADEWELL: I don’t even know how our country’s broke, when they get at least 25% if not more, of some of the higher wage earners. It’s really kind of sick when you think about it like that.
DARRIN T. MISH: Well, let’s go back to the PayPal, how do you pay by PayPal? You use your credit card or your debit card, I’m sorry calling it a credit card. And you go in to the IRS online payment solutions and you just make your estimated tax payments every day. If you want to do it at the gym while you’re on the treadmill. So there.
John: I’m on that. I’m so going to do that. Well, I’m not used to paying it. And it’s a habit that I need to, just like working out, I have to get in to this habit. That’s something that you’ve instilled in to me while you’re working on it. And it just feels good to be paying that money. It just really feels great to be productive again. It’s kind of corny to say that, but that’s how I feel. So I appreciate your help in what you’re doing for us.
KATRINA MADEWELL: And Darrin, since we’re on point and he brought this up, when you have worked out a repayment agreement or repayment plan of some sort with the IRS, I and I know you’ve talked about this before in the show, but what happens if you default on one of those payments, or you make it late?
DARRIN T. MISH: Well, if you don’t stay current, meaning making your estimated tax payments, more importantly, even more than the estimated tax payments, is be current meaning you don’t continue to accrue ongoing tax obligations. That’s fancy talk, right? Let me give you an example. I have a doctor right now, he owes about a million bucks, he earns really strongly. He’s in an installment agreement right now for 15 grand a month. That’s a lot of money, right? But he has cash flow and it’s fine. At the end of 2015, he owed the IRS $1,000 on his return and all that is, that’s like a rounding error on this guy’s tax return. It’s not a significant amount of money, when he filed the return, he paid that 1,000 and it defaulted the installment agreement. Why did it default the installment agreement? Technically he had a new tax obligation, he paid it immediately, but the computer is set up to trip wire and trip up that installment agreement, so every year we have to redo it. That illustrates the point of your question, which is, do you have to stay current? Yeah, you have to stay current, you have to file your tax returns, you have to not owe…you can’t really owe $1 on your next tax return. There’s easy ways to fix that, but that’s basically the rules in that case. And John, I wanted to tell you something, and that is if you think you feel good now making estimated tax payments, do you know how good you’re going to feel when you do your tax return and you can even get a credit balance, you have a refund coming, even if you don’t get your refund because you have a liability. It is so much better feeling to have a tax return where it’s not $50,000. You know? Even if we don’t get it quite right and you don’t get a refund, but you owe…
KATRINA MADEWELL: Write a check for $500, you get $500 back.
DARRIN T. MISH: I was going to say, if you owe $800 as opposed to 50 grand, that’s a very empowering feeling and it’s going to allow you to feel like you did something for your family to keep this from spiraling out of control.
KATRINA MADEWELL: You’re listening to the IRS Solution Attorney show with Darrin Mish, I’m your cohost, Katrina Madewell. We’ll be back in a minute.
KATRINA MADEWELL: Welcome back, you’re listening to the IRS Solution Attorney Show and I’m your cohost, Katrina Madewell.
DARRIN T. MISH: And I’m the IRS Solution Attorney, Darrin T. Mish. We’re joined here also with our producer, Jeff.
KATRINA MADEWELL: That’s the one behind the scenes that always makes the magic happen that never gets enough credit. Just in case you ever listen to any talk radio.
DARRIN T. MISH: He has a voice for radio for sure.
KATRINA MADEWELL: He does.
DARRIN T. MISH: Don’t you agree?
Jeff: Thank you. I don’t need accolades, I just like pushing buttons.
KATRINA MADEWELL: It’s supposed to be you have a face for radio. That’s the old joke.
Jeff: Yeah, I know.
DARRIN T. MISH: Yeah, but I was trying to be nice here.
KATRINA MADEWELL: We had some questions come in that are actually pretty good questions. One’s sort of a comment and one sort of ties in to what you were just talking about with John.
DARRIN T. MISH: yeah, for sure.
KATRINA MADEWELL: And it says there’s no way I will be able to pay my taxes for 2015 on time. Should they work on paying estimated tax payments for 2016 first, before repaying that old tax debt that they owe? And that comes from Vince.
DARRIN T. MISH: That’s a great question, Vince. Right now, as we’re live, it’s in January of 2016, you may be listening to this later in the year, or not even in this year via podcast, but this is a great time of year to go ahead and make that determination. 2015 is water under the bridge, it’s over. So a lot of times we’ll have people, in fact I just had this real life situation come up where the person had…we’re trying to get them squared away with an Offer in Compromise, which is where you make a deal to settle for less. And he had made one estimated tax payment during the course of the year and just couldn’t get it together to make the rest. So he and his wife were asking me, should we struggle to pay 15, or what are we going to do here? We have a finite amount of money, like almost all of us do. The answer is, you’re going to want to, you have to get current. So what does current mean in this context? It means start paying estimated tax payments for 2016, 15 is water under the bridge.
KATRINA MADEWELL: Moving forward.
DARRIN T. MISH: We just need to move forward, onward and upward, and we’ll deal with 2015 however we’re going to deal with everything else, so we’ll deal with it with an installment agreement, which is a payment plan, or a hardship determination, or an Offer in Compromise, or a bankruptcy, or whatever it is, we’ll just deal with 15, we’ll just lump it on top. My average client has six or seven tax years that they have balances on, so what’s another one? It’s really not that big of a deal. I’m not being flippant when I say that. The key…
KATRINA MADEWELL: It’s kind of like when that snowball starts rolling, it is what it is.
DARRIN T. MISH: Yeah, and this is all counter intuitive stuff, too. The key is to get and stay current. So if you have enough money to pay back taxes or current taxes but not both, wait for it…counter intuitive moment, it’s to get current and stay current with your current taxes. You can’t tackle what’s done in many cases. If we’re talking, you owed 5 grand for 15 and you had 5 grand. I’m going to say, ok, you probably should knock out ’15 instead of worrying about ’16. But once it gets to the point, that amount, you don’t feel you can just stroke a check to take care of it, then you have to focus on making your estimated tax payments for this New Year that we’re entering in to.
KATRINA MADEWELL: The next one is kind of right on time, Marie had a question, kind of comment, it was a little bit different, but I think it’s very relevant. I think it’s a great one to answer because we’ve never gotten this one, Darrin. But she says, I don’t get why the IRS would just waive money that’s owed to them. What’s in it for them? How can the country survive if people get out of paying their taxes?
DARRIN T. MISH: Ok, here’s my smart aleck…
KATRINA MADEWELL: Excellent question, comment.
DARRIN T. MISH: …here’s my smart aleck comment back. Well, they wave our money around wasting it on other stuff, so what’s the difference? But that’s just kind of the smart aleck in me. What happens is…I would guess and I don’t know…that Marie might be a person who is a proponent and a supporter of big government, and that’s great for Marie.
KATRINA MADEWELL: She might be a CPA or an accountant. You never know.
DARRIN T. MISH: Might be. She might work for the IRS. She might have a spouse that works for the IRS or is a politician or something and that’s all fine, I’m not making value or judgments based on any of that. What happens is it’s pretty easy for self-employed people in this country to end up behind on their income taxes and that’s because those of us that have jobs and get pay checks, your FICA, you know the dude that shows up on your paycheck and he takes so much, the FICA guy. The social security is already being withheld.
KATRINA MADEWELL: The one, if you’re our age, that you might not ever see and will that money come back…but that’s ok.
DARRIN T. MISH: Well, I don’t know, I’m getting older faster, it seems like, so you never know.
KATRINA MADEWELL: Maybe I’m younger than you, that’s why.
DARRIN T. MISH: Well, that is in fact true. Not that much. Anyway, gosh, this show is all about digression today.
KATRINA MADEWELL: I like to tease you, that’s ok. We got to keep the fun. No one’s just going to sit here and listen to boring attorney talk.
DARRIN T. MISH: I’m not that boring, though.
KATRINA MADEWELL: I know, but I keep it fun, you’ve gotta admit.
DARRIN T. MISH: So here’s what happens is these folks who are self-employed, they’re not having the FICA withheld and they have to pay something called self-employment tax, and the rate for self-employment tax is 15.3%, so even if you make almost zero profit, you’re still going to pay 15.3% in tax. It’s really easy for people to end up pretty far in debt. If you have…my typical client would be a self-employed person, let’s say a “real-tor” that didn’t file because he was afraid for year one and then the IRS didn’t do anything about it and then he doesn’t file for year two even though he has the best intentions. Before you know it, it’s been five years and he filed and he owes $75,000, which would be kind of modest. Then there’s probably no way that this “real-tor” in my example is making, let’s say he’s making %75,000 a year, he’s never going to be able to service that debt that he’s driven up. So what happens is, in my example here, that person has been out of the system. Not filing and paying taxes for five years. Well, that is the reason that the Offer in Compromise actually exists. It exists not so much, Marie, to collect the money. Because I’m probably going to get a smoking deal on that offer to get my guy, my realtor guy…
KATRINA MADEWELL: Or waive the money was really more of the comment.
DARRIN T. MISH: Ok, I’m probably going to get the IRS to waive a ton of the money in the Offer in Compromise. The goal is not to get that $500 or $1000 or $10000, whatever we’re going to settle for. The goal is more to get that taxpayer back in to the system. Let’s say in my example, my guy is 50 years old. Statistically he’s got fifteen more years of filing and paying taxes. If he stays out of the system, they’re going to lose more money than if they let him back in the system. At some point, it’s kind of analogous to the fresh start that someone gets in a bankruptcy. It’s just more administrative and more IRS-based. By no means, I don’t mean to ever give the impression here on the show, or in real life, that every person who comes to see me is going to get a smoking deal through an Offer in Compromise. It’s very fact-specific. It’s very fact-dependent.
KATRINA MADEWELL: When you think about it, Darrin, here question/comment is very relevant, right? You might have someone that’s interested because I keep it all fun and not attorney boring, but we’re listening to the show and they’re like, well I’ve never had a tax problem and I pay my taxes on time, and I work for corporate America and they have no problem taking my money out, so I won’t have this issue where I owe the IRS money, so why should someone else get out of paying $50,000 in taxes, which is like one of the examples we used. So I could understand why someone would ask that question.
DARRIN T. MISH: Yeah, and thanks for bringing that up. I’ve been self-employed now for 20 years and I don’t even have that frame of reference anymore. Think about what I do for a living. My job is to be as zealous advocate to reduce tax liabilities to zero whenever possible. I swore an oath when I was sworn in as lawyer, to be a zealous advocate for my client.
KATRINA MADEWELL: Technically the IRS works for us.
DARRIN T. MISH: Marie’s perspective doesn’t even resonate in my mind, or didn’t until you just sort of restated it. I guess I do get that. The person, the guy slaving away maybe making six figures for corporate America and he wonders why he’s paying 40 grand a year in taxes or more. I don’t know. I don’t have much of an answer for him, other than the country can survive because there’s enough people who are paying their taxes and I do think it makes good business sense to have an Offer in Compromise program so we can get these people back.
KATRINA MADEWELL: Exactly, because that’s a snowball, you’re never going to catch up unless there’s some incentive to do so.
DARRIN T. MISH: I’ve told the story before on the air and that is I once had a gentleman walk in to my office and he ha not filed a tax return since 1960. I actually got real excited. I had a big smile on my face.
KATRINA MADEWELL: You know, he’s not that old, so this is probably relatively 2000-something that you’re dealing with this.
DARRIN T. MISH: Yeah. In 1960’s before I was born, and so I was very excited because I knew I could solve the problem, but I also knew that this is a guy who had been out of the system for a very long time. Back to John’s point, when we got his situation settled and he was filing and paying taxes again, that particular gentleman was so proud of himself. He was so happy to be back in the system and out of the shadow economy. He always wanted to do the right thing, but the fear of not knowing how to handle it paralyzed him and put him in a situation where he didn’t know what to do.
KATRINA MADEWELL: I imagine people are probably guilty, they’re a little big frozen, they’re a little bit overwhelmed in where to start, so that would make sense.
DARRIN T. MISH: I had a gentleman come in yesterday who actually runs a tax preparation company.
Jeff: I’ll be sure to take my taxes to him
KATRINA MADEWELL: That’s scary.
DARRIN T. MISH: His anxiety level was quite high.
Jeff: I’ll bet.
KATRINA MADEWELL: That’s kind of like being a financial advisor and just file bankruptcy, like that’s really what you just said.
DARRIN T. MISH: I might represent a number of financial advisors as well.
KATRINA MADEWELL: Shut up already, Katrina.
DARRIN T. MISH: You’re right. He is running a tax preparation business and didn’t know exactly how to handle the business tax aspect of things and didn’t exactly know how to set up everything so that payroll taxes were being withheld correctly for stuff, and things like that. He certainly couldn’t go to anybody that worked for him for solutions. So he came in to us and I helped him identify the anxiety is one of the things that was shopping him from moving forward. We’re going to get it banged out, he’s going to be fine.
KATRINA MADEWELL: It’s probably embarrassing for somebody like that. They’re like how did I get in to this mess? I do this for a living.
DARRIN T. MISH: I’m sure it is embarrassing, but I really appreciate and respect the trust he had in me to come and let me help him.
KATRINA MADEWELL: I love how you’ve dealt with a lot of people in all walks of life. Like literally from the layperson to pro star athletes.
DARRIN T. MISH: One of the coolest things about my job is to absolutely try to learn something new about life from every single client. So the NFL client that comes in, I ask him all kinds of questions about what it was like to play in the Super Bowl. This particular client played in four Super Bowls. Won none, but played in four. But it’s pretty cool. The NBA guy who has played in the NBA and overseas, try to ask him some questions about what hits experiences were like. The major league baseball player who played for the Dodgers who just happened to be my favorite baseball team of all time because I grew up in southern California. So try to learn from those guys. Lots of regular people, lots of lawyers, lots of realtors, lots of, more than one tax preparation company, amazingly.
KATRINA MADEWELL: Do you find they’re a bit humble, taking a step back when that stuff like that happens?
DARRIN T. MISH: Most people are. It’s a humbling experience to come and have to search for help.
KATRINA MADEWELL: It makes sense to me. You’re listening to the IRS Attorney Show, We have to take a quick break. When we come back we’re going to talk about a headline story that the IRS could actually start using private companies to collect debt. That should be fun. We’ll be back in a minute.
DARRIN T. MISH: Welcome back. In our last segment here today. This is the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. We’re going to make our last five minutes fun.
DARRIN T. MISH: Yeah, in our segment we’re going to talk about a headline story right now. That is once again the IRS is going to start using private debt collectors to collect tax debt. This has been an on and off thing for them, hasn’t it, for years?
DARRIN T. MISH: Let me tell you the last time they tried this, it was an absolute disaster. The private debt collection companies have their own set of laws that they have to follow with regard to standards, and they’re not very good at keeping up with those.
KATRINA MADEWELL: Those are attorneys that just do for that, people that break the collection laws.
DARRIN T. MISH: It looks like they’re going to try this again so private debt collectors may eventually soon be calling tax payers for the resolution of their debts. Let’s analyze this just briefly for a moment. These are people who haven’t paid their taxes. The most feared and powerful federal agency in our government, the internal revenue service has been unable to collect the money from them. What are the odds that Joe from Brooklyn is going to get the money? I don’t know.
KATRINA MADEWELL: I’m thinking slim to none.
DARRIN T. MISH: In the past what we would do as tax resolution attorneys. As soon as the client came in and they’re being pursued by a private debt collectors, we had a couple tricks that we would use and just force it back in to the system. Believe it or not, it was easier to deal with the IRS than it was to deal with Joe from Brooklyn. He just wanted to talk about broken bones and baseball bats and stuff. I’m exaggerating, this is a joke, it wasn’t quite that bad.
KATRINA MADEWELL: I wonder how successfully they will be, thought. It seems like they would be less successful with regular collection agents that people would hang up as opposed to someone from the internal revenue service.
DARRIN T. MISH: I’m usually a small to no government kind of guy, but even I am questioning the efficiency of this situation because the private collection agencies, I suppose, are being paid some percentage of whatever they recover, so the only way I would be in favor of such a thing is if that was actually more efficient than more IRS employees. Goodness knows that IRS employees in my opinion have not been terribly efficient. I guess it just depends. I would not be in favor of a very high percentage being given to a private debt collector, just because it would seem to encourage more bad behavior.
Jeff: Did they find that they had to use debt collectors because they weren’t efficient enough in collecting their own debt? Being the terrible, evil people the IRS is?
DARRIN T. MISH: Now, I didn’t say that.
Jeff: No, I said that.
DARRIN T. MISH: Historically, there are really good stats, I’ll look them up for a different show. The IRS collects around $40 for every $100 on their budget. I think what’s happening here is congress and the IRS, executive brand really in general, have been at odds now for several years, so congress says cut the IRS budget to punish them for bad behavior or whatnot. So now they’re saying, ok, let’s try this private sector thing and see how much money we can collect.
Jeff: It doesn’t make much sense to hire Vinnie the leg breaker to collect the money from the IRS who broke your leg last year, and everybody’s coming to dinner for broken leg of lamb. I don’t understand. Because you’re paying them a percentage. So they’re losing if they win, if they win they lose.
DARRIN T. MISH: I think it’s actually broken leg of sheep, but anyway. It remains to be seen as these things progress, we’ll talk about it here on the show. I can’t wait to get my first call from a private debt collector because that’s going to be a lot of fun, I’m going to enjoy it quite a bit.
KATRINA MADEWELL: You know what that means, it’s time for the Train Wreck of the Week!
DARRIN T. MISH: So, this is a really cool train wreck today. You brought it up in the first segment of the show and that was actually totally unplanned. I had a gentleman who called, probably about a year ago now, and he shared with me that his father, who is an elderly gentleman in his 80’s, actually had a tax bill for $22 million. You know me by now, I hear the number $22 mill and I’m like “yes!” let’s hear some more details about this.
KATRINA MADEWELL: He was like this is going to be fun, this isn’t going to be just another boring day in the office.
DARRIN T. MISH: Right, I don’t handle $22 million cases all the time. It is the biggest case I’ve ever handled in terms of just money owed. When I heard the story, I knew I could help. What happened is, the grandfather, the actual taxpayer in this case that owed the $22 million, he loaned his grandson $50,000, so far so good. Grandson took the $50,000 and engaged in day trading. Day trading, for people that don’t know, you might buy 500 shares of Apple in the morning and you sell it in the afternoon, and you might make 1% or, I don’t know, there’s some spread.
KATRINA MADEWELL: It’s like gambling in the stock market.
DARRIN T. MISH: In fact, the way the tax returns are handled, it’s almost identical to the way a gambling tax return would be handled. Oh, and grandson was doing all this in Grandpa’s social security number. Not the best solution. What happened is grandpa didn’t ever file tax returns because he figures he doesn’t have to because he doesn’t really know that grandson is doing this in his social security number.
KATRINA MADEWELL: A lot of older people don’t even file anymore.
DARRIN T. MISH: Because they’re on social security or whatever. What happened is the IRS can prepare what’s called a substitute for return, we call it a SFR, if the taxpayer doesn’t prepare a return, it happens all the time. The government went ahead and added up all those trades over those many years as all new money, which makes some sense and they did not calculate what’s called the basis, so if you spent $500 to buy stock and then you sold for $600, the basis would be the purchase price, the $500and you would pay tax on the profit, so you’d pay tax on the $100, not $600.
KATRINA MADEWELL: Or the loss, right?
DARRIN T. MISH: So what happened is they added up all those trades as being fresh new money, and the tax bill was $22million. So, it was painstaking. It took us quite a long time but in the end we got them a $50,000 refund. So $22 million to $50,000 back in their pocket, pretty darn good resolution.
KATRINA MADEWELL: What did he do it in the grandpa’s name anyway? I don’t get that.
DARRIN T. MISH: Hey, stuff happens, that’s just the way it is.
KATRINA MADEWELL: You’re listening to the IRS Solution Attorney Show with Darrin Mish and I’m your cohost, Katrina Madewell, don’t forget you can find out a lot of this information and more at getirshelp.com. And hop on over to Darrin’s site at getirshelp.com. That’s it for now. For this week….we’re out.