Tax Problems? Never Be Embarrassed to Seek Professional Help –You are in Good CompanyBy Laurie B. Kazenoff JD LLM, September 2013
As a tax attorney with many years of experience both within and outside the government, I have experienced both sides of the equation. In addition to analyzing and litigating complex legal principles in the Tax Court on behalf of the government, I often had to listen to “hard luck cases” and try to understand how and why taxpayers could possibly end up in their predicament. Being in the ivory tower of government can sometimes remove you from business realities and make you believe that there is evil intent involved when a taxpayer gets into a fix. Stories would begin to sound the same, and it would become hard to trust a “sob story”; granted there were indeed cases of fraud and misdeeds, but my experience since then has shown a less nefarious reality. For many years I have had to similarly listen to my clients’ situations and have myself had “real life” experience in running my own business as well as assisting others in doing the same. It became clear that the slippery slope downward into the abyss can simply happen to anyone due to circumstances beyond their control and does not necessarily involve an evil intent to avoid or evade taxes.
Some situations can of course seem to be self-inflicted, through mismanagement and poor choices, but many situations – especially recently with the economic downturn – have involved formerly financially stable individuals or companies who tried to do everything the right way. Due to circumstances beyond their control, they entered the abyss of not being able to meet financial obligations, including tax obligations. When governmental entities fail to timely pay their contractors, when businesses fail to pay their suppliers or independent servicers because they themselves are not being paid, when customers fail to pay for goods or services, there is a chain reaction. Businesses who cannot collect their receivables cannot meet their payroll, pay their equipment leases, pay their rent or commercial mortgage, the list goes on. The failure of one leads to subsequent failures of others to in turn meet their obligations. Unfortunately, just to keep their enterprises going, some often pay the “tax man” last or not at all. Some cannot stomach laying off long-term devoted loyal employees with families in order to save on payroll costs, so the choices become very difficult. This happens on the individual level also – should one pay their mortgage or their estimated taxes?
The key here is that this is happening more and more often, to the most upstanding citizens formerly sailing through and now just trying to get by. Many find themselves in foreclosure or on the verge of bankruptcy. It can be a state of chaos that is embarrassing to admit, it feels like failure, a weight that presses on your chest where you cannot sleep at night. I’ve seen the most seasoned professionals and business leaders nearly break in half from the pressure of these responsibilities, feeling they have no control over the outcome, all the while trying to “do the right thing.”
This is where I come into the picture. Never be so embarrassed or defeated that you feel you cannot seek help, because there is help. First, as a licensed attorney, I am obligated to keep everything confidential, so there is no need to be concerned that your financial or tax problems will ever be disclosed; unlike many other professions, I am bound by attorney-client privilege. Second, you might find this hard to believe, but both the IRS and New York State at their core do want taxpayers to remain solvent and viable income-producing and tax-paying entities. It is in the government’s best interest to keep the tax revenues flowing. If they can in any way assist in helping you to “make good” on past liabilities and also keep you on the right track for now and in the future, that is the ultimate goal. They simply want compliance, and my job is to reach a consensus on how to get a taxpayer into compliance and to take care of unpaid liabilities. There are options to accomplish this and to achieve peace of mind. It is a matter of having someone to navigate the process for you, take that pressure off of you, and to reach a resolution on your behalf. Never be embarrassed to seek help, even if you have never needed to do so before. I can only reassure you by saying, you are NOT the only one.
What is Tax Controversy and why is it important to retain a Tax Controversy attorney as opposed to an attorney specializing in a certain area of the law? Why should attorneys and accountants refer cases to a Tax Controversy Attorney?
By Laurie B. Kazenoff, J.D., LL.M., December 2013
As an attorney for IRS Chief Counsel, my responsibility was to handle whatever case I was assigned. I had to resolve or litigate the matter, no matter what the issue. Every case was different, every case had different types of taxpayers or entities, every case had different facts, hence different issues. Every case required research into that particular fact situation and legal issue. You studied it, you evaluated it, you analyzed all the angles, and you formulated a strategy. It would not have made sense to only know one type of issue, because there were so many different tax issues and different taxpayers.
Granted, there were hot issues then, like TEFRA partnership cases. We had test cases that litigated the reasonableness of actuarial assumptions in defined benefit plans, another hot issue at the time. But times change, laws change, the issues change. Anyone in tax controversy knows this about this branch of the legal profession. The hot tax issues of the day change and you have to be prepared to take on new issues, unusual fact situations, and new tax laws in order to resolve cases. Today the issue might be FBARs but what will tomorrow’s hot issues be? Do you want someone who knows how to serve up today’s favorite flavor or do you want someone who knows how to serve all the flavors, formulate new ones, and understands how the whole ice cream factory works? It makes a difference.
Through the years I have learned that the most important skill a tax controversy attorney needs is experience with the process. Knowing how to research any issue and to use the right resources to do so. Knowing how to analyze the facts of your client’s case, whether it is a small business or a multinational corporation, and to apply the law to those particular facts. Knowing how the taxing authority operates, how to read regulations and pronouncements they issue, how to navigate the system, how to negotiate and speak with them. It is important to understand where they are coming from and finding common ground if there is any; if there isn’t common ground, it is important to know how to litigate the case to let a court decide. It is important to know all of your options to resolve a case with the taxing authority including who or what department to speak to if there is a problem.
I often compare it to the medical profession. If you have a myriad of problems, you would be mistaken to just go to a gastroenterologist. He would see it only through his lens when it could be an endocrine problem or even an infectious disease problem. Similarly, a surgeon may want to do surgery, when perhaps another physician might recommend physical therapy instead. If you see the issue through only one narrow lens, your proposed resolution will be compromised. A tax controversy attorney is like an internist or general practitioner who sees the whole picture, coordinating the care of the whole person, seeking out specialty advice if needed.
For example, a real estate attorney may be very good at what he does, but if he has a case that becomes a tax controversy matter, he could easily prejudice his client’s case and even lose a slam-dunk case if he doesn’t know how to navigate the process properly with the taxing authorities. I’ve seen attorneys and accountants who were very competent in their specialties but who defaulted on serious tax deadlines resulting in assessments against their clients, causing cases to go to collection, for example. Had they referred the case to a tax controversy attorney, they could have continued to be a valued resource regarding the merits of the case, but the client would have been better served and protected.
It does not matter what tax issue you have or what kind of entity you are, if your case becomes a “tax controversy” with a taxing authority, always seek out an experienced tax controversy attorney as early in the process as possible to protect your rights and to achieve the best outcome.
Are You the Cobbler Whose Children Have No Shoes?
By Laurie B. Kazenoff, J.D., LL.M January 2014
This saying may be seem like an outdated reference, but it couldn’t be more relevant today. The advantage of my being a solo attorney with my specialized niche is that a significant part of my practice consists of other professionals who find themselves in a fix with the taxing authorities and do not want their colleagues to know of their troubles. You would be surprised how common this is. These are lawyers, accountants, entertainers, journalists, engineers, investment bankers, real estate developers, architects, and other high profile business people who are top notch in their fields of expertise but who have done everything but taken care of their tax “shoes” if you want to put it that way.
One of my first clients in solo practice after I left IRS Office of Chief Counsel was the founding member of a very well-known law firm that found himself in a fix involving an ancillary business venture and an unscrupulous business partner on whom he reasonably relied. I was able to abate hundreds of thousands in penalties and he was extremely thankful. There is no greater satisfaction than resolving a case favorably for a professional colleague who needs my help and relies on my commitment to the attorney-client privilege. Since that day I have continued to get referrals and calls from similarly situated professionals who rely on me for my expertise and confidentiality; I have also resolved their cases continuing to build goodwill.
For those professionals who would be considered “sophisticated taxpayers” by the taxing authorities, it is not uncommon that sometimes they can get themselves into a tax fix. Pumping personal funds into their businesses to keep them afloat is no more of a “noble” choice than someone who foregoes their medications to buy food. This of course is not a legal basis for an excuse, but the reality is many are put in the position of choosing the lesser evil. I believe some governmental authorities acknowledge the domino effect: if the taxpayer fires all of their employees and goes bust, surely the taxes paid would pale in comparision to the government’s payment of unemployment compensation, food stamps, and other subsidies to fill the void left by a bankrupt company, not to mention the lost taxes that would have been paid by the gainfully employed. It is truly in the government’s best interest to help these taxpayers, so they can continue to be revenue producing entities and compliant taxpayers.
In my experience over these many years, I truly believe the taxing authorities, particularly in the wake of the Great Recession, are keenly aware of this, hence the many types of programs offered to resolve cases implemented in recent years. Installment Payment options have increased, OIC rules in some ways have been eased, Appeals settlements are available, certain thresholds to qualify for programs have been raised. I believe they realize that killing the goose is not the best option if they want more eggs. As long as I can bring a taxpayer into compliance for the future, achieving terms of settlement that are reasonable (and do not ensure default), the taxing authorities seem willing to resolve a case to get the revenues flowing again when a company seems viable. Of course, I must add the caveat that each case stands on its own facts, and not every case will be treated the same, particularly if the taxpayer’s actions are egregious, are part of a lengthy pattern of non-compliance and he/she is not acting in good faith. Other issues may also be involved that require a different approach. But overall, I think there is hope for the cobblers out there and their shoeless children and I am available to help get them back on their feet.
Google as a tax investigative tool: Understand what the government might know about you
by Laurie B. Kazenoff, J.D., LL.M. May 2014
I recently met with a New York State agent on a case I was handling and as I introduced myself to her she mentioned in a lighthearted way that she already knew all about me by "googling" me. To add to our "light" mood I asked if she knew what I had for breakfast! It was a good start to a very productive meeting. However, what was clearly evident was how government entities can get into your bones just by "googling" you on the internet. As a former government tax attorney, I know that there are many resources that can be used to get information about a taxpayer. I had a case once involving a taxpayer who submitted a financial statement that was signed "under penalties of perjury"; if memory serves me well, we pursued him for fraud because we found assets (e.g. a boat) that he did not disclose on the form. It is important for clients to understand the vast amount of information that is available to governmental entities just by searching you online as well as information available from the Secretary of State, D&B searches, the local County Clerk's office, etc.
I use the internet to conduct a search as if I were the investigative authority, to give the heads up to my clients what information can be found about them. Clients who have residency audits, income tax audits, etc. must be aware that there is a wealth of information accessible to the government regarding their background, their activities, etc. just by doing a Google search. In a residency audit, for example, it is easy to find out the taxpayer's activities as they relate to the state where they reside. Their address, their phone number, articles written about them, information about businesses they are involved in, their social activities, were they featured on their golf club's website, were they honored at a local event and why, was their purchase of real estate featured in the real estate section, etc. Since the taxpayer bears the burden of proof in such cases, it is important to see what a tax auditor might see, and to be able to address those various issues. Perhaps the information is old and no longer applicable to a client's current circumstances. To be successful in an examination is to be transparent and to act in good faith, that way there is fair dealing in such a situation and trust. Even though something may exist on the internet, if it can be explained or placed in the proper context, it may not be as important or as relevant as an auditor might think. Unfortunately what happens in Vegas, doesn't always stay in Vegas. It never hurts to "google" yourself once in a while to see what the world sees about you.