Fear of IRS (Split from a Marc Stevens thread)

[Judge Roy Bean]

...
In reading Marc's musings, at the page linked earlier in this thread, I was struck by his theme: the fear of the Internal Revenue Service that many people have.

And that strikes you as what? Unfounded? Misplaced? Overblown?

Most people I know deal with the IRS as they would with a vicious dog - you stay on the other side of the fence and if it jumps over to come after you, you keep saying "nice doggie" while you look for a big stick.

Plenty of well-placed Americans have big sticks (i.e., Penny Pritzker), the rest of us have to stay off the street where the dog lives.

[Gregg]

That's kind of a cop out. Most people don't deal with the IRS at all, of those who do, most file a simple return annually and wait 2 weeks for the refund to show up in their bank account. Most of those left file somewhat more complicated return but that's it, and they deal with their accountant much more than the IRS. And the incredibly complicated tax code that people complain about is 95% things that apply to corporations or a percent or two of individual filers.
Yes, the IRS can be a real bitch, but most of the people who get into major trouble with the IRS either asked for it or flat out got down on their knees and begged for it.

[wserra]

Given that I have never done civil tax work, and thus my opinion is largely based on anecdotes, I still gotta go with Gregg on this one. I have never personally known anyone whom the IRS crucified for no reason. I personally have had two run-ins with them, the more recent fifteen years ago. On both occasions, I was right, and not only did they admit it, they were professional about it. It's the same with people I know. The only people who received a hard time, deserved it.

'Course, this discussion is between two lawyers and a Ph.D. economist, and others' mileage may vary.

The only hard time I received from government was not from federal officials, but rather New York State. All kinds of arrogant and stupid. It took the prospect of having to defend the indefensible in court that made them back down. I got the impression that, once the matter got to their litigation people, they were told to put the file down and walk away.

[Gregg]

I am currently in a death struggle of epic proportions with the IRS (I got a form CP200 last week) where someone I paid made a little boo boo of a whopping $600 in my IRA contributions. I apparently owe them couple hundred dollars.

Now not to complain, but how come they catch that mistake in my return which I seem to recall was about the size of the Philadelphia White Pages, and they still let idiots like Victoria claim a 'victory" for her CTC return?

[Paul]

Because your return isn't suitable for the "Website and date and hour of posting when this idiot claims victory" office pool.

[Famspear]

...
In reading Marc's musings, at the page linked earlier in this thread, I was struck by his theme: the fear of the Internal Revenue Service that many people have.

And that strikes you as what? Unfounded? Misplaced? Overblown?

Most people I know deal with the IRS as they would with a vicious dog - you stay on the other side of the fence and if it jumps over to come after you, you keep saying "nice doggie" while you look for a big stick.

Plenty of well-placed Americans have big sticks (i.e., Penny Pritzker), the rest of us have to stay off the street where the dog lives.

My impression is that many people do have a fear of the IRS -- and that the fear is (1) well founded, (2) properly placed but, (3) in most cases overblown.

For whatever reason, I never felt "fear" of the IRS, even before I became a tax practitioner. And I did have one anomalous interaction with the IRS in that "pre-tax-practitioner period", in the form of an erroneous IRS notice about some Form 1099 income that I had supposedly received from some company I had never heard of. I talked with an IRS employee who explained that those kinds of notices were not unheard of. I took her advice and wrote a brief explanation stating that I had never heard of the company and had never received any money from them. I never heard another peep from the IRS about it.

An IRS examination (by an IRS Revenue Agent) and an audit of an entity's financial statements (by an independent CPA) are not exactly the same things, but my experience in financial statement auditing and my subsequent experience in dealing with IRS personnel undoubtedly help to give me a "minority perspective" of the mean ol', bad ol' IRS.

In addition, as the objectives of an IRS examination and those of a financial statement audit are not exactly the same, most IRS examinations are more limited in scope than a financial statement audit. To put it bluntly, I have never dealt with an IRS Revenue Agent who had the depth and breadth of experience as I had. (That does not make me special, though; the same can be said of thousands of other CPAs with audit experience.)

I occasionally run across a bad apple, but I find most IRS personnel to be courteous and reasonable. A bad apple can certainly instill some fear in a person who doesn't know how to deal with the situation.

I deal more often with Revenue Officers (collections officers) than I do with Revenue Agents (the examination side of the IRS). The tremendous legal power of the IRS -- including the power to administratively summon financial records and the power to administratively seize assets -- and the impact of the federal tax lien are mitigated to some extent by the relatively limited resources of the IRS in comparsion to the work it is tasked to do.

[Judge Roy Bean]

... The tremendous legal power of the IRS -- including the power to administratively summon financial records and the power to administratively seize assets -- and the impact of the federal tax lien are mitigated to some extent by the relatively limited resources of the IRS in comparsion to the work it is tasked to do.

Hmm . . . I'm somehow reminded of a better analogy: The huge migrating herds of wildebeests at the river crossing where the crocs are waiting; some are bound to be sacrificed to allow the others to get across safely.

As it stands today, there are wildebeests among the herd who are never in danger.

[Famspear]

... The tremendous legal power of the IRS -- including the power to administratively summon financial records and the power to administratively seize assets -- and the impact of the federal tax lien are mitigated to some extent by the relatively limited resources of the IRS in comparsion to the work it is tasked to do.

Hmm . . . I'm somehow reminded of a better analogy: The huge migrating herds of wildebeests at the river crossing where the crocs are waiting; some are bound to be sacrificed to allow the others to get across safely.

Ah, yes..... the IRS audit lottery.....

As it stands today, there are wildebeests among the herd who are never in danger.

Yes, there are millions of taxpayers who are immune to IRS audits. For example, taxpayers with nothing but W-2 income, a little interest income (reported to the IRS) and maybe home mortgage interest expense and property tax deductions. For these people, an IRS audit would be a waste of the IRS revenue agent's time.

EDIT: Assuming, of course, that the W-2 income and interest income were reported on the return, and that the deductions are properly stated!

[Famspear]

Another part of it is that there are many taxpayers who, if audited, would of course yield additional monies to the U.S. Treasury -- but like the majority of the wildebeests approaching the crocodile-filled waters -- these have "safety in numbers"..... too many wildebeests for the crocs to get every one.

[LPC]

Yes, there are millions of taxpayers who are immune to IRS audits. For example, taxpayers with nothing but W-2 income, a little interest income (reported to the IRS) and maybe home mortgage interest expense and property tax deductions. For these people, an IRS audit would be a waste of the IRS revenue agent's time.

And yet, I recall reports that taxpayers claiming the earned income credit (meaning taxpayers who owe no federal income tax and are claiming what amounts to a refund for social security tax paid) have generated more audits than million-dollar businesses paying no income tax at all.

If those reports are true, then it would seem that audit priorities are not always revenue-driven.

[LOBO]

I am currently in a death struggle of epic proportions with the IRS (I got a form CP200 last week) where someone I paid made a little boo boo of a whopping $600 in my IRA contributions. I apparently owe them couple hundred dollars.

Now not to complain, but how come they catch that mistake in my return which I seem to recall was about the size of the Philadelphia White Pages, and they still let idiots like Victoria claim a 'victory" for her CTC return?

I take it you meant CP2000. It's sent out by Automated Underreporter if your information returns don't match what's on your tax return. Reading the Lostheads forum, these notices catch them when their original returns don't get any scrutiny.

Apparently, once AUR gets the CTC gibberish replies, they send the case to Ogden, but the closing letters don't mention that its being forwarded. At least from what I can tell from Pete's Every Which Way But Loose posts.

[.]

It's sent out by Automated Underreporter if your information returns don't match what's on your tax return.

Matching information returns is something the IRS has consistently done for at least 30 years. I got one of those notices (no idea what the letter-designation was) about a very minor amount (less than $200) back in about 1980.

I called and explained it was reported on another return and why that was the case and that was the end of that. Now, if one were to respond with gibberish, well, what else would one expect other than to say hello to Ogden, especially if the amount involved is the bulk or entirety of your income?

My notice might have pre-dated full automation, but, by golly, they said way back then that they were going to match 'em all and so they have ever since.

Perhaps this inescapable matching problem, now apparently fully automated, explains why these idiots think they need a new PH book explaining to employers how to expose themselves to criminal liability instead of properly reporting income.

Yeah, that'll work.

[Duke2Earl]

I have always done my own return. I have a fairly complicated return... several k-1's, various non-resident state filings, foreign tax credits, etc. Nevertheless, I usually manage to plow through it on Turbo Tax in a couple of hours and then a couple more hours for the states. In short, I do not nitpick it to death... just get it close enough for government work. And in the last 15 years or so I have been audited twice by the feds and 3 times by the States. And every single one of those audits have ended with them sending me a check.... only a hundred bucks or so but it's the principle of the thing. If they are going to bother me enough to make me spend the time to defend it then I am damn well going to nitpick it to death. You would think they would get tired of that by now. No, I'm not afraid of those suckers. I have been annnoyed by them repeatedly but afraid... not ever.

[Judge Roy Bean]

Most people fear what they don't know or understand but they also fear power, especially power in the hands of people they don't trust.

Almost all of the fear and loathing involved in the income tax could be eliminated if it were simplified.

[Gregg]

Most people fear what they don't know or understand but they also fear power, especially power in the hands of people they don't trust.

Almost all of the fear and loathing involved in the income tax could be eliminated if it were simplified.

I agree with the premise that the tax code needs to be simplified, but I still also maintain that most of the tax code, especially the parts that are as complicated as Chinese Calculus, don't apply to a vast majority of individual taxpayers. Certainly the bulk of "CTC filers" could get away with filing a 1040, maybe a Schedule C and itemizing deductions. While it might be prudent for them to go to a CPA or tax attorney, the forms are hardly an insurmountable burden to most people. And the people who have returns that really require spending large amounts to prepare properly are only a must do for people who can afford it. My own tax return is pretty complicated, usually runs about a ream of paper to print out and costs me about $20K a year in toto, but I suppose I could also take it to HR Block for about a grand and still comply with the law. I pay a lot more than that because I believe that in the long run it's cost effective and I need more than even a CPA normally does, so I have a Tax Attorney as well as a CPA, and that's not cheap.

But still, as little at 15 years ago I was using Turbo Tax, for about $75 a year and doing just fine, and I think a good 95% of all people could do so as well.

[notorial dissent]

Gregg, let's be realistic here. Most, if not all of the CTC crowd could get away with using the EZ form and still have time to go get lunch. The other small, if not infinitesimal percentage really need to go to a for real CPA/Accountant/Tax Preparer to deal with what they are trying to hide, since they really do have more income and deductions than the simple forms can handle. They of course won’t do that since the whole point of all this is that they don’t want to believe that they have any “income” to begin with. So, no matter how simple or easy to use the software is, they aren’t going to bother.

In the case of the Marc Stevens crowd, I think fear is just the excuse he is falling back on rather than the truth that they just don’t want to pay what they owe, and it is a better sounding excuse. The reason the Stevens crowd “fear” the IRS is that they know they are doing something illegal and “fear” they are going to get caught at it, which they pretty regularly do. His stuff isn’t convincing enough to be anything but a limp excuse for doing what they want to do.