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.