Thursday, March 24, 2016

No Recourse

Some of the regular readers of this site will recall that we have had a little issue with the IRS in he past year.  If you did not read the pieces, I link them here and here for your enjoyment, although "enjoyment" is probably too strong a word unless you dislike me personally.

In essence, the IRS initiated an audit last year of a bridal shop that my wife and I owned until closing it in 2013, and on which we pretty much lost everything we had saved our lives for -- we were 62 then.  Closing it was not fun, and we still grimace when thinking about it.

Of course, the IRS is not possessed of anything in the way of sympathy, and chose two years thereafter to send us a nice letter claiming that we owed them about $30,000 in back taxes and penalties.  This was as a result of their not understanding our otherwise quite normal model of recognizing revenue at the time of sales (the alternative would be recognizing revenue at the time of payment, which would be equally legitimate).  Now, all they care about, or should care about, is that we were consistent.  Which we were.

In fact, as anyone who has had a bookkeeping class over the years recognized immediately, our choice of recognizing full sales revenue before we were fully paid for gowns was, in fact, beneficial to the IRS, because we paid taxes earlier than we would have otherwise.  They didn't seem to care.

You will be mildly amused to know that a few weeks back, after months of dragging this out, and gradually lowering the amount they felt we owed from $30,000 to $18,000, then to $5,000, then to $750, ultimately a supervisor meeting with our accountant decided we owed IRS nothing and dropped the audit.  We were determined to have had no additional tax liability and were, as they say, "free to go", i.e., the audit was closed and IRS determined that we did not owe anything at all and never had.

The operative word is "free."  By the time we are done, we will have had to pay our accounting firm well over $6,000 (and that is after they cut their fee quite a bit, presumably out of sympathy) for months taken to convince the IRS that their audit was unnecessary, as it proved to be.  Now, that could have been about $500 or so if the IRS auditor had actually understood the law that our accountant kept explaining to her, the law that, you know, an auditor for the IRS ought to know.  But no, the case dragged on and on and on because she just didn't get it.

I had never actually had to empathize with people who have paid lawyers to defend them against crimes for which they are innocent, or frivolous lawsuits.  But I do now.  We are out thousands of hard-earned dollars for essentially no purpose at all, no benefit to us save not being forced to pay a debt we didn't owe.

I do not know where the recourse is supposed to be.  It's one thing to win a lawsuit and come after the other party for legal fees.  But when your own country is the party forcing you to lawyer up (or in this case, CPA up) because their 70,000 pages of tax code are too much for their own auditors to get right, there is something really not right.

Ted Cruz makes it a point, as often as he speaks, to speak of "abolishing the IRS."  My best girl and I sit there and applaud mightily at those words.  When we have come to the point where in the USA, of all places, the government can't get its own laws right, you are out thousands to defend yourself, it's pretty sad that there is no legal recourse to recover costs from the IRS.

I know.  Shortly after our CPA told us we needed to call our congressman because things were so frustrating for him, I did.  I discovered first, to my shock and disgust, that our U.S. Representative had a person on staff who did nothing but handle IRS issues for constituents.  In other words, the IRS screws up so often that we pay a congressional staff member to deal with the failings of another branch of our own freaking Government.

We discovered, of course, that we had no recourse of any kind.  Our CPA costs were "probably" deductible; but that was about it.  For the most part, the costs were money lost forever for the privilege of teaching the IRS to interpret its own laws.

Senator Cruz, if anything you need to be louder when you get to the line about abolishing the IRS.  Clearly the law has gotten so convoluted that it is costing us more than just IRS employee salaries to keep the agency.  It is spaghetti code.  Start all over and create a small receiving agency to take the post cards and the checks each year.

Surely there is a better purpose to which the money we had to pay our accountant could be put.  CPAs sure would prefer to be doing things other than defending audits.  Congressional offices would prefer to be doing constituent services rather than responding to injustices of the Government's own agency.

Come on, Ted, you can do it.

Copyright 2016 by Robert Sutton
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1 comment:

  1. Three years later, I still want to cry when I read this piece. The final bill to the CPA was in fact over $11,000, and it was "that little" only because he wrote off about half his bill, feeling that it was insulting that he and we had to defend ourselves against the IRS in a case where we owed nothing, but he got paid and we were out plenty. Within a year, our CPA had passed away, and we have to grit our teeth thinking about it, as we are grateful that he lived long enough to help us, but that a good man like that is gone. And the IRS goes merrily on their way, la la la, ruining people's lives. Hooray.