Ignorance Isn’t Bliss in Tax Law

Three of Bill Manne’s clients learned the hard way that you can’t dodge the IRS

Published in 2018 Oregon Super Lawyers Magazine — August 2018

William S. Manne is a CPA and attorney at Miller Nash Graham & Dunn in Portland who primarily handles tax issues for businesses and nonprofits. Here are a few “war stories” he shared with us about clients who thought they could avoid the IRS.

Every once in a while, I get a call from somebody who says, “I got this letter from the IRS,” and a lot of times they don’t understand what they’ve got and can’t really explain the notice. So, over the years, I developed a posture of simply saying, “Send me the notice so we know what we’re dealing with.”

So this client sends me, in a manila envelope, five envelopes from the IRS and a handwritten note. It said, “Please note that I haven’t opened any of these.” He was thinking, “If I haven’t opened them or read them, then I don’t know what they say, so I’m OK.” I don’t know where it comes from, but some people think they can deal with the IRS like any other creditor, and string them along. The IRS doesn’t tend to go away or get easily shunned. We did not take the case.

I had a case where a guy had a lot of personal issues going on, so he forgot to file his tax return one year. Nothing happened. Then the next year comes, he doesn’t file, and nothing happens. This is a person who was running a business and filing payroll taxes on a regular basis, but for some reason he got lost in the shuffle. This went on for almost 10 years. One day, he gets a letter in the mail from the IRS. It says, “We’re auditing your last three years of returns.” He comes to see us and says, “I really want to make this right. Will you help me?” The IRS had figured out he was non-compliant, even though it took the better part of a decade.

I had one gentleman who lived off the grid for 20 years. He lived in a van, and didn’t have any 1099s, no W2s, and when he needed money, he’d offer to paint someone’s fence or haul their trash or clean up their leaves. It would be a cash transaction. He was an only child and his father died. He was going to get a big, six-figure inheritance that would need to be banked and put into investment accounts. What brought him to our office is he realized he would no longer be able to fly under the radar. He knew that would bring attention to him and they’d see he hadn’t filed a tax return in 20 years. But his biggest fear: that they’d find out he used a propane heater in his van, which is illegal. I had to look him in the eyes and tell him, “Believe me, the IRS doesn’t care about that.”

In each of the last two examples, and in my experience, the IRS is more focused on getting non-compliant taxpayers into the system than it is in extracting significant penalties and interest. Most non-compliant taxpayers believe they’re so deeply in trouble that they don’t consider approaching the IRS and resolving their issues.

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