What Do You Do When The IRS Files Your Tax Returns For You

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DARRIN T. MISH: Well, that would be me.

KATRINA MADEWELL: That’s you.

DARRIN T. MISH: The IRS Solution Attorney, Darrin T. Mish.

KATRINA MADEWELL: I’m your co-host, Katrina Madewell. Welcome to the show and happy Thursday!

DARRIN T. MISH: Happy Thursday.

KATRINA MADEWELL: Know what today is?

DARRIN T. MISH: It’s Thursday.

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KATRINA MADEWELL: Yeah.

DARRIN T. MISH: Also the first day of school in a couple of counties.

KATRINA MADEWELL: First day of school for Pinella’s and Hillsborough counties. Not yet for Pasco.

DARRIN T. MISH: Here’s my objection to the first day of school, or here are my observations. Traffic wasn’t any worse for me than normal.

KATRINA MADEWELL: Not yet, give it until next week.

DARRIN T. MISH: But, people were driving more aggressively.

PAT GEORGE: That’s true, with all the accidents we have. Quiet yesterday, nothing going on, this morning it’s everywhere.

KATRINA MADEWELL: Wait until next week, it will be even better.

PAT GEORGE: By the way, the receptionist just came up and wanted to know who left the tractor running out in the parking lot. There’s a tractor running in the park

KATRINA MADEWELL: You have some bumper music for Mr. Mish today, don’t you?

PAT GEORGE: I will have some of that, yes. He’s a happy IRS kind of guy.

DARRIN T. MISH: The big announcement is, yes, the much-awaited tractor.

KATRINA MADEWELL: It took you five years to buy one?

DARRIN T. MISH: We were on the farm for a year before we decided to buy the tractor.

KATRINA MADEWELL: It took longer to qualify to buy the tractor than it did the house.

DARRIN T. MISH: It was harder to get the tractor loan than it was to buy a house. It was.

KATRINA MADEWELL: I don’t get that.

DARRIN T. MISH: It wasn’t because of qualifying or credit scores or money or anything like that, it’s super inefficient process. I’ve been running into more businesses that seem like they have an anti-sales department instead of a sales department. We got it, and it’s great.

KATRINA MADEWELL: Every business, your number one job is to prospect for new business.

DARRIN T. MISH: One would think.

KATRINA MADEWELL: And if that’s how they’re handling new business, I would imagine, you get companies like Amazon and they come in and change the whole space. It might be another job venture for you.

DARRIN T. MISH: Tractorsonline.com.

KATRINA MADEWELL: Amazon can ship stuff for free in a day or two.

DARRIN T. MISH: Yeah. I don’t know about a ten-ton tractor or whatever it weighs.

KATRINA MADEWELL: I had a client that moved back to Vegas, and he left a car and a motorcycle behind so I had to meet this guy that was lost so he could pick them up and load it on one of those big trucks. I imagine you could put a tractor on there.

DARRIN T. MISH: You could get a tractor on there, that’s true.

KATRINA MADEWELL: Load those up and deliver them all across the U.S.

DARRIN T. MISH: That kind of freight is not all that expensive, either. I got a quote one time to move a boat from the West coast to here, and it was a couple of thousand dollars. Thinking about the alternative was driving three days to California, loading it up and driving three days back. Three days is fast.

KATRINA MADEWELL: I made that drive once, I would never do it again. Ever.

DARRIN T. MISH: I’ve done it more than half a dozen times because I was born and raised in California and my folks live in Georgia, and when I was in law school I would drive back and forth for the summers. It could be fun, but then there’s Texas. Texas is the problem.

KATRINA MADEWELL: It takes a whole day.

DARRIN T. MISH: You get to El Paso, and you’re like yes, I’m finally making progress. No, you’re not.

PAT GEORGE: By the way, I just got a call from the west coast, your friends in California, they want your California card back now that you have a tractor. You’re no longer allowed.

KATRINA MADEWELL: They already asked for it back the second he started wearing the hats and the boots.

DARRIN T. MISH: We could put a rack on the roof. That could work. Right? No?

PAT GEORGE: Tractor with a surfboard?

DARRIN T. MISH: It’s an all terrain tractor, it is four wheel drive. We can get to the beach no matter what. It would just take us a very long time.

KATRINA MADEWELL: Darrin will California-ize it.

PAT GEORGE: I think you should just stay in the land of lakes area and help fill in a big hole with that tractor.

KATRINA MADEWELL: Only you, Pat.

DARRIN T. MISH: I think that would take awhile.

KATRINA MADEWELL: Speaking of which, we had a ton of donations at our office. We named our office as one of the locations, and it took us two cars to drop them off at the ladies house that was taking all the donations.

DARRIN T. MISH: Two cars of?

KATRINA MADEWELL: Stuff. People brought money, gift cards, all kinds of stuff.

DARRIN T. MISH: If it took two car loads of money, I’d like to hear about that.

KATRINA MADEWELL: No, it wasn’t money, it was a lot of stuff. A lot of it was brand new, tags on it. A lot of stuff.

DARRIN T. MISH: That’s nice. Humans can be wonderful. I think that’s the natural state of human beings it’s just that the bad ones make us…you know.

KATRINA MADEWELL: I tried to tell her it might be better if they come to the office and pick what they want and we’ll donate the rest. She said, no, they’re private about it. I said, all right, it’s a lot of stuff. We took it to her house, and she had no room. She had stuff in her living room and her garage.

DARRIN T. MISH: Do they have a place now?

KATRINA MADEWELL: No, it’s pretty bad from what I understand. They’re trying to pull together the pieces. The help they got was temporary, and now the county wants them to pay to remove the debris from the hole. Which just got bigger.

DARRIN T. MISH: That’s the government for you.

PAT GEORGE: What’s scary is did you notice the new story that had maps from the 70’s that that lake was a lot bigger and they filled in a lot of that land when they built the homes.

KATRINA MADEWELL: I didn’t see that, but it’s horrible. That’s mother nature reclaiming her territory. That’s how it goes.

So, this is the IRS Solution Attorney Show.

DARRIN T. MISH: It is.

KATRINA MADEWELL: We’re glad you’re here.

DARRIN T. MISH: The topic of this show is not tractors or sinkholes or donations. The topic of today’s show is what do you do when the IRS files your tax returns for you.

KATRINA MADEWELL: Oh, boy.

PAT GEORGE: You thank them.

KATRINA MADEWELL: No, you don’t want to thank them. What secrets are you sharing today, Darrin?

DARRIN T. MISH: It’s a common misconception, especially among lower-income people that the IRS will prepare your thing for you and that it’s a good thing.

KATRINA MADEWELL: They’ll only prepare it if you owe money, right?

DARRIN T. MISH: There are clinics and things where volunteers will prepare tax returns for taxpayers. That’s not what we’re talking about here. We’re talking about the situation where you get a 1099 at the end of the year, and you haven’t been taking care of filing your returns, and the IRS will eventually go ahead and file those for you. They don’t give you any deductions, they take your gross income and multiply it by your tax rate, and it ends up being a big fat number.

KATRINA MADEWELL: Is there a threshold in which they file those returns for you? I mean they’re getting the 1099, but is there a threshold or a time in which they’re like, oh we’re not going to mess with this one, yeah we’ll go ahead and file this one.

DARRIN T. MISH: I think there is. I’ve never seen an SFR, which is called a Substitute for Return, that’s what we’re talking about. That’s when the IRS prepares a return for you. When the IRS prepares that for you, I’ve never seen a refund generated, and I’ve never seen a small number generated either.

KATRINA MADEWELL: Apparently the answer to that question is yes.

DARRIN T. MISH: There’s some threshold, I just don’t know what it is. I’ve never seen one under about $10,000.

KATRINA MADEWELL: Ok.

DARRIN T. MISH: Something like that.

KATRINA MADEWELL: $10,000 is a magic number. Isn’t that the magic number where stuff happens?

DARRIN T. MISH: Not necessarily but it’s one of those situations where it does cost the IRS some money to prepare the SFR, there are some procedural requirements they have to go through where they have to give the taxpayer an opportunity to complain and prevent it from happening.

KATRINA MADEWELL: They have to give them notice?

DARRIN T. MISH: They have to send them something called a Statutory Notice of Deficiency which gives them the right to go to tax court. Then they have 90 days from the date of that notice to complain about it and change the situation.

KATRINA MADEWELL: Then they file after that?

DARRIN T. MISH: They file after that. That’s been the requirement forever, and years back the IRS didn’t use to do that, they did the shotgun approach on the Substitute for Returns and filed them for the taxpayers, and that wasn’t a good thing. We were able to undo some because the IRS couldn’t prove they had sent a statutory notice of deficiency to the taxpayer.

KATRINA MADEWELL: How many times do your clients have tax returns prepared for them? These are people that always owe substantial amounts.

DARRIN T. MISH: I would say we see a substitute for returns 40% or 50% of the time. It’s quite common. It’s also common for clients to come in and say I just got levied and I have no idea what’s going on. The IRS says I owe $100,000 how can that be? I never filed a tax return.

KATRINA MADEWELL: They filed them for you. You know right away what happened.

DARRIN T. MISH: It’s that last sentence. Or I haven’t filed a tax return in forever. It’s the last sentence where I go, oh, let me explain, they went ahead and took care of that for you, isn’t that nice?

KATRINA MADEWELL: Not exactly because they’re not putting any deductions.

DARRIN T. MISH: A lot of times people come in that are non-filers, and they want to know, well I haven’t filed in a long time, 10-20 years, which sounds crazy if you’re not in my world, but that’s fairly common, and they want to know if they have to file the last 20 years. That’s daunting to folks. You always say it’s not that big a deal for you to file your returns because you have a bookkeeper and you have that kind of system.

KATRINA MADEWELL: If I didn’t, I probably would be late.

DARRIN T. MISH: Every small business owner has a little bit of dread when it comes time to file the tax return. There’s a little bit. But can you imagine 20 years of no bookkeeping, no bank statements?

KATRINA MADEWELL: I told you I had a customer that was a w-2 wage earner and it came from her late husband many years ago late husband. She was so scared she never filed tax returns that whole time. Doing the show with you, I’m like she’s going to be ok. There’s a statute of limitations. And there are refunds. A lot of them.

DARRIN T. MISH: There’s a pretty good clue, since they never did a substitute for return, either she owed hardly anything or nothing. They will not do a substitute for return for you if you have a refund coming because they don’t want to give you the refund.

KATRINA MADEWELL: If they file the return they have to send the refund.

DARRIN T. MISH: Yeah, if they file the return, they have to send the refund.

KATRINA MADEWELL: It’s interesting how Big Brother works, isn’t it?

DARRIN T. MISH: Big brother wants your cash, that’s for sure.

KATRINA MADEWELL: You’re listening to the IRS Solution Attorney Show. We are live at 888-404-1010. Pat George back there trying very hard to make us laugh. 888-404-1010. We’ll be back in a minute.

(commercial break)

(bumper music – Big Green Tractor)

DARRIN T. MISH: Welcome back to the IRS solution Attorney Show. I am the tractor driving IRS Solution Attorney, Darrin T. Mish.

KATRINA MADEWELL: I’m your co-host, non-tractor driving co-host, Katrina Madewell. Welcome to the show. If you want a little bit of Facebook fun, pop on over and find Darrin or me and you can see a picture of Pat George that I just posted on the break. We’re trying hard not to laugh.

DARRIN T. MISH: In the last break, if I particularly sounded distracted, it was because our producer had a bag….

PAT GEORGE: Don’t tell, they have to see it.

DARRIN T. MISH: Ok, see it. I want to point out that my tractor is not green. But moving right along.

PAT GEORGE: Have you hung your shingle over the barn yet to tell all of your country neighbors that you are the IRS tax attorney and that you have an office right here next to your tractor in the barn?

DARRIN T. MISH: I would probably be better off painting it on the roof of the barn…

KATRINA MADEWELL: The pilots that aren’t paying your taxes can call you? 888-GET-MISH

DARRIN T. MISH: The crop-dusters. Today we’re talking about what do you do when the IRS files a tax return for you? The last segment we were talking about if you don’t get around to filing a tax return and you’re going to owe a significant balance, don’t worry, never fear, the IRS will go ahead and file that return for you. It’s called a substitute for return.

KATRINA MADEWELL: Never fear, the IRS is here.

DARRIN T. MISH: They will go ahead and try to assess the tax against you and start to collect the money. The question we posed was, people come in and talk to me often, and they haven’t filed for ten or twenty years, and they want to know if they have to file all of those missing tax returns. The answer is no. There’s a section of Internal Revenue manual 4.12.1. The internal revenue manual is like the IRS Bible.

KATRINA MADEWELL: Can you imagine how fun that would be? If there’s no deadline. Because the tax code changes all the time so if someone didn’t file in 20 or 25 years, they would have to go back and look at the tax code at that time.

DARRIN T. MISH: How long is tax preparation software been out? For 20 or 30 years because the rules change every single year. It’s a little bit easier with the tax software than it is to do it with a pencil.

KATRINA MADEWELL: Do they take returns like that anymore?

DARRIN T. MISH: You can still paper file. It’s frowned upon; it’s discouraged.

KATRINA MADEWELL: Handwritten?

DARRIN T. MISH: Yeah. Tax professionals can not file paper returns anymore. They’re mandated to file e-file returns. If you file too many paper returns as a tax professional, you will eventually have a problem. Who knows how many too many are.

KATRINA MADEWELL: So, that magic number…

DARRIN T. MISH: Getting to the magic number of how many missing tax returns, Internal Revenue manual, section 4.12.1 says six years. You only have to go back six years. That’s a bonus for folks that haven’t filed in 10-20 years. A lot of times people think they have to file all those missing returns, but they don’t.  They only have to file the last six years.

Part of that is because the criminal statute of limitations for the crime of failing to file a tax return is six years. The IRS has that official written policy. They’re only going to ask for six years.

Recently, I had a revenue officer who was insisting his policy was seven years.

KATRINA MADEWELL: They just want to make it up as they go.

DARRIN T. MISH: I chuckled. I’m like, that’s great you have a policy, but that’s not…

KATRINA MADEWELL: Did you take out the code, highlight it for him, and send it back?

DARRIN T. MISH: I did. He’s like you’re going to have to show me. I’m thinking…am I the training officer now? I did show him, and he and I agreed that only six years were required but that he was going to back and his internal policy for everyone else was going to be seven years. Fascinating. I think that’s against the law two. I can’t stop him.

KATRINA MADEWELL: I love how people make up the rules as they go. I had that happen in a contract yesterday. I had to pull out some pages, highlight it, and send it back to the agent.

DARRIN T. MISH: What do you do if the IRS prepares a substitute for return for you? Like many things in law, there are lots of answers to that. The real answer is, it depends.

KATRINA MADEWELL: Wouldn’t a better answer be, to evaluate what you have going on and when? So you determine when you need to file? I imagine there are times when someone comes to your office you might say it might not behoove you to file right now; we’re going to wait just a little bit? Until this one falls off.

DARRIN T. MISH: I’ll give you an example. As you recall, there’s a ten-year statute of limitations. If the statute of limitations is going to expire in six or eight months, why would you do anything other than just wait?

KATRINA MADEWELL: That’s if they have a bill from ten years ago.

DARRIN T. MISH: If it’s been 9 1/2 years and you can verify this through transcripts, and you can tell when the statute of limitations is going to expire, then you do nothing. I’ll tell you another time when you might do nothing.

KATRINA MADEWELL: Then you just file for that release of lien, right?

DARRIN T. MISH: Right. You wait for it to expire then you request the release of the lien, and it’s all good. I just had a case like that. I might have talked about it. The lady owed $374,000, and she came in telling me this story. I was listening intently, of course, and I was thinking the statute was getting pretty close. It turns out the statutes were about eight months. The answer was, let’s just hold on.

KATRINA MADEWELL: The likelihood of them doing anything if it’s gone that far and nothing’s happened, eight more months is pretty good.

DARRIN T. MISH: Exactly. In that particular case, the IRS had already placed her case into what’s called hardship status, or currently not collectible, so we knew for sure nothing was going to happen because that had just happened three or four months prior. So we knew for sure all we had to do was wait. That would be one instance where if they file a return for you, you do nothing.

There’s another instance where you might want to do, not nothing, but you might not want to file an original return. I’m going to back up and say what the general rule would be. If the IRS prepares a return for you and it reflects a balance of $100,000, and you think that’s too much because it’s not accurate. And it won’t be accurate, everybody in the system knows it’s not accurate. It’s a fairy tale. The general rule is you can go through a process called an audit reconsideration which is the act of filing a new, good, original, accurate tax return. Nine times out of ten the IRS will go ahead and accept your version of the tax return and abate all that excess tax, penalty, and interest.

KATRINA MADEWELL: Abate means to wipe out?

DARRIN T. MISH: Abate means to eliminate. It might be a good idea to file an original return; it might not. Let me give you an example of when it might not. If you have several substitutes for returns. Let’s say you have five or ten years of substitute for returns and you owe $200,000. You think about it and realize if you file original returns, you can knock it down to $100,000. Most people would say that’s a good idea, why don’t you do that? My philosophy is a bit different. My philosophy is, you owe $200,000 as it stands now and if we spend money to prepare returns in time and effort and we get it down to $100,000 are you going to write a check? The answer is almost always no.

KATRINA MADEWELL: Doesn’t it move the date up?

DARRIN T. MISH: It doesn’t change the statute of limitations at all. Again, if you owed $200,000, you filed original returns and owed $100,000, are you going to write a check and take care of it? Half of one percent will say yes, I have the money; I’ll take care of it. The rest of the people are like, no, $100,000 is too much money. That’s when I say why don’t we try an offer in compromise now on the $200,000 because it doesn’t matter at this point if you owe $200,000 or $100,000, it’s still too much for you to pay.

KATRINA MADEWELL: They can get into a payment plan.

DARRIN T. MISH: Not a payment plan, you might just be able to wipe it out for $500, or $1,000 or $10,000 or whatever.

KATRINA MADEWELL: It will buy them some time.

DARRIN T. MISH: Usually the offer will take a year or so, but that’s not the point either. The point is, if we’re going to resolve the tax problem with an offer in compromise, it doesn’t matter if the number is big or small. It’s a little easier if the number is bigger for some reasons that are hard to explain on the radio. That’s how my philosophy is a little bit different than people that don’t do this all day. Your typical tax preparer is almost always going to take the approach of we need to get that number down as low as possible.

KATRINA MADEWELL: That’s how they’re trained to think.

DARRIN T. MISH: That’s how they’re trained. They’re real black and white. They’re real math-oriented. I’m less math-oriented and more procedural oriented. I just know the rules well, and I know how to take advantage of how there’s sometimes wiggle room in the rules you can take advantage of legally.

KATRINA MADEWELL: What I don’t understand is how if you’re going in and the IRS has filed substitute for returns, and you’re pulling transcripts to see what’s going on, see if it’s in hardship status, how does it not trigger some action? Are they not big enough to do that?

DARRIN T. MISH: So, the question is, how is it that the IRS doesn’t notice when I get power of attorney, and I pull the transcripts. They don’t have the manpower. They’re struggling now with their basic mission. Collections are seemingly falling off because they don’t have the budget to do what they’re supposed to be doing. When you introduce new laws like making them enforce Obamacare, health insurance mandate…

KATRINA MADEWELL: That’s one more thing they have to do.

DARRIN T. MISH: They didn’t get any extra money for that.

KATRINA MADEWELL: Do you think it irritates them that they have to work more and they’re not getting paid more?

DARRIN T. MISH: I know for a fact that it’s irritating them because I get to talk to them and you can tell they’re not happy with the situation. There’s another mandate that we haven’t talked about much on the show because it hasn’t been happening at all, is they’re going to start revoking passports for people who owe more than $50,000. That’s coming.

KATRINA MADEWELL: We did talk about that. What’s the timeline?

DARRIN T. MISH: It’s now. It’s going to start happening right now.

KATRINA MADEWELL: We should partner up with an immigration attorney and invite him on the show. Especially when they start seeing it.

DARRIN T. MISH: I need to reach out to some immigration guys too so we can team up. There’s going to be people who have green cards, and they won’t be able to travel. They’ll end up overseas, and they won’t be able to come up. It’s going to be complicated.

KATRINA MADEWELL: That’s going to be interesting. We’re going to have to get a few stories lined up. We talked about this awhile back; I’m surprised it hasn’t happened yet.

DARRIN T. MISH: It takes the IRS a long time to implement the regulations and figure out how they’re going to implement the law. That’s what the holdup has been.

KATRINA MADEWELL: This is the IRS Solution Attorney show. We’re live in the studio at 888-404-1010. We’ll be back in just a minute.

(commercial break)

(bumper music – My John Deere Pulls a Mighty Hefty Load)

DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show. Pat George just has to…

KATRINA MADEWELL: Take over.

DARRIN T. MISH: Yeah.

KATRINA MADEWELL: That’s Mr. Darrin Mish, and I’m your co-host, Katrina Madewell. Welcome back.

DARRIN T. MISH: In case you’re just tuning in, the relevance of the tractor music is I happen to live on an itty bitty farm and just got a new tractor. It happens to be red.

KATRINA MADEWELL: At the beginning of the show we always have to talk about tractors or chickens.

DARRIN T. MISH: Chickens. Yeah. I’ve been losing a lot of ducks lately. We have to keep them locked up. There’s a red fox on the property, and he has a taste for poultry.

KATRINA MADEWELL: We all do, don’t we?

DARRIN T. MISH: It’s either him or us.

PAT GEORGE: There used to be a Red Fox on t.v.

DARRIN T. MISH: There did use to be a Red Fox on T.V.

KATRINA MADEWELL: The topic of today’s show is what to do when the IRS files a return for you.

DARRIN T. MISH: We were talking about how the IRS will eventually a tax return for you called a substitute for return. If you get a 1099 and you don’t bother paying taxes, we don’t know what the threshold is for when they do the substitute for return for you, but we think it’s in the neighborhood of $10,000. We’re not sure. I rarely see one. I rarely see someone come in with just one. It happens, but it’s not common. Usually, you see them do them in bunches, two’s, three’s, fours where they want to assess the tax. It’s a myth that we all have as Americans that the IRS can go ahead and write a number down on a piece of paper and get the money for you. But they really can’t. There are procedural things they have to go through.

KATRINA MADEWELL: A lot of it.

DARRIN T. MISH: There is. The tax has to be assessed before it can be collected. That makes sense. What does the word assessment mean?

KATRINA MADEWELL: You have to owe it.

DARRIN T. MISH: I’m not going to give you the legal definition, but it means either you filed a return with a balance due on it, or you got audited and they assessed additional tax, or they prepared a substitute for return. Assessment means the money becomes owing, due and owing is when the tax is assessed. Before they can assess, they have to do due process. If you file a tax return with a balance due, there’s no due process. You filed the return with the balance due, you can’t argue about that. If you go through an IRS audit, certainly you have an opportunity to appeal the findings of the auditor. Ultimately if that appeal doesn’t go well, you can go to tax court, which we’ve pretty much never talked about on the show.

KATRINA MADEWELL: Then it can keep going from there.

DARRIN T. MISH: Usually tax court is the end of the line. Also, if the IRS prepares a substitute for return, you also have some due process rights where you can go ahead and file an original return.

KATRINA MADEWELL: A real return.

DARRIN T. MISH: And knock that balance way back.

KATRINA MADEWELL: What are sometimes when you’ve had clients is challenging or fighting that process of the audit. What kind of things are they saying, nope, this is wrong and you owe money for this. What are they challenging?

DARRIN T. MISH: Typically people that come to my office for audits are self-employed people.

KATRINA MADEWELL: Have they wrote a little too much or wrote something off they didn’t like?

DARRIN T. MISH: Here’s the analogy I use and it’s fitting since we always talk about the farm on the show. Pigs get fat and hogs get slaughtered. Most small business owners engage in a little bit of pig-like behavior. The numbers are not exactly right, there’s a little fudging over here and there. I’m not advocating that, I’m not condoning that, but it happens.

KATRINA MADEWELL: They may guesstimate a little high.

DARRIN T. MISH: That’s what I”m saying happens in real life. What typically happens is the people have been doing a little pig-like behavior for awhile. Maybe five, seven, twenty years or more. Then they’re thinking they’re bulletproof. They switch into hog behavior. They claim way too much mileage.

KATRINA MADEWELL: So they don’t actually have receipts or documentation or real miles to prove it?

DARRIN T. MISH: Quite frequently there’s either no documentation or not very much.

KATRINA MADEWELL: I would probably be the worse client ever because I don’t do stuff like that, but when I think I’m right, I’m right. I’m ready to argue to the death.

DARRIN T. MISH: I love representing clients who have lots of documentation in an audit because I have a chance to win. What happens a lot is people come in, they have the audit notice, they know they don’t have very good records. There’s usually a flood, fire, hurricane story in there somewhere. A loss of records. Then they want me to go deal with the audit with no bullets in the gun.

KATRINA MADEWELL: Right. They want you to show up to a gun fight with no bullets.

DARRIN T. MISH: Usually I won’t take those cases unless they have a realistic expectation of what’s going to happen. I can show up, try to mitigate the damage to the best of my ability and we’ll treat this as a collection case afterward. But if they want me to go into the audit, with no documentation, with no bullets in the gun, so to speak, and they want me to come out victorious.

KATRINA MADEWELL: Fight fight.

DARRIN T. MISH: It’s not going to work. The system is set up so you have to demonstrate as the taxpayer, the documentation for the deductions that you took. It’s hard for most people to do that because they didn’t keep very good records. What’s the moral of the story? If you’re a small business owner, keep better records.

KATRINA MADEWELL: At least divide it up. If I could give one teeny piece of advice as a small business owner, at least have a separate bank account. That nothing that goes in or comes out of that bank account except for business transactions.

DARRIN T. MISH: I was just going to say that. You should have a personal account, you should have a business account. I have a debit card for each account and they’re different colors. So if I’m standing in line at Home Depot, at any establishment, what goes through my mind is is this a business expense or personal expense?

KATRINA MADEWELL: You’re going to laugh. These are my credit cards.

DARRIN T. MISH: They’re both green.

KATRINA MADEWELL: The same color, but one has big letters on it.

DARRIN T. MISH: She wrote on one so she could tell which is which. Mine are different colors.

KATRINA MADEWELL: They used to be, I don’t know why they did that to me.

DARRIN T. MISH: It’s a little easier for me. When I’m standing at the cash register, what goes through my mind is this business or personal? Am I buying copy paper at office depot? Am I buying my kid’s school supplies too?

KATRINA MADEWELL: This drives me nuts because I had an accountant that said if you get audited, the IRS is not going to like you purchasing stuff at these big box stores. But if it’s on sale, why wouldn’t I buy it there?

DARRIN T. MISH: I’ll give you an example. In my waiting room, we have small halogen lights, the cheapest place to get them is at Walmart. So I buy them at Walmart, but one thing I do is I make sure that receipt is segregated. There’s no milk or bread on there. It’s just for the light bulbs.

KATRINA MADEWELL: I can’t tell you how many times I go to a store and have two receipts. Here’s my business, here’s my personal.

DARRIN T. MISH: I write on the receipt that those are the light bulbs for the lobby. If you were going to be audited, the IRS will accept that. It’s $16 or something, it’s not a big deal. I would agree if they just saw a charge slip for Walmart with $79 or something or Publix or Home Depot or even Office Depot…

KATRINA MADEWELL: But if you sent your stuff to Shoebucks…

DARRIN T. MISH: Yeah, if you have your receipts, if you can show what you spent the money on…Another big problem in audits is people think if I use my American Express card, then I have all my receipts. No, you really don’t. American Express does a good job of the end of the year categorizing your expenses, but they don’t have copies of all the invoices. They won’t have a copy of the hotel receipt you stayed at on your business trip. It will say you stayed at the Hyatt Hilton, whatever, and here’s the dollar amount. That’s all they’ll have at American Express. If you get audited, don’t send me in there with that.

Katrina Madewell: They want the actual hotel receipts? What if you just traveled for business?

DARRIN T. MISH: That’s a bit of a problem area. You have to demonstrate what the business purpose of the trip was, what you were doing if it’s an event like a seminar, they want the itinerary, the schedule to make sure it was a business trip. If you stay over.

KATRINA MADEWELL: Wow, I don’t keep that stuff.

DARRIN T. MISH: It’s significant.

KATRINA MADEWELL: What do you mean, if you stay over? If you stay longer?

DARRIN T. MISH: If you stay longer. Let’s say you go to an event and it’s on Friday and Saturday and you stay through Sunday night. You can’t write off Sunday night. You can write off the airfare, but you can’t write off Sunday night if you were just there because you were in San Diego and you wanted to hang out.

KATRINA MADEWELL: I go to San Diego quarterly and I can not get a flight back the same day. I have to stay overnight.

DARRIN T. MISH: That is a problem in traveling to the west coast. It’s very hard to get flights back. It’s not very hard to get flights back at five in the morning, which isn’t when you want to go. But it’s pretty hard in the evening.

KATRINA MADEWELL: That’s usually when I go, but I’m not going to fly back the same day without leaving early. Then it defeats the whole purpose of going.

DARRIN T. MISH: What does?

KATRINA MADEWELL: If I leave early to try to catch a flight home then I’ve defeated the purpose because all the good stuff is at the tail end.

DARRIN T. MISH: I have a quarterly event I go to out west. It’s usually a Thursday, Friday, Saturday until noon. I always have to leave on Saturday before it’s over because I’m not willing to give up my Sunday at home to listen to the last two hours.

KATRINA MADEWELL: If it’s done at five, you’re not coming home that day, it’s the next day.

DARRIN T. MISH: It’s a timezone thing. If you left that late, you’d get here at three in the morning.

KATRINA MADEWELL: It’s an all day thing. Fly to the other coast.

DARRIN T. MISH: It’s not even a fun day, either.

KATRINA MADEWELL: It’s interesting because before doing this show with you, I had no idea if you didn’t file your tax returns, the IRS could and would file it for you. I had no idea.

DARRIN T. MISH: They do that because of what I said earlier. If they didn’t file a return for you, there would no tax assessed and they couldn’t collect the money.

KATRINA MADEWELL: Is there a certain period you have to file after they’ve prepared the substitute for return?

DARRIN T. MISH: Not really. There’s the collection statute of limitations, which is ten years. It’s interesting, though, in theory, if the IRS never got around to filing a substitute for return for you…Let me give you an example. You got 1099’s in 2006. Normally the statute of limitations would be expired because you’d file that in 2017, it’s now 2017, if it wasn’t expired, it would be pretty close. Theoretically, the IRS doesn’t have a statute of limitations to prepare and assess the substitute for a return. So you’re not safe.

KATRINA MADEWELL: They can file it from ten years ago?

DARRIN T. MISH: That contradicts a little bit of what I said which is you only have to file the last six years but in theory, there’s no statute of limitations because you never bothered to file. In the real world, that doesn’t happen, but it could. It wouldn’t be illegal for the IRS to do that. The fact is, their record keeping is barely better than the audits I’m talking about. What they do is truncate their records after about seven or eight years. They just delete them.

KATRINA MADEWELL: We have some questions for listeners. We’ll answer these when we come back. Joe wants to know what’s the statute of limitations for unfiled tax returns. And we have a listener that wants to know when will the IRS file your tax returns for you? I think they mean at what point? We’ll answer those after we come back. You can get us here at 888-404-1010. 888-404-1010. We’ll be back in a minute.

(commercial break)

(bumper music – She Thinks My Tractor’s Sexy)

KATRINA MADEWELL: Get it, Kenny!

DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show. I am the driver of a bright red sexy tractor IRS Solution Attorney Darrin T. MIsh.

KATRINA MADEWELL: I’m your co-host Katrina Madewell. That was Kenny Chesney, in case you’re not familiar.

PAT GEORGE: She knows one.

KATRINA MADEWELL: I know one. Finally. You had to get the right generation there, Pat.

DARRIN T. MISH: Today we’re talking about what you do when the IRS files tax returns for you.

KATRINA MADEWELL: Let’s answer a few questions.

DARRIN T. MISH: Let me wrap up by saying this: If the IRS has prepared returns for you and it’s one year or two years and you think you can wipe it out, you probably don’t need any help. You can get original returns filed and wipe it out. If it’s more than that, you need to know somebody that knows what they’re doing to look at this and tell you what the right move is.

KATRINA MADEWELL: Is there a certain dollar amount where it makes sense to hire you?

DARRIN T. MISH: I would say $20,000 – $25,000 and above it makes sense. If you’re into $100,000 for sure it makes sense.

KATRINA MADEWELL: If you owe $5,000 or something it’s probably better to just listen to the podcast…

DARRIN T. MISH: You’ll need to listen to the podcast and try to figure it out. Or go to getirshelp.com. Or the app.

KATRINA MADEWELL: You have to create a fast track e-manual and sell the book.

DARRIN T. MISH: The problem is most people don’t want to know how to solve the IRS problem, they want the problem solved. They don’t really want to learn how to do it. It’s scary, complicated, it’s not that interesting to most people. They don’t want to know, they just want it done. The problem is if the cases are small, I can’t-do them effectively.

KATRINA MADEWELL: You know what I say to people that come in and their credit is a hot mess and they want to buy a house. I say that credit didn’t get that way overnight, it will take more than a night to fix it. I imagine it’s the same with a tax problem.

DARRIN T. MISH: Yes, not the most sensitive way to put it, but it’s true.

KATRINA MADEWELL: I say it a little sweeter than that.

DARRIN T. MISH: Most of our cases take between six and eighteen months to fix. In my client’s cases a lot of times it took five, ten, twenty, thirty years to get this bad. It’s going to awhile for me to fix it. Let’s get to the questions.

KATRINA MADEWELL: A couple questions we had. Joe wants to know, is there a statute of limitations for unfiled tax returns.

DARRIN T. MISH: I kind of inadvertently answered his question at the tail end of the last segment. No. There’s something called an assessment statute of limitations where the IRS only has six years…it’s complicated. There’s a three-year statute for assessment, there’s a six-year statute for assessment, then there’s an open assessment that’s forever. So, if you never file a return, then the IRS has no statute of limitations. They can file that substitute for return forever. Does it happen? Never seen it. As a practical matter, after six, seven, eight years, you’re not going to see a substitute for return pop up. It’s just one of those things where the IRS ends up deleting their own records.

I couldn’t get the records from them if I wanted them.

KATRINA MADEWELL: If they’re not there, that’s good.

DARRIN T. MISH: That’s real good.

KATRINA MADEWELL: The next question is, when will the IRS file the tax returns for you?

DARRIN T. MISH: I wish I knew. The general rule is we don’t see them for three to five years after it’s due. What’s not going to happen, I’ve never seen this happen, is they were due on April 15th and a substitute for return gets filed in July. I’ve never seen that happen unless there was already a whole slew of other substitute for returns and there was a revenue officer involved and he pulled the trigger and got it done because he wanted to collect on the whole thing.

KATRINA MADEWELL: Ouchie. Having a bad day when that happens.

DARRIN T. MISH: Not usually because you’re going to come to me and we’re going to figure out some better way to resolve it then pay it anyway.

Here’s a secret, when we talk about the train wrecks of the week, typically those numbers are so high because those are a substitute for returns. When my friends get mad at me, saying that person owed $200,000 grand and you settled it for $250, that’s not fair.

KATRINA MADEWELL: Really, his tax bill would have been something else.

DARRIN T. MISH: Yeah, his tax bill would be half or maybe even less. We just took advantage of the IRS the way the system works because it’s somewhat easier to negotiate and settle that big number than a much smaller number.

KATRINA MADEWELL: The bottom line is they don’t care. They want you back in the system paying taxes, so they’d rather settle it.

DARRIN T. MISH: That’s the truth.

(train wreck sound)

KATRINA MADEWELL: If you have this big tax problem, like over $20,000 or $25,000, you can call Darrin at 888-GET-MISH.

DARRIN T. MISH: That’s 888-438-6464 or you can visit the website at getirshelp.com. We also have an app on the iTunes store and the Android store, Google store. It’s called the IRS Solution Attorney, as well as all of the radio past episodes are available on a podcast called the IRS Solution Attorney.

KATRINA MADEWELL: So if you’re looking for something specific, just Google it.

DARRIN T. MISH: That train wreck sound was the sound to indicate to me that it’s time for the IRS Train Wreck of the Week. This is my favorite segment of the show. This is where we talk about someone who came in to the office and were a mess. I think I’ve told this story before but I want to elaborate on it a bit more because it just got settled last week.

KATRINA MADEWELL: Was there a substitute for return involved?

DARRIN T. MISH: There was not a substitute for return in this case. What happened is this elderly gentleman, he was lonely, he’s not married and has no one at the house and he’s lonely. He did what a lot of people do, he reached out on the internet for friends and companionship. He ended up being friended by someone who convinced him to loan everything that was in his retirement account. There was $100,000 plus in his 401k or IRA. I don’t remember which. He loaned this money, air quotes loaned this money, and he had to send it to someplace in the Mideast. It was like, I’ll pay you back next Tuesday kind of thing. Lo and behold, the money never came back.

KATRINA MADEWELL: I’ll pay you on Friday, the check is in the mail.

DARRIN T. MISH: It was an early withdrawal on the retirement account as well. He ended up owing $43,773. When we got involved, I believe the tax returns were already filed. We tried to go back and amend the returns to reflect that casualty loss. That theft loss.

KATRINA MADEWELL: How far back?

DARRIN T. MISH: It was just a couple of years. So we went back and tried to amend those returns and accounting for the early withdrawal as a theft and the IRS was like, nuh-uh, negative, not going to happen, too easy for you to fake this. We had police reports and they still didn’t like it. We filed an offer in compromise based on effective tax administration. We never talk about this. It’s an offer in compromise where we’re asking for a deal based on fairness issues. He has a house that’s free and clear so theoretically, he could afford to pay this back, but we were arguing it’s not a fair situation.

KATRINA MADEWELL: He’s older, he already lost his retirement money.

DARRIN T. MISH: And somewhat gullible. I think he would admit that too. I’m not being negative when I say that. It’s kind of a knucklehead thing to do. But he did it and he was the victim of this crime.

We filed this effective tax administration offer. At the initial level of review in the IRS, they just laughed at me. They rejected it out of hand.

KATRINA MADEWELL: Wouldn’t be the first time or last time you were laughed at, right?

DARRIN T. MISH: I was a bit discouraged. Ultimately we appealed it. I found some good case law out of the tax court and we settled this case for $2,167. When I got to appeals I was able to convince somebody that this was an unfortunate circumstance that we needed to remedy and they agreed with me.

KATRINA MADEWELL: How much did he owe originally?

DARRIN T. MISH: He owed a little over $43,000 and we settled it for a little over $2,000. So it worked out really well for him. It’s a case I’m happy about. I talked to him about it yesterday and he’s thrilled beyond belief.

KATRINA MADEWELL: He should come tell the story. That would be so fun.

DARRIN T. MISH: He’s not even in Florida, he’s up north and found me on  Youtube. I have a fantastic Youtube Channel also called the IRS Solution Attorney. Over 200 videos there.

KATRINA MADEWELL: You can get Darrin at 888-GET-MISH. He will solve the biggest tax problem of your life. 888-GET-MISH.

DARRIN T. MISH: 888-438-6474.

KATRINA MADEWELL: Thanks for joining us. For this week…

DARRIN T. MISH: We’re out.

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