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IRS Tax issues, Refund and tax preparer Scam: Part 1

(Copyrighted)A lot of people don’t realize their ability and potential to negotiate, do their tax returns or even how to expect to receive their refunds.   Referencing my previous article where and when I said: “I repeatedly use the expression that “lack of knowledge costs a person a lot of money” or “knowledge is wealth.”  I interpret this expression by saying, “scammers see your lack of knowledge as PRICELESS.”   The book I wrote costs about $25.00 but WILL save you so much in time and money, giving you so much knowledge so that when you get fraudulent calls from collection agencies or even those so called “debt consolidation”, “debt reduction”, and “debt management” companies or others, you will be able to immediately recognize the scams and fraud.  In the “Fraud Watch” article, I will give you examples.Most of us are scared of IRS because the fear the agency created or the horrible stories we’ve heard.  Scares come from the facts that most people lack knowledge.  Besides the fact that the IRS is a fruit of several rich individuals to create shelter for the government so on and so forth; you must understand that the IRS agents (who you as a taxpayer deal with) are not only easier to work with than most customer service representatives of credit card companies and banks, but also are more helpful and understanding.  I am not trying to take sides, but have dealt with a lot of them.I have seen a lot of people that pay the IRS a large sums of taxes because they don’t realize the mistakes their taxpreparer makes/made.  I don’t care if a person claims to be a tax-preparer or even a Certified Public Accountant (CPA).  I have seen several CPAs’ work that cost their customers-clients unnecessary tax expenses, because of their mistakes.  In fact, I had to rescue several people from paying over $20,000.00 to $50,000.00 taxes to the IRS because their accountants did not include a lot of their legitimate expenses (such as education loans/expenses, business expenses when business income was included or so much more).Now allow me to explain this a bit differently.  Of course your accountant does not have a crystal ball to know what your expenses were the year past before he/she prepares your return.  I have an expression for Crystal ball.  When someone asks me a question that requires guessing or predicting, I tell that person, “sorry, my crystal ball broke several years ago.”Your CPA’s crystal ball must be like mine.  Therefore, you must help him/her to do the best job possible for you.  There are some clueless preparers (no disrespect is intended); however, one thing I noticed that most (90%) CPAs or even tax-preparers don’t have is AN EFFECTIVE INVENTORY OF ALL YOUR EXPENSES AND INCOME.Let see, what do I mean by that.  Tax season is right around the corner and most people “assume” (you don’t know how much I hate this word) that we’ll do the same way as did last year.  Just because you or your CPA makes the mistake of preparing your return incompletely, don’t blame the IRS for your lack of effort in your tax preparation.  The IRS says, do what you can do to maximize your benefit as long as you are truthful and don’t fudge numbers.  OKAY.  The IRS says take advantage of your refund and reduce your liabilities in the best method available to you as long as you are not deceitful.  Some tax-preparers are deceitful and some are honest.  Some CPAs are clueless and some are knowledgeable.  However, the bottom line of responsibility FALLS ON YOUR SHOULDERS.  If there is something wrong with your tax return, even if the tax-preparere or CPA signed the tax return (below your signature), the IRS contacts you (ALWAYS through mail the first time) for any inaccuracies.  I hope I am clear on this.Let’s go back to the “Crystal Ball” issue.  You have been going to the same tax-man/woman for years.  You take some papers to him/her to do your tax return.  He/she tells you are going to receive so much refund or going to owe so much.  You blindly say, “OK.  Yes, Sir/Mam,” sign the documents as he/she instructs and send it out/file it…  Neither you (an uninformed person about the tax laws) nor he/she bothers to ask you if your lifestyle, spending habits or any situation has changed over the years.  So, he “ASSUMS” you have no changes from the years past.  You are at fault for your own losses by not sharing any changes.  For that reason, I had created a six-seven (6-7) page inventory sheet (called expense report) which I provide to a few of my clients before I talk with them.  Although I don’t prepare tax returns, but (as said before,) I have rescued a lot of CPA and tax-preparers’ customers from massive tax liabilities to the IRS (at no direct fault of taxpayers, but their preparers’).I told a couple of my clients whom I’ve helped with credit issues, I don’t want to do their taxes (especially if they do not have any problems with the IRS or state).  Therefore, I give them my “Expense Report” and explain the line items of the report.  I even mention to them that some of the line items are for informational purposes only or that a CPA or tax-preparer may not be able to use the information if they are not self employed and/or don’t fall within certain categories.  Of course, I knew these people’s entire financial as I have reorganized their entire financial life (except stocks, bond, life insurance and a few other long term investments).  Sadly to say, when they filled out the sheets and took them along with their w-2’s, 1099s, 1098s, and other supporting documents for the purpose of tax return, their CPAs said; “there was no need for that…” and handed them a two page expense report which did not cover most of the important issues.  The clients came back to me with those reports and I had to contact the CPAs in order to make certain that the expenses are accordingly covered.Dear wonderful taxpayer. There is nothing wrong with you claiming all your legitimate and legal deductions and maximizing your refund or reducing your liabilities.  The IRS doesn’t deny you, but says, “be honest.”  Until the day you become an expert and are capable of fighting the IRS (by not paying any taxes), you are a small fish in a big pond and must pay your taxes accordingly, but maximize it to your benefit (as allowed by law).Allow me to share a couple of arguments I had with the IRS managers and even the U.S. attorneys representing the IRS interest.1.  About filing status:The IRS says, use the best method of filing your tax return that benefits you.  It even includes the first thing on your tax return “Filing Status.”  I had a client whoes CPA worked on the families’ tax returns and marked the return as “Married Filing Jointly”, when the best result for the family was married filing separate (as they were for the last 7 months of the year).  Of course, itemized deductions were involved.  The CPA caused this family that had two young children (in day care) to pay a little over $1,000.00 in additional taxes on their tax return when they had already paid nearly $8,000.00 of tax withholdings to the IRS through their W-2 on their nearly $85,000.00 W-2 and retirement distributions income.  The client came to me on some unrelated issue (mortgage loan consulting).  I asked to see his returns for the past two years (for informational purpose-- w-2 employs don’t need tax-returns for mortgage loans…) and noticed many more mistakes the CPA’s had made (even on past returns).I then discussed and decided to amend their most recent return and faced the obstacle of an IRS law stating, that you can change everything else but your filing status.  As a result, I communicated with the Tax Payer Service Manager (TSM) and discussed the issue of the law.  She addressed a publication that contained filing status tax law.  Then, I diverted her attention to another publication that was thicker and had more details.  I explained to her that she needs to reconsider her words as a) the mistake was not at the fault of the taxpayer but a CPA who is authorized by the IRS to do such “crappy” work and b) that the law does allow changing the filing status under particular situations.  She then argued, “but they signed the return…”  I had to corner her by asking her a question that would put her in the taxpayer’s shoes when and where she needed to rely on the expertise of a third party…  She had nothing further to say and my client received a refund check of a few thousand dollars a couple months later.2.  My tax Audit. In 1993, I purchased a property in Austin, TX (several years after I left TX).  The property was purchased sight-unseen (as I was in GA).  Relying on the words of a “Real Estate agent” who I thought I could trust, was a horrible thing to do.  Not until after the purchase and my visit to the property did I realize how bad of a shape it was in (as opposite to what the agent led me to believe).  After spending a massive amount of money to repair the property myself, I sold it for a bit of profit.  However, the IRS hit me with a little over $51,000.00 of tax liabilities for 1993 and 1994.  Through the years of audit (1997 through 1999) and providing a lot of receipts and my appeal, it reduced the claim to over $25,000.00.  Then, finally came the Tax Court.  During my communications with the U.S. attorney who was defending the IRS, I learned a few things.  But before I get there, allow me to explain a couple of things about myself.  They are:1.    Not until this issue, did I ever know how or what to do about tax returns.2.    My 1993 and 1994 tax returns were done by a CPA and amended by a tax-preparer before my audit nightmare began.Now let’s see what I learned from the U.S. Attorney representing the IRS.1.    This wonderful lady was telling me that she represented the IRS for over 12 years and she knows the tax laws very well.2.    She was disallowing some of my receipt because some receipts were faded.  Please note that the audit and Tax Court issues are taking place in 1997 through 2000.3.    She was telling me that just because I have cancelled checks showing that I paid for some of the expenses, those are not considered receipts.When she made the remarks about the canceled checks are not sufficient, I had to stop her and tell her the exact words as: “Ms. ???, I now realize that you need to go back to law school, because you must have missed a few things before you graduated and took your bar exam.  You are doing injustice to the IRS.”She was stunned, surprised and silenced for a minute.  She didn’t have anything to say.  Then I continued by asking her: “You live in Charlotte, Is that Correct?”    She responded, “Yes.”I asked, “let’s say that Duke Power disconnects your power, you get home and learn that you are the only one in your neighborhood who does not have power. You call Duke Energy being angry of its mistakes.  The company representative responds by telling you it was disconnected for non-payment. You argue otherwise.  The rep. tells you to prove that you paid.  What do you show for proof?”Take a wild guess what her answer was.  That’s right.  She said, “Canceled check.” So I acted as though I had a hearing problem and asked, “What did you say?”She repeated her response and then she became very quite.  So I had to break the silence by telling her to stop with her double standards.  She then agreed to accept my cancelled checks.However, it did not end there.  As I was recovering some more of the 1993 receipts, I marked some of the very faded ones by placing circle around the date and dollar amount and wrote the information outside the circles.  During the first hearing before the Tax-Court, the Judge asked, “do parties have any comments or objections before we start”.  The same attorney along with her partner immediately jumped to object my receipts by calling it “tampering with evidence”.  The Judge was shocked and asked for the evidence.  He looked at them and asked me, “Mr. Samadi, what do you have to say about this?”  Since I did not know what the attorneys were talking about, I asked the Judge if I could view the evidence they were addressing.  I was handed two receipts.  Immediately after looking at the receipts, I started laughing.  The Judge was surprised and asked about my behavior. So I explained:“Your honor, I was trying to avoid giving the government representatives eye-ache and headache by rewriting the figures outside the circle so that they would not need to squint to figure out what was on the sheets.”The judge looked at them and said. ”Is this all you got?  Go and work out your deals.  I do not want to see you about this case.”So here we (the U.S. Attorney for the region, the two (2) assistant U.S. attorney, the Appeals Manager, the then retired Tax-Auditor and I) went at it again in a conference room.  When we finished, they agreed to write me a check based on my w-2 withholdings.The moral of the above two TRUE stories.  A.    Stay stupid and pay for your ignorance.  Learn about your life and finances and prosper.B.    Do not give up when you have a fight ahead of you.C.    Just like if you were going to have brain surgery, you would need to get a second opinion.  Do that with all your financial issues (especially taxes, life insurance, stocks and other investment, mortgage loans and big ticket item purchases).Again, stay ignorant and pay the price.  I hope you are enjoying these.  I will expand on this and the Tax Preparer Scam issues in the next article.Mike SamadiAny questions?  Go to Q & A of http://www.MasterCreditRepair.net, read and post.  Go to the "Comment" page and post your story or comment.  Your personal information will remain confidential.  Joint my membership club (coming soon).