Teaching the IRS Their Job

More than two years ago, my wife and I closed our family business.  We had found ourselves unable to raise the necessary capital to grow it, principally because no bank would lend to small businesses -- I personally approached 13 different banks, large and small alike.  I concentrated on banks that advertised how much they supported small businesses.

As a result of their unwillingness to lend a penny to help us grow -- and just ask any small business owner; their experience will be exactly the same if they've sought capital from a bank -- we closed a business that had done $975,000 in business the previous year, in an industry where most stores do $300-400,000.  We were the nation's largest (principally) plus-size bridal salon.  There is now a state liquor store and an empty space where the store was.

There is also an empty space where our life savings was.  Our entire combined 401(k) was lost in the closing, so naturally we're really thrilled with the banking industry -- and the fellow in the White House whose contempt for business is so large that industry would rather hoard than hire, and banks would do almost anything rather than lend.  And I am still working, though I'm 64 years old and would have liked to retire.  Oh, by the way, neither of us was ever paid one red cent in salary.

Don't worry about us; we'll make things work as we wait for an actual president to get elected.  We're resilient.

But I give all the background above so you can appreciate what it was like for us to get a letter a few months back from the Internal Revenue Service, the same people who brought you Lois "I decline to testify on the advice of counsel and my Fifth Amendment rights" Lerner, who should be in jail, and John "I've never had my honesty challenged before" Koskinen, who should be unemployed.  The letter said that our deceased business, now in the grave for two years, was being audited.

Needless to say, we needed that like a third nostril.  As it turns out, they were challenging how much revenue we had actually taken in in 2012, our last full year.  The reason they didn't get it was because we claimed income at time of sale, not when we were paid (most of our sales were half-down to order, the rest on delivery 4-6 months later).  We actually, by doing that, claimed revenue earlier than we had to, so all that 2012 revenue the IRS couldn't find had already been taxed in 2011, since it was the down payments on gowns that arrived in 2012 but were ordered the previous calendar year.  That model was actually better for the IRS.

Of course, once the IRS auditor discovered that the tax on the disputed amount had already been paid, she seemingly felt obliged to go probing for something in this deceased business that she could claim was the basis for us owing money to the IRS.  So she did -- except in all the cases she was wrong either in the reading of our papers or in the reading of the law.

Now in all of this, we were defended by our accounting firm and, as you might guess, there is no recourse -- we have to pay the CPA to tell the IRS why we don't owe them anything and had done everything properly in the first place.  To date, that has cost a couple -- who lost our savings when the business folded -- over $3,000 in accountant's fees.

Finally our accountant, a good and decent man, had had enough.  Exactly what he had had enough of, was that the auditor did not seem to understand tax law well enough and that he, the CPA, kept having to explain the law and why there was no liability.  You guessed it -- my wife and I, having lost all our retirement savings, were now forced to pay someone to give the IRS lessons in tax law.

Let me quote from the accountant's instruction to me to go to my Congressman: "Bob, it’s very frustrating.  From my perspective, I feel as though I am providing the training to this person on behalf of the IRS, but at your cost, neither of which is fair.  At the same time, I know that their tools are a bit antiquated and the process she has to go through has no real clear guidance.  It’s all money and politics, unfortunately ... My friend, we cannot afford their incompetence as individuals or as a society.  But that’s what we’ve got.  If anything, I would send a bill with a letter of your expenses to your congressman when this is all done.  Yes, the IRS can (and should) have the right to audit.  However, with the level of errors, there should be some recompense."

I couldn't have said it better.  Congress passes income-tax law that now covers 74,000 pages of various situations that all could be cured with a simplified flat tax (thank you, Mrs. Fiorina).  Then the citizen has to pay to have his own accountant explain to the IRS auditor what the applicable part of that absurd 74,000 pages applies.  And there is little, if any, recourse.

My Congressman is Barbara Comstock of the district in Virginia where I live.  I will be happy to share with you all how this exercise ends up.

Copyright 2015 by Robert Sutton
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