2013/10/10

Start-Ups, Archaeology and the Infernal Revenue Service

Entrepreneurs and Start-UP Ventures

Since young adulthood I’ve had good years and bad years financially. The bad years increased my knowledge and skill sets so they were incredibly valuable too. As a serial entrepreneur it is not uncommon to have entire years without taxable income, while other years are in the six-figures.

In fact, in the last decade of developing businesses and consulting with start-ups, I’ve had three years where my business expenses have wiped out entirely my taxable income. This isn’t some accounting trick. In fact the Revenuers accept that any start-up, if it survives, will likely not show a profit for its first four years, if ever. I’ve personally met CEOs of corporations who head enterprises that have never had a single profitable year. Why? Because their business is Research and Development based. Their entire business model is based on developing technologies that will make fortunes for other organizations, but merely keep their research efforts funded. A good example is Energy Conversion Devices (see https://en.wikipedia.org/wiki/Energy_Conversion_Devices for history). My college sweetheart worked for ECD as an accountant while preparing for her CPA, so I had insight into the company’s operations and actually toured the R&D facility with a group of Japanese executives that ultimately licensed solar technology developed by Stan Ovshinsky (https://en.wikipedia.org/wiki/Stanford_R._Ovshinsky) and his teams. To the best of my knowledge, neither ECD nor any of its subsidiaries ever reported a profit. So being profitable is sometimes not the primary goal of a start-up. Which brings us to taxes.

The Taxman, The Beatles

Growing up in the sixties The Beatles were all over the airwaves during my formative years,

The Tax Man– Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman, yeah, I’m the taxman

Should five per cent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman, yeah I’m the taxman

If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.

If you get too cold I’ll tax the heat,
If you take a walk, I’ll tax your feet.

Don’t ask me what I want it for
If you don’t want to pay some more ‘Cause I’m the taxman, yeah, I’m the taxman

Now my advice for those who die Declare the pennies on your eyes ‘Cause I’m the taxman, yeah, I’m the taxman
And you’re working for no one but me.

At the time, successful people from all over the globe were moving to the United States to protect their income and wealth from avaricious taxation regimes in other parts of the world. The US was grateful to be attracting successful people, businesses and corporations fleeing high taxes in other nations. But during my lifetime, this scenario has been turned on its head. The United States Federal government is the only nation on Earth that demands taxes from its citizens, even if they live and work in a foreign land! More egregious yet is recent legislation that demands a ransom from US citizens with wealth when they leave the US AND the US demands that other sovereign nations submit personal financial information on US citizens where ever they live in the world, or be subject to monetary sanctions.

I recall in school learning about the difference between Indentured Servants and slaves. As I recall, anyone that was expected to surrender more than 30% of their wages or property or had contracted their services to another for a set number of years was considered an Indentured Servant, while a Slave was a human owned by another, someone who literally belonged to another. The Founders of the States of America went to war with Britain over a 2% tax on tea among other grievances, yet today the most productive citizens can be taxed over 70% inclusive not including the hidden tax of compliance with tax law, while countless farmers and small business owners are unable to pass their livelihood to their families when they die due to the Inheritance (Death) tax. As a life-long entrepreneur I learned accounting and tax law to assure that I paid as little tax as possible. Since this initial gnostic learning, I’ve prepared taxes for others for over twenty years, assuring that they pay as little tax as possible, too. I’ve gone up against the IRS only twice during this time-span and have batted 100% against them; once on behalf of a client and once defending myself. Unfortunately, with the State facing you across the scrimmage line, even when you win, you sometimes lose. Here is another Real Life reason to kick the dust of the USSA from your sandals on your way out.

When Doing Everything Right Is Wrong

In 2002 I separated from my third wife (When people ask if I’m married, I say “Often, but not anymore.”) and our divorce was finalized in 2003. It shouldn’t have taken more than six months, but that’s a story for another article. In 2007, I had been consulting to AT&T for over a year on a global ITIL (Information Technology Infrastructure Library) program. It was a great gig! I was working less than 50 hours per week, I was earning six figures, I managed roll-outs in Singapore and Australia and was generally digging life until I received a phone call in October. Although I was an Independent consultant, many large corporations have preferred vendors which means the only way to work for them is to sub-contract through one of these preferred vendors. The Call of Doom was from accounting at the Preferred Vendor I contracted through. “Alex, we have a situation. The IRS is garnishing your wages.” “But I don’t have ‘wages,’ I invoice you for my time. How can this be?” The nice woman in accounting explained that although I wasn’t an employee of theirs and didn’t earn a salary from them, the IRS was strong-arming them into cooperating by threatening to audit them and place a number of government contracts at risk. “Okay,” I said, “What’s the damage? How much are they claiming I owe? How much are they wanting to skim from me?” I should point out that at this time I had been a self-employed professional tax-preparer for over fifteen years and had beaten back the IRS on behalf of one of my clients, saving him thousands in 2001. “Alex, they say that you owe over $19,000.00 in back taxes not including penalties and interest; and they aren’t talking about a typical garnishment. They want to leave you with about $17.00 of your bi-weekly gross until it is all paid.” Some quick calculations told me the IRS, in their generosity was willing to let me keep 0.41% of my gross invoicing. I FREAKED! $8.50/week wouldn’t put enough gas in my tank to make it to and from work for two days!

Diggin’ Up Bones

I’ve always been into Archaeology, but I never expected to become an archaeologist. However that is exactly what I needed to be to get to the bottom of this unexpected attack by the State. My initial contacts at the IRS weren’t very helpful, but after much digging I learned that the $19,000.00 in back taxes was due to a Failure to File a Return for 1998, which was patently false. Since I’ve prepared Tax Returns professionally for so long, I always hang onto my Returns and relevant records for at least ten years, so I knew I had the Returns for 1998 as well as supporting documents.

I challenged the Revenuers’ claims by providing copies of my 1998 Return. (I should point out that the foregoing took a couple weeks, and that the IRS had already captured over $8000.00 of my Gross Receipts) Several days later, I received a reply stating (I’m paraphrasing here from memory), “It appears that after your divorce from wife number three, she re-filed for 1998 as Married, Separate Return, thereby rendering your original Married, Joint Return invalid.” Seriously?! My ex-wife re-files a return without my knowledge. The IRS never notifies me of this Amended Return, and years later I lose 99.96% of my income? What is wrong with you people?!

Don’t Waste Your Money On Late Night Tax Attorneys like Doni Reutch

At this point I figured I needed some legal assistance to prevent this situation from spiraling outta control. So I called Doni Reutch (not her real name) a Tax Law firm that advertized on TV and radio late at night and claimed to be able to negotiate directly with the IRS on your behalf. As I recall the retainer was $4,000.00 which was required before you spoke to an attorney in her firm about the specifics of your case. If you’ve never looked down to see the IRS’s red laser dot on your chest, you have no idea how frightening this can be. There are well documented cases of IRS agents dragging people out of their cars in the middle of traffic, taking them into custody, and stealing their car while in traffic. So, I pissed $4000.00 down a worthless rat-hole. After receiving my retainer, the only service Doni Reutch’s Tax Law firm was willing to do was “negotiate a payment plan,” which any idiot can do on their own. Would they try to resolve my situation with the IRS? No. Would they speak to the Infernal Revenue Service about Innocent Spouse aspects of my case? No. All they were willing to do was set up a payment plan. I felt like I was raped twice in two weeks; once by the Infernals and once by a shyster who appears to have built her career from ripping off her clients.[i]

You Have a Champion within the IRS

After the depression of realizing what a chump I had been, I took matters back into my own hands and started doing research online. I soon learned that chained up in the dungeons of IRS fortresses across the land is a white knight or dragon as the situation requires to assist and protect tax payers from the abuses so common within the ranks of the Infernal services. They are called Taxpayers’ Advocates, and while they are held captive within the empire of the Revenuers, they are actually an independent organization that does not answer to the IRS chain of command. They exist to aid and shield us from the Federal government’s enforcers. If they are all as knowledgeable and supportive as the dear woman who came to my rescue, they should be on speed-dial in your contacts. My advocate explained that although she couldn’t prevent the capture of my income, she could guide me in resolving the underlying matter. So I re-prepared and re-filed all of my Federal Tax Returns for the years of 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005 and 2006. Why? Because unknown to most tax filers there are usually carry-overs from one year to the next, especially for businesses. By my ex-wife amending her 1998 Return, it changed the calculations of all my returns from that point forward, including 2002, the last full year we were married. When everything was re-filed and calculated, I didn’t owe the IRS $19,000.00 in back taxes plus interest and penalties, they owed me over $300.00! – without interest.

Even When You Win, You Lose

Just as in my experience with the MESC (Michigan Employment Security Commission – See Why I’m Leaving the US Part 1), I may have won a victory against the Infernal Revenue Service, but I lost far more in the long run. Not only did I blow $4000.00 on worthless legal representation, but I was also forced to end my contract with AT&T. Although I lined up another gig with Blue Cross Blue Shield within sixty days, I lost over $20,000.00 in Billing during this interim period. Gnostic Lessons learned. They were expensive, but they helped prepare me for the rise of the Police-State and helped convince me that the best way to deal with the Leviathan, known as the government, is to go where the government is not a threat to your assets, livelihood and liberty.