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Bergen Bar Tax Bulletin: Vol. 37, No. 10

By: Theodore M. David, Chair Tax Committee

Current Items:                                                             

  • Banks as Agents?
  • Chasing Uber
  • Golden IRA
  • Covid Expenses

1). I’ll be honest every now and then I wonder who actually reads this bulletin. I think among the mailing list are people at the Justice Department and old friends of mine at IRS. So I have to scratch my head as to why it is taking IRS and the Justice Department so long to get onto the idea that wealthy people are cheating the tax system big-time. It’s not just that they too often have their lawyers and accountants in their pockets but the system of enforcement is so bad that it is like taking candy from a baby. As you may know, I made a relatively long career representing people with IRS tax problems many of them small businesses. The modus operandi of these folks taught me how tax cheating is done in the good old USA. Now we can argue that this amounts to avoidance in some cases but for the most part, it borders on tax evasion and tax fraud. The understaffed and underpaid Internal Revenue Service is simply no match for the shenanigans played by many businesses and wealthy individuals. So I have suggested in numerous bulletins that the IRS take off the gloves, roll up its sleeves and get ready for a bare-knuckle fight if in fact there is any interest in plugging the multibillion-dollar tax deficiency that exists in our country every year.

The Biden administration is floating the idea of making banks report more information about their depositors. It would include transfers and deposits made in excess of $600. Millions of honest people would be subjected to needless scrutiny. This of course will go over with the Congress like a lead salami with no chance of passage. Instead of trying to get the banks to act as internal revenue agents a little more creative auditing ought to be employed. Recently while visiting Nantucket Island I had a chance to go down to their dock where I stood in front of a massive multi-million-dollar yacht and casually said to one of the bystanders did they see the IRS agent there this morning. Trust me while the person laughed it off terror was struck in their eyes. One agent dispatched to that dock could create an audit project which could result in perhaps millions of dollars in the federal treasury. So too with a visit to the local Maserati or Porsche dealer.  And while we are at it, why not make any tax return preparer responsible 100% for tax deficiencies on any tax return they prepare for any business. And don’t hand me this stuff that those folks don’t know what their clients are up to: skimming, kids, wives, relatives on payroll, employees treated as independents, cars, houses owned with no business connection, shell companies, offshore accounts, expenses of all kinds buried in the books.

I’m not talking about creating a mass of criminal tax cases. That is a waste of taxpayers’ money. It deters no one. In Russia in the late 1990s when tax fraud and invasion was rampant an elite group called the tax police was created. These people were para-military armed to the teeth. They would simply crash through the doors of suspected tax evaders and strip them then and there of their assets and haul the owners to jail to await any hearing. This was both a highly effective way of collecting taxes and sending a message to other invaders that the gloves were off. Putting the burden of supplying information to the Internal Revenue Service on the banking industry is dodging the responsibility the IRS is supposed to have in enforcing the tax laws. We citizens have to decide how much longer we will tolerate businesses and wealthy individuals ripping us off. If the IRS is still in the dark as to how the cheating is done at every level I do know a few people who would work for a cut of the take. It isn’t rocket science, but it can’t be done with hands tied. Stop looking for nice ways to defeat tax evasion. That can’t be done. (In case you didn’t get it, I don’t like the extension of reporting by Banks)

2) In a recent tax case IRS chased an Uber driver who created a business of having other people drive on his Uber account. Uber sent the man a 1099- K for over $500,000 the total amount that had been paid to his Uber account. While the man did some driving most of the money was distributed to other drivers. He testified that in addition to bank transfers to these drivers, cash was also paid. Internal Revenue Service allowed the bank transfers to these other taxpayers but disallowed the cash. It appears the court realized that cash was in fact paid believing the owner but still the Tax Court agreed with the Internal Revenue Service not allowing the cash distributions. Nurumbi TC Memo 2021-79.  I can only imagine the amount of time and effort spent at all levels of the Internal Revenue Service to develop this case. Why is IRS chasing Uber drivers and not real tax cheats? Read item #1, please.

3) As the stock market continues to head into the stratosphere some people are concerned. They find peace in acquiring things instead of pieces of paper floated by companies with sharp accountants creating profits by all manner of juggling. But be warned dear concerned persons, your IRA cannot hold and own collectibles or antiques or all the other goodies you’d love to stash somewhere. But gold, silver, platinum as well as American Eagle coins can be tucked away in that IRA. Perhaps IRS needs to look at those people with bullion deposits to their IRAs. Just making a suggestion.

4) I recently went to a Rutgers football game at the stadium in New Brunswick. The fans there booed the Ohio State football team as it entered the field. Thereupon and understandably the Ohio State football team tore the Rutgers football team to shreds. I couldn’t help wonder how many people in that stadium were not vaccinated spreading virus droplets with all that booing. But you may rest with the knowledge that the IRS has ruled that things that can protect you against the virus-like hand sanitizers, masks, wipes, and home testing Covid kits are allowed as Schedule A medical expenses. However, these must exceed 7.5% of your adjusted gross income. That effectively makes the real deduction zero for most people. How many masks and bottles of hand goop does one person need? But it is a nice gesture by IRS…. even if meaningless.