Last week the IRS apologized for swooping in and seizing numerous bank accounts of small businesses. Incredibly utilizing a widely unknown law (except to those the law aims to ensnare) which states that financial companies must report cash deposits more than $10,000. The law seeks to track the deposits of those illegally dealing in large amounts of cash, namely drug traffickers and money launderers. Criminals are smart though and therefore maintain their deposits under the $10,000 mark in order to evade reporting requirements. This evasion, called "structuring", is a felony and can mark an account for investigation and seizure by the IRS.
The issue becomes what should be considered a deliberate attempt to skirt the reporting requirement. There are many reasons why a business would consistently deposit less than $10,000 at a time, including an insurance policy that only covers up to $10,000 in cash at a time. However with what has become a typical practice for the IRS, little mindful investigation was performed, and they simply seized the accounts so that each business owner needed to come and fight for their own money.
The IRS apologized, big deal. This is a fundamental issue that practitioners are familiar with and so should you. The IRS is a business, they are in the business of making the government money. This is not some conspiracy theory, that is their function and they operate as such. Therefore when the opportunity arises they will swoop in first and ask questions later. This apology for small businesses proves the rule because while in this case they were caught, hundreds of businesses and individuals settled to have their money returned (with the help of lawyer's like myself). That is MONEY, that may or may not get returned to some, but certainly has been held, at low interest for YEARS. It falls under the same issue I have when people are excited about their tax refund. It's YOUR money! Someone has just been borrowing it, at low interest mind you, for a significant period of time.
These practices will only get worse as an aging and technologically stunted agency gets shot up with more sweeping power and responsibility, with neither the required manpower nor abilities to adequately get the job done. The Affordable Care Act ("ACA"), or "Obama-Care" to some, will likely result in the same issue (REMINDER TO TALK TO YOU TAX PROFESSIONAL ABOUT IT), as the IRS is tasked with enforcing it and penalizing those not falling in line. When the IRS is given more reason to be involved in your life it allows them to make calculated money making decisions. It is simply cheaper to place a lien or levy on you and your business and have you pay the money needed to prove innocence, (with someone like me at your side) or settle it, instead of having to actually investigate a case for tax evasion.
I have clients who have small sums of unpaid taxes, with cases, audits, liens and levies that have continued for years before adequate proof is supplied so that the IRS will release them. Why? Because they want your money and they will get it. And they will keep it unless you can afford to pay a settlement or pay a tax professional to show them they are wrong, and they are often wrong. But it doesn't matter, because out of the many that they are wrong about, only a small minority will actually fight. The majority will simply pay, which is an incredible business model, money in with little cost going out.
I always tell my clients that the IRS is not your friend, if they contact you direct them to your accountant or lawyer, do not try to handle them on your own. The simple fact is that they exist to take your money, and for them it's simply better that you give it to them first and then fight to maybe get it back. And when you talk to them they end up getting it first, because let's face it they are scary. I cannot stress enough how many clients I have received a call from that my unfortunate first response to their woes is "I wish you would have called me when it started, now it's going to be an uphill battle to get back your own money."
So what can you do? Firstly, be smart; arm yourself with accountants and lawyers who can deal with these issues. Second, write to your congressperson. The IRS is a taxing authority, its function should be to take your money, but it should be to take the money it deserves not just whatever it can get its hands on. Burdening the IRS with so much responsibility forces the agency to make ill-conceived judgment calls to mitigate costs and raise its win rate. With a lighter load and better technology the IRS will be able to focus on what it was designed to, funding the government WITHOUT bankrupting the people.
Benjamin Goldburd is an Associate at Goldburd McCone LLP a boutique tax law firm in New York City.
For more information on these and other tax issues feel free to contact our offices at 212-302-9400, or on the web at:http://www.goldburdmccone.com