Getting To Known The IRS – Part 2

The IRS office isn’t exactly customer-friendly. The agency occupies the entire upper floor, but when you get off the elevator, there’s no reception desk or anything else that says “welcome.” Instead, there’s a table in the hallway with a phone on it. If you have an appointment, you pick up the phone, and someone behind the doors steps out to usher you in. In my situation, one of the agents said he would be watching for me. He was. As soon as I stepped out of the elevator, he was opening the door.

It’s also awkward to exchange introductory pleasantries. These guys are criminal investigators and you are a taxpayer – I don’t imagine either side has a particularly good opinion of the other.

The two investigators on this case seemed a little mismatched. The one who led most of the conversation was the younger of the two, and as my friend observed was an “FBI-wanna-be” with sort of a quasi-military demeanor. The other guy was older, probably in his fifties. From other experiences with IRS personnel, I’d bet he was an IRS lifer. Again, my friend had the luxury of observing more while I was answering questions, and came up with another assessment that I thought was dead-on: The older agent was “a little guy trying to be important.”

After once again clarifying that I was not the subject of any criminal investigation, the questions began. They wanted to know where and why I had come to know the tax preparer. They wanted to know if the preparer had made promises of lower tax payments or no tax payments. They wanted to know if he said or did anything that could be construed as recommending that I lie or fabricate information on the returns, etc.

They wanted to know my connection to other people who apparently had been links in the chain of their investigation and prosecution. Two were taxpayers that had been sent to prison. One I knew, the other I didn’t.

Occasionally during their questions, I asked for details on their investigation. They would not tell me specifics, although they acknowledged they had met with the suspect. I stated that on reflection I found the tax preparer to be an enigma. Much of what he told me seemed accurate, but other issues had been off-putting, and I just couldn’t reconcile the inconsistencies; that was the reason for my terminating contact with him more than five years ago. I asked the investigators what their impression was of the tax preparer, and while the younger agent just stonewalled, the older one rolled his eyes and sort of snorted.

The older agent pressed the point of wanting to know why I would work with a guy like this. I told the agents that the primary reason I chose this man for assistance with my taxes was because his philosophical and religious convictions seemed genuine. The older agent rolled his eyes again.

Near the end of the interview (it lasted about an hour), the old guy sort of went on a little rant about tax protestors, indicating people like myself should know better than to get hooked up with guys like this. I shrugged and said something about every taxpayer having the right to structure his affairs to pay the least tax possible, and the old guy got a little testy. He gave a mini-lecture on the tax protestors, tax avoidance and tax evasion. I reminded the investigators that my last contact with the tax preparer was five years ago, and that I wasn’t attempting to defend or explain the preparer’s behavior.

At the end of the interview, I asked the younger agent if I could have a copy of the list of questions they had for me. He seemed a little reluctant. I told him I had received copies of the examiner’s notes and questions from my audit, so why couldn’t I have these? He relented, and gave me his typed list of questions.

As we left, the younger agent thanked me for my time, and said they would contact me if only they needed more information. I told them it would be fine with me if this was the last time I had to discuss my relationship with the tax preparer.

On the way home, I replayed the events with my friend. My focus was mostly on the questions and the content, but my friend had another astute observation. Of the two agents, he noted, the younger one seemed quite matter of fact – he had a list of questions, he wanted answers, and anything that veered off topic was an irrelevant distraction. On the other hand, the older agent was more animated, took more notes, and was almost combative. Getting information was one thing, but it felt like the older agent also wanted to convince us that he was right and we were wrong for even considering the tax preparer as credible. It was like he wanted to say “how could you be so stupid?” and he wanted me to agree and apologize.

I have not had extensive contact with IRS personnel, but my contact is probably more than the average citizen. One thing I have observed: IRS people are pretty zealous about their work. The ones I have met aren’t just in it for the paycheck; they believe they are doing the country a great service by making “everyone pay their fair share.” I imagine it’s necessary to have pretty high internal belief in your work, because an IRS employee sure isn’t going to get much positive reinforcement from the American public.

On the other hand, I also sense in some IRS personnel a disdain or disgust for the taxpayer. For IRS personnel, the only reason someone resists or defies tax law is because they are criminal or ignorant. While some might forgive ignorance, they still can’t fathom why any taxpayer would step out of line, even inadvertently. When you try to present the idea that some people might have moral or philosophical objections to the current tax system, it doesn’t register. “Given the legal authority and enforcement power of the IRS, why would anyone even think of getting on our bad side?” is the essence of the responses I’ve received.

This disconnect was best illustrated by an exchange I had with the examiner of my 2002 and 2003 returns. At the beginning of the process, I told him I faced a dilemma regarding the audit: After all my experiences with the tax protestor people – the arguments that the 13^th Amendment had never been properly ratified, that wages and income weren’t the same thing, that the Internal Revenue Code didn’t apply to sovereign individuals, etc. – I was convinced that the IRS was legally empowered to enforce the collection of taxes. But agreeing with the legality of the IRS didn’t satisfy the moral questions.

I made an analogy to the Jim Crow laws in the South. The laws were “legal,” but also immoral in the denial of civil rights to certain groups of citizens based on their pigmentation or ancestry. So, I asked, when moral conviction conflicts with legality, what do you do?

The auditor didn’t miss a beat. “You know what happened to the people who protested the Jim Crow laws, don’t you?” he asked.

“Some of them went to jail,” I said.

“Yep. That’s right,” he said. End of conversation.

Getting To Known The IRS – Part 1

About 15 years ago, I was exposed to some thought-provoking information on the economic impact and moral implications of governmental taxation. One day, my business partner handed me several books about the United States income tax system he thought I would find interesting. Thus began a decade-long, twisting journey through the world of federal income tax protesters, tax avoiders and ultimately, con men. As a result of my travels, I have also had the dubious opportunity of engaging the IRS far more than I would prefer. But the experience has been instructive.

Eleven years ago, I met an individual who represented himself as an income tax expert. Because of his philosophical and religious convictions, his approach to taxes appealed to me; essentially, his message (at the time) was to “render unto Caesar the things that were Caesar’s” but no more. For several years, he prepared my tax returns.

However, this individual gradually become more militant in his stance toward the government, and more erratic in his delivery of business services. In 2002, I terminated my business relationship with him.

In 2005, I received notice that the IRS was auditing my returns from 2002 and 2003. Upon further discussion (which took awhile) the IRS disclosed the reason for the audit was because of my connection to this tax preparer – guilt (or suspicion) by association.

The aggravation and psychological stress of an audit is bad enough. But even worse, the LLC I had established under this individual’s guidance was improperly structured for tax purposes. The audited changes resulted in a $40,000 additional assessment, including tax, interest and penalty. Ouch, definitely ouch.

Having finally paid this obligation in full in the fall of 2007, I was hoping my encounter with this “tax expert” was finally behind me. Then two men from the IRS’ Criminal Investigation unit came to my door in January 2008. Having assured me I was not the target of any criminal investigation, they informed me the IRS was pursuing criminal charges against my former tax preparer. They asked me if I could meet with them sometime and answer a few questions. I scheduled an appointment for three weeks later, giving me some time to consider the ramifications of meeting with the investigators.

After some discussion with a couple of attorneys, I decided to attend the meeting. But rather than bring official legal representation, I just brought along a good friend as a witness. The reasoning was as follows:

Assuming I was nothing more than an individual who had received tax preparation services from the person under investigation, bringing an attorney might suggest something more duplicitous on my part. To my knowledge, I had been nothing more than a bystander – there was no attempt to do anything other than legally lowering my tax bill.

Since two agents showed up at the door, I figured they would probably both be part of the interview process. If I went by myself, I’d be out-numbered, but having a witness in the room would even the sides, and might blunt any good-cop/bad-cop interrogations.

Finally, there’s nothing like having a third party in the room to make sure everyone attempts to be on their best behavior. Since my friend is also a fellow church member, there was also some positive pressure on me to stay under control. And if the IRS guys got a little belligerent, well, at least I’d have a witness.

I know this line of reasoning doesn’t sit well with strict legal advocates. As far as they are concerned, any meeting with the IRS, criminal or civil, should have representation. I can see their point, but I guess I was relying my innocence. And, since I figured I wasn’t in harm’s way, I was curious about the process – I had questions I wanted to ask as well.