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Why fear a government agency with aging equipment and lack of employees due to continuous budget cuts by politicians who don't want their buddies audited? The I

Why fear a government agency with aging equipment and lack of employees due to continuous budget cuts by politicians who don't want their buddies audited? The IRS can't keep up with tax law changes and collect much of what they are supposed to collect already much less add new and more complex things to track.

jmngomes 9y ago
Maybe it's different where you live, but my experience is that the only people that can afford to not fear the IRS are precisely the "politicians and their buddies"...it wouldn't surprise me at all to see task forces being formed just to identify under-reporting via Bitcoin and issue threatening letters (e.g. pay what is due or say goodbye to any assets you have) to whoever comes up on that list.
- purple-again 9y ago
  You are right and wrong. It's not 'politicians and their buddies', the line is much much lower than that but there is absolutely a bright line between who pays the IRS and who hires people like I use to be (I sat across from the IRS times innumerable cutting them to shreds) to make sure they pay almost nothing. Anyone that can afford accounting services from the Big 4 (PwC, Deloitte, EY, KPMG) is getting this golden glove treatment. I am sure that there are numerous mid market firms with significant amounts of ex big4 staff that are also helping their clients just as much. Small CPA shops will be hit or miss with mostly misses. My results were 20% experience, 20% skill, 50% training by my Big 4 employer, and 10% fear of my employer escalating the situation if they didn't get a sign off from me (I'm not the one that would get sent to represent the client in tax court). The vast majority of the IRS's work is based on incompetency and fear. Nearly all of the charges they tried to leverage against my clients were false and due to paperwork errors (more often on the client's side than the IRS but not always...not even close to always) that were easy to resolve with minimal penalties and interest. To be clear, they didn't get to throw the middle finger at the IRS and pay nothing, they paid what they owed which was practically never even in the same ballpark as the bill the IRS came at them with. The people who can't hire a professional Tax CPA to sort it out for them get fucked not because they are the only ones paying what they owe but because they are the only ones paying way fucking more than they owe. That's a whole other ethical problem that should be addressed with the IRS.
  - seanmcdirmid 9y ago
    I was hit with a huge tax bill because my foreign tax credit was somehow blown away in my tax return. I was able to refile my forms, and getting an ITIN for my wife, changed my filing status to go from a huge bill to a smaller but significant refund. I did this by myself without a CPA but I knew what I was doing. The IRS was pretty understanding the whole way and quickly understood my situation. They never tried to threaten me or anything like that. It didn’t help that their mail to china kept getting lost, however.
- patio11 9y ago
  As HN has a lot of people who have complicated financial situations and will eventually get one, I'd like to point folks in the direction of what the IRS' typical first play is if they think you underpaid taxes. They do not send you a threatening letter. They do not throw you in prison. They send you a bill; more formally, a CP3219A. (The IRS says it is not a bill, it is a proposal. In practice, it's a bill you can argue with.) You can see the not-so-hair-raising copy here: https://www.taxaudit.com/irs-letters/irs-letter-cp3219a-sample-1 https://www.taxaudit.com/irs-letters/irs-letter-cp3219a-samp... If you ever get one, you will simply call up your accountant and follow their advice. It's less annoying than owning a bank money... ... providing you didn't commit tax fraud. Here's an example of tax fraud, taken directly from a case where the IRS did, indeed, refer to prosecution: Joe Smith owns a small business. Joe Smith, Inc. paid a Japanese technology company $600k for "technology services", per his tax return. Joe Smith received a $600k wire from Japan, which he did not declare as income. Can you guess the nature of the "technology service"? Yep, it was "Mt. Gox, please technologically service me by buying Bitcoin and then wiring the money back to me. Hah hah hah we are so clever hah hah hah."
  - dsacco 9y ago
    Can confirm this. I run a consulting company and received a letter like that in 2016. They sent a bill with corroborating documentation indicating I’d underpaid by about $2,600. I reviewed my own records, concluded they were right, checked in with my accountant and paid it. It wasn’t threatening at all, nor did I feel like I’d be imminently prosecuted. The IRS, for all its public perception, has actually been sort of a joy to work with, insofar as I’ve had to interact with them at all. That said, I’m always vaguely terrified each year when I deduct the low five figures I’ve spent on bare meral server hardware. Being audited remains in my top ten fears, even though I don’t try to evade taxes. I always wonder if someone at the IRS is going to see my return and say, “He paid this much for ‘Computer Hardware’? That seems fishy.”
    - patio11 9y ago
      For the limited purpose of helping another entrepreneur sleep easy, and not to offer accounting advice: The IRS has to recover ~$1k per IRSian hour to make it worth their time, for reasons which fall fairly straightforwardly from consulting math that you're very familiar with. Consider the set of all companies in the economy which spent $15k last year on "computer hardware." How many IRS hours would be required to read all their returns, given that they are sitting in a pile. How many would, on examination, show a deficiency? How much would those deficiencies be worth, on average? What's your ballpark estimate for how long it takes a government employee to put through a single routine non-trivial work order? Suppose the IRS sits down with a randomly selected small business for a site visit audit. Suppose they budget 2 hours onsite and 8 hours offsite for the audit. How many of those minutes do you think they will spend on that line item, specifically? Does it allow them to do more than ask "I see your return shows $15k on computer hardware. What was the hardware? Can you show me your records?"
IAmEveryone 9y ago
So, if you were American, had a coinbase account, and made significant capital gains in the years under investigation, would you not be worried? Because it seems to me like they are very much capable of enforcement, as exemplified by the article. Rich people in the US don’t avoid taxes by stymying investigations they give 5% of their income to Republican candidates and PACs, and have the law changed for them.
- koboll 9y ago
  Coinbase has already issued tax forms for those who owe capital gains taxes because of cryptocurrency sales. So this isn't in any way new or unexpected.
  - pmorici 9y ago
    I don't think that is correct. They are issuing 1099-K's for people who are accepting Bitcoin payments through Coinbase. They haven't issued any 1099's for people who only have a capital gain from buying and selling.
    - dmeeker 9y ago
      True, but they did add some tools to the tax center tab to make it easy to calculate your gains/losses for tax purposes.
    - AskewEgret 9y ago
      We used Coinbase purely for trading and received a 1099-K
    - dgacmu 9y ago
      The definition not accepting payments is broad, though: if you made a profit trading alt-coins on another exchange and cashed out using coinbase, you get a 1099-K.
- maxerickson 9y ago
  Lots of people in the circumstance you describe will have made a good effort to pay appropriate taxes.
deleted 9y ago
[deleted]
overcast 9y ago
You're either trolling, or just being completely naive not to fear the IRS. If there is ANY agency you should fear, it's the Internal Revenue Service. They have infinite resources, and it might take a while, but they will get their money in the end.
- charlesdm 9y ago
  If you declare taxes, you have very little to fear. If you use potential loopholes, be aware you might need to consult a tax lawyer and go to court. But again, if you are aware of this, aside from your final legal bill, you have nothing to fear.
  - overcast 9y ago
    That's the whole point of this discussion. People aren't declaring their crypto gains.

jmngomes 9y ago

Maybe it's different where you live, but my experience is that the only people that can afford to not fear the IRS are precisely the "politicians and their buddies"...it wouldn't surprise me at all to see task forces being formed just to identify under-reporting via Bitcoin and issue threatening letters (e.g. pay what is due or say goodbye to any assets you have) to whoever comes up on that list.

purple-again 9y ago
You are right and wrong. It's not 'politicians and their buddies', the line is much much lower than that but there is absolutely a bright line between who pays the IRS and who hires people like I use to be (I sat across from the IRS times innumerable cutting them to shreds) to make sure they pay almost nothing. Anyone that can afford accounting services from the Big 4 (PwC, Deloitte, EY, KPMG) is getting this golden glove treatment. I am sure that there are numerous mid market firms with significant amounts of ex big4 staff that are also helping their clients just as much. Small CPA shops will be hit or miss with mostly misses. My results were 20% experience, 20% skill, 50% training by my Big 4 employer, and 10% fear of my employer escalating the situation if they didn't get a sign off from me (I'm not the one that would get sent to represent the client in tax court). The vast majority of the IRS's work is based on incompetency and fear. Nearly all of the charges they tried to leverage against my clients were false and due to paperwork errors (more often on the client's side than the IRS but not always...not even close to always) that were easy to resolve with minimal penalties and interest. To be clear, they didn't get to throw the middle finger at the IRS and pay nothing, they paid what they owed which was practically never even in the same ballpark as the bill the IRS came at them with. The people who can't hire a professional Tax CPA to sort it out for them get fucked not because they are the only ones paying what they owe but because they are the only ones paying way fucking more than they owe. That's a whole other ethical problem that should be addressed with the IRS.
- seanmcdirmid 9y ago
  I was hit with a huge tax bill because my foreign tax credit was somehow blown away in my tax return. I was able to refile my forms, and getting an ITIN for my wife, changed my filing status to go from a huge bill to a smaller but significant refund. I did this by myself without a CPA but I knew what I was doing. The IRS was pretty understanding the whole way and quickly understood my situation. They never tried to threaten me or anything like that. It didn’t help that their mail to china kept getting lost, however.
patio11 9y ago
As HN has a lot of people who have complicated financial situations and will eventually get one, I'd like to point folks in the direction of what the IRS' typical first play is if they think you underpaid taxes. They do not send you a threatening letter. They do not throw you in prison. They send you a bill; more formally, a CP3219A. (The IRS says it is not a bill, it is a proposal. In practice, it's a bill you can argue with.) You can see the not-so-hair-raising copy here: https://www.taxaudit.com/irs-letters/irs-letter-cp3219a-sample-1 https://www.taxaudit.com/irs-letters/irs-letter-cp3219a-samp... If you ever get one, you will simply call up your accountant and follow their advice. It's less annoying than owning a bank money... ... providing you didn't commit tax fraud. Here's an example of tax fraud, taken directly from a case where the IRS did, indeed, refer to prosecution: Joe Smith owns a small business. Joe Smith, Inc. paid a Japanese technology company $600k for "technology services", per his tax return. Joe Smith received a $600k wire from Japan, which he did not declare as income. Can you guess the nature of the "technology service"? Yep, it was "Mt. Gox, please technologically service me by buying Bitcoin and then wiring the money back to me. Hah hah hah we are so clever hah hah hah."
- dsacco 9y ago
  Can confirm this. I run a consulting company and received a letter like that in 2016. They sent a bill with corroborating documentation indicating I’d underpaid by about $2,600. I reviewed my own records, concluded they were right, checked in with my accountant and paid it. It wasn’t threatening at all, nor did I feel like I’d be imminently prosecuted. The IRS, for all its public perception, has actually been sort of a joy to work with, insofar as I’ve had to interact with them at all. That said, I’m always vaguely terrified each year when I deduct the low five figures I’ve spent on bare meral server hardware. Being audited remains in my top ten fears, even though I don’t try to evade taxes. I always wonder if someone at the IRS is going to see my return and say, “He paid this much for ‘Computer Hardware’? That seems fishy.”
  - patio11 9y ago
    For the limited purpose of helping another entrepreneur sleep easy, and not to offer accounting advice: The IRS has to recover ~$1k per IRSian hour to make it worth their time, for reasons which fall fairly straightforwardly from consulting math that you're very familiar with. Consider the set of all companies in the economy which spent $15k last year on "computer hardware." How many IRS hours would be required to read all their returns, given that they are sitting in a pile. How many would, on examination, show a deficiency? How much would those deficiencies be worth, on average? What's your ballpark estimate for how long it takes a government employee to put through a single routine non-trivial work order? Suppose the IRS sits down with a randomly selected small business for a site visit audit. Suppose they budget 2 hours onsite and 8 hours offsite for the audit. How many of those minutes do you think they will spend on that line item, specifically? Does it allow them to do more than ask "I see your return shows $15k on computer hardware. What was the hardware? Can you show me your records?"

IAmEveryone 9y ago

So, if you were American, had a coinbase account, and made significant capital gains in the years under investigation, would you not be worried? Because it seems to me like they are very much capable of enforcement, as exemplified by the article. Rich people in the US don’t avoid taxes by stymying investigations they give 5% of their income to Republican candidates and PACs, and have the law changed for them.

koboll 9y ago
Coinbase has already issued tax forms for those who owe capital gains taxes because of cryptocurrency sales. So this isn't in any way new or unexpected.
- pmorici 9y ago
  I don't think that is correct. They are issuing 1099-K's for people who are accepting Bitcoin payments through Coinbase. They haven't issued any 1099's for people who only have a capital gain from buying and selling.
  - dmeeker 9y ago
    True, but they did add some tools to the tax center tab to make it easy to calculate your gains/losses for tax purposes.
  - AskewEgret 9y ago
    We used Coinbase purely for trading and received a 1099-K
  - dgacmu 9y ago
    The definition not accepting payments is broad, though: if you made a profit trading alt-coins on another exchange and cashed out using coinbase, you get a 1099-K.
maxerickson 9y ago
Lots of people in the circumstance you describe will have made a good effort to pay appropriate taxes.

deleted 9y ago

[deleted]

overcast 9y ago

You're either trolling, or just being completely naive not to fear the IRS. If there is ANY agency you should fear, it's the Internal Revenue Service. They have infinite resources, and it might take a while, but they will get their money in the end.

charlesdm 9y ago
If you declare taxes, you have very little to fear. If you use potential loopholes, be aware you might need to consult a tax lawyer and go to court. But again, if you are aware of this, aside from your final legal bill, you have nothing to fear.
- overcast 9y ago
  That's the whole point of this discussion. People aren't declaring their crypto gains.