IRS Collections won another game of “beat the clock” in federal district court this week. Judge Lynn Adelman of the Eastern District of Wisconsin ruled that the IRS is entitled to judgment in the amount of $657,233.78 against Anthony Boldin and that there would be an order of sale to enforce liens on his property. Mr. Boldin had been arguing that since the deficiencies related to his almost timely filed 2001 and 2002 returns that the ten-year statute of limitations on collections had run and that he was “olly olly oxen free“. Before I get into what I find disturbing about this, I’ll give you the rest of the story, which is kind of interesting.
Not Paying And Leasing Horses
Anthony and Jodie Boldin filed their 2001 and 2002 returns in October 2002 and November 2003 respectively. They did not send in the full balance due with either return. On their 2003 return they claimed losses from ClassicStar’s Mare Lease Program, which created an NOL. They carried back the NOL to wipe out the 2001 and 2002 balances due. Problem solved.
A really astute reader of this blog will see the flaw in their plan. ClassicStar, it turns out, was not, you might say, a really solid tax shelter. According to this story, ClassicStar sold $600 million in leases to high income individuals but never owned more that $56 million in horseflesh. Among the ClassicStar victims was NFL veteran Bill Romanowski, who was featured here in 2013.
So the loss was unwound, and on March 7, 2005, the Boldins were assessed for 2001 and 2002, absent any carrybacks from 2003. Then there was the divorce in 2011, followed by Jodie Boldin’s release as an “innocent spouse”. This required adjustments in the liens. In the end there is a lien on Anthony Boldin’s home in Brookfield WI. If Zillow is at all accurate, the house is worth around half of the outstanding tax liability.
When Do You Start The Ten Year Clock?
The IRS brought the action on March 2, 2015, which strikes me as cutting it awfully close. Mr. Boldin argued on the other hand that they had missed by several miles, since the clock really started when the original returns were filed. Judge Adelman went with the IRS.
The IRS has established the validity, timeliness, and amounts of its March 7, 2005 assessments. It assessed these deficiencies within the time allowed by § 6501 and notified Boldin of its assessments, as required by § 6213(b)(3), in April 2007 in a notice of deficiency. Per IRS records, Boldin owes $340,236.65 for 2001 and $316,997.13 for 2002 plus applicable statutory interest and penalties. See 26 U.S.C. §§ 6621–22, 6651. IRS assessments are presumed to be correct, see Kikalos v. Comm’r, 434 F.3d 977, 982 (7th Cir. 2006), and Boldin does not contest these amounts, so the IRS has shown that it is entitled to judgment in these amounts.
So waiting out the ten-year clock did not work for Anthony Boldin, but can it work for other people?
They Were Not Going To Let This One Slide
Looking for more background on Anthony Boldin was practically biting off more than I could chew. Although I did some further research to verify it was the same guy, the essence of the story is in this Milwaukee-Wisconsin Journal Sentinel story by John Diedrich – Businessman gets 1 year in prison – Anthony Boldin guilty of tax, credit card fraud.
In 2000, Boldin and his wife filed for bankruptcy. They listed $1.6 million in liabilities and $450,000 in assets. It was deemed a no asset case and the debts were discharged in 2001.
Four months after his debts were discharged, Boldin organized RAM Distribution to take over RAM Software. Boldin’s father and brother gifted the former company to Boldin’s new company, according to documents. RAM Distribution had annual sales of $9.3 million in 2001, $22.8 million in 2002 and $24.3 million in 2003. During the tax years 2001 and 2002, Boldin failed to pay $548,288 in taxes, according to documents. Boldin reported to the IRS that he was being paid $11,000 a month when in reality he was receiving $70,000 a month.
Don’t Fib
The practical takeaway from this is that if you give IRS Collections Form 433-A, which is what they use to figure out what you can afford to pay, it is a really bad idea to fib. In a plea agreement Mr. Boldin got a year and a day, although there was also this unrelated thing about processing bad credit card charges. There are other things going on, making Mr. Boldin’s situation atypical, but it is this week’s case so I’m using it here. The Boldin decision comes on top of two others – Barbara Holmes and Charles Weiss, which I featured in a post titled The Brokenness Of IRS Collections.
So that is three decisions in as many weeks, in which taxpayers lost in their attempt to beat the IRS using the ten year statute. Does that mean that it is a strategy that does not work? It does not mean that. That is because if people are getting out from under by waiting it out, it is not something that we will ever read about.
Another Area Of Tax Practice
Not being of an entrepreneurial bent, I long ago adopted a strategy of disciplining myself to live within my after-tax income. A lot of people have that attitude. Besides keeping in compliance, I help people with minimizing their legitimate tax obligation. The anthem of my generation of tax professionals is something that Learned Hand wrote.
Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.
Until a few years ago, though, I always had the implicit assumption that what went on the return as a balance due or the assessment that came out of an agreed audit would simply be paid. Note that part of Hand’s famous dictum – “taxes are enforced exactions”. I always thought of people dealing with IRS collections as being in extraordinary circumstances outside of the realm of ordinary tax practice.
But what if the exactions are no longer being enforced that well? In the nineties, in the wake of a different IRS scandal than the one we have now, Congress required IRS Collections to become kinder and gentler with a new set of due process rights that follow the actual determination of tax, but bear rather on your ability to actually pay the amount due. Further the IRS was prohibited from evaluating personnel charged with collecting based on how much they collected.
And the current IRS scandal has led to further decreases in personnel as delinquent accounts have grown – from 12.4 million accounts to 13.4 million accounts between fiscal year 2014 and fiscal year 2015. The total number of employees in both Examination and Collection has gone from 37,266 to 34,830.
So this is more of a practical question for advisers and taxpayers. If you have an old tax debt, does it make sense to proactively work on addressing it? Alternatively, might it be the better course to passive-aggressively wait it out? I decided to get input from someone who practices a lot in the collection area.
Someone From The Collection Field
Fred Daily is a tax attorney in St. Petersburg, FL. He is the author of Stand Up to the IRS. When I spoke to him he indicated that he is seeing the passive-aggressive approach working better than it used to. Here is what he wrote me:
Per our telcon, my experience with the IRS Collections Division is that often my clients have had their income tax debts wiped out by the running of the ten year Statute of Limitations.
Particularly in the last few years, I have observed that the IRS has gotten more lax with efforts toward collecting tax debts before the ten year period has run.
Prior to the 1998 tax reform act, the situation was much different, as collectors were very aware of the statute of limitations. When the time period left was less than two years, the IRS Revenue Officers, became very aggressive.
From what I see, nowadays the IRS only seems to press taxpayers when payroll taxes and Trust Fund penalties are involved.
The Moral
I’m not ready to recommend just not paying as a valid tax strategy. Remember for the ten-year statute to work for you, there has to be an assessment, which generally means you have to file. On the other hand, if you have an old liability kicking around and you are not getting any mail, there is probably not much point in trying to be proactive about it. If somebody calls you up and tells you you have to pay right away or you will be arrested, that is a scam. I think at this point, there may be more scam IRS collection people than real ones.
From a policy viewpoint, it seems clear that collections should be seriously beefed up. At this point, maybe Congress needs to make up a new agency and charge it with that duty so it can still punish the IRS without further eroding compliance. Remember Learned Hand’s words “taxes are enforced exactions”. With no enforcement, they become voluntary contributions.