How To Deal With the IRS

[IslandGuy]

Hi all,

I worked with a tax attorney for a number of years when I was in college and thinking about going into law (luckily I smartened up before it was too late ), and learned some really interesting and kind of scary things about taxes and the IRS, so I thought it might be interesting to share some stories, now that we're all investing or thinking about it and wondering what to do with all that money we're making (or not).

One thing that I thought I'd start this thread out with is a fact that a lot of Americans don't realize -- there is a separate court system for taxes called (appropriately) tax court. So if you have a beef with the IRS and it goes to a court case, it is heard in tax court, not regular court. Tax court rotates around the country, so sometimes you have to wait a long, long time to get on the docket. Plus, the rules of what is admissable and other legal issues are very different. From what I saw happen to some people, it is almost as if in tax court you are considered guilty until proven innocent (of course, you're not, but the rules are different enough that it really can put you at a disadvantage unless you get good legal advice from someone who is experienced -- in fact the best tax attornies usually worked for the IRS before heading out on their own, because they know how the system works).

Anyone had any experiences with their finances and taxes? Luckily, I've never previously had to deal with anything other than standard stuff, but now with my own business pretty well established, it is a different deal.

So I'm hoping someone else has some advice or experiences to share. It's been quite a few years since I worked with this tax attorney, but I doubt much has changed with the IRS (I still keep in touch with him socially from time to time).

 

[Mirage]

I haven't ever had to take any tax issues to court, and haven't been audited ever, but that's why I hired a tax attorney in the first place. I don't want to risk having problems, so I try to keep everything how it should be.

Warren Buffet is currently (or maybe it's over by now, but in the past week or so he was) suing the IRS for withholding 25 million dollars in tax returns his company never received. It happened in 91 and he wants interest up until 2005 as well. Tax court seems to be something that only the rich can get into because of the expenses involved.

 

[IslandGuy]

Yep, it can be the big guys who wind up going all the way up to tax court, but a lot of our clients were small local businesses that were successful, and whose cases were less than a million even over a number of years.

One guy had cases for 7 straight years and one day I opened up a refund check from the IRS for him on one year that was a check for over a million bucks (he WON!), but meanwhile, he was losing ground in his fight over the other years, so at least he had some money to continue on in tax court

Actually, what I did learn is that the IRS would much rather settle with anyone. So, if you ever do get audited and they are demanding more than you can afford and are adamant about the figures being correct, they often will settle for less than they're asking rather than take it to tax court. You feel like you have no power, and if you get the wrong guy, you don't LOL, but usually you can bargain with them a bit to get the amount lower, or payment plan or something - they want the money with the least amount of hassle usually, so it's worth a try to see if you can work out a deal if you do get in trouble and the payment, interest and penalty is beyond your means.