Welcome to Tax Reduction & Freedom Month and my latest episode on The Freedom Formula for Physicians Podcast.
This month we are talking a lot about taxes and what physicians can do to tackle tough tax issues.
Dealing with the IRS can royally suck and that’s why I invited IRS expert, Dan Pilla, to join us.
In this podcast, we reveal:
– Learn how a high school student stopped the IRS from seizing his parents home by suing them
– How the IRS is shifting money around & the truth of their priorities
– Discover the shocking truth behind IRS notices & the crazy amount of errors that occur (Hint: The IRS acknowledges these in their own report to congress!)
– How physicians become targets of tax scams & schemes & what you can do about it
– Learn what your “Master File” is & how you can get a copy
Dan Pilla – How to Conquer & Solve Problems with the IRS
Dave: My name is Dave Denniston. Welcome to Tax Reduction & Freedom Month and my latest episode on The Freedom Formula for Physicians Podcast.
This month we are talking a lot about taxes and what physicians can do to tackle tough tax issues.
Dealing with the IRS can royally suck and that’s why our next guest has been kind enough to join us.
Dan Pilla is someone that I personally regard as a true expert. He’s a writer, a speaker, and yet he is really down to earth. As a matter of fact, he has helped hundreds of thousands of citizens solve personal and business tax and financial problems they thought might never be solved.
As the author of 14 books, dozens of research reports and hundreds of articles, Dan’s work is regularly featured on radio and television as well as in major newspapers, leading magazines and trade publications nation-wide. His many media appearances include CNN, CBS, CNBC, Fox News, and many, many more.
The Associated Press once commented that “Dan Pilla probably knows more about the IRS than the commissioner.” Although, Dan may tell you that it’s a pretty easy accomplishment. Anyhow, The Wall Street Journal ranked his book, The IRS Problem Solver, as the number one tax book in America.
Beyond all of that, Dan is also the Executive Director of the Tax Freedom Institute, Inc., a national association of tax professionals.
Dan: Well thanks for having me Dave.
Dave: I’m so glad to have you here but first, tell us a bit about yourself. What inspired you to do what you do?
Dan: I got started in this business in the late 1970’s as result to problems my father had with the IRS. He had a small business in St. Paul, our hometown St. Paul Minnesota, got behind him is the employee’s taxes, the employment taxes that arise when you have employees, anybody with a business knows what those are. In the early 1970’s my dad got behind on those taxes and the IRS came in in the 1974, they even padlocked the doors on his shop and he ended up auctioning the equipment for a couple of cent and a dollar and then in 1978 right in there, right in that period they turned their attention to the family home and they tried to seize it, so that’s when I got involved. I came home one day and my mom handed me this envelope from the IRS and she says “what do you make of this?” and I read through it and I said “well it looks like they’re trying to seize the house”. She said “well what do we do about that?” and of course I have no idea what to do but what I did is I went over to the local library and I started fumbling around the Internal Revenue Code and Dave I stumbled on to this one section of the tax code that deals with tax pears right issues and I started reading on that section of the code. I didn’t get six pages in to that section of the tax code and discovered that the IRS was preceding illegally to seize my parent’s home, my mother’s home in particular. And so I did what any 18 year old would do at that time, you know I just sued the IRS and I literally cobbled together this mickey mouse lawsuit using the information that I saw in the law library and I was able to file a lawsuit and I was able to stop the IRS from taking the house and I’ve been stopping them ever since. That’s what got me started and that’s what kept me going.
Dave: That’s awesome, so you did that without an attorney? Or any legal or pedestrian research?
Dan: Yes absolutely, in fact I didn’t even have a legal training at that time, I was just literally fumbling through the library and fumbling through the materials there and just follow this basically cookbook procedures, that’s what I followed.
Dave: Very cool, that’s so unique and so awesome. You and I met at a conference a couple of years ago and I loved your talk, bought your book. I was recently re-reading it. I couldn’t help, but think of doctors. A CPA friend of mine recently noted that docs are in the “sweet spot” when it comes to taxes. You had noted in the book that the IRS is spending $224 million to add nearly three thousand new full-time employees. Has this continued to go up since you last updated the book? What’s going on at the IRS today?
Dan: We’ve heard a lot about the IRS having resources cut here in the last couple of years and there’s been some truce to that but he fact of the matter is where the IRS is cutting back in terms of “budget savings” is not in the enforcement area, they still have full pledge enforcement with audit and tax collection. Where they’re cutting back Dave is with the number of tax payer service action that are available now. They just don’t help people comply with the tax law the way they have in the past and the way that they should be doing it, the IRS is added to and this was expressed by a former IRS commissioner Margaret Richeston. She said at one time “the IRS was ever forced to make a choice between tax payer’s service and tax law enforcement, enforcement would win out every time”. So what she’s saying is we would rather grind you into a powder if you messed up than help you get it right in the first place and that’s the attitude they have.
Over the years, I have been in this business over 30 years now Dave and I’ve dealt with a great deal of medical professionals, if medical professionals in really every walk of the medical profession. What I see happened with this individual is because they are so highly focused on their medical training, whatever aspect of the medical industry they’re in, they’re so highly focused and so highly trained on that aspect of their profession that they find it difficult. Many of them find it difficult to deal with the business aspect of their practice. In general one of the course taxes in particular, so unless they have an office manager, a person that they can trust implosively to handle those things, medical professionals very often get behind on their taxes, not because they don’t have the money necessarily but because they just can’t keep their eye on the ball the way they should. Because again in that intensive focus that is required in order to carry out their practices.
Dave: And docs just don’t have the time, I find that they just tend to say they get something in the mail which is kind of the next thing I wanted to bring up.
Now we all know how far behind the government is in technology and they’re slowly catching up. One of things that I received recently myself was a computer generated notice. These can be scary. You get this letter in the mail- you see the letter is from the IRS. Inside, you have to wondered, oh god, what is this about? Tell us more about these computer generated notices.
Dan: It’s a big deal because the fact of the matter is the IRS doesn’t, even if the IRS got funded to the fullest extent that it wanted to be funded and then some it certainly would never have the resources necessary to go audit every individual on a face to face basis, it’s just be impossible. Just look at the numbers alone, there’s a 145, 146 million individual tax returns that are filled with the IRS here in 2015 and that’s just the individual tax returns, it doesn’t include the business returns, it doesn’t include the employment tax returns when you add all those in it it’s another hundred million, a hundred and ten million return. So there’s a tremendous number of tax return filed with the IRS every year, they can’t possibly audit every return in a face to face environment, they know that, we know that. And so they focused very, very intently on these computerized audits. The percentage of computerized audits has exploded greatly over the last probably ten years or so.
In my latest book called How to Win your Tax Audit, I have some of the statistics in that book that show the tremendous growth in the number of computer audits over the years and they do this primarily because it is more efficient and it is just more obviously easier to reach more people through the “mail order business” than it is door to door.
Dave: What people do most often right they just get their check books and write the check or try to figure out some way to do it.
Dan: Well yes, a couple of things happen when you get one of these notices that said we look at your tax return for the year 2012 let’s say and we found a mistake but don’t worry we fixed it, now you owe us thirty two hundred and fifty two dollars. You know okay what was the mistake? Sometime, often these notices don’t tell you what the mistake is, they don’t tell you what was supposedly fixed or what the problem was, when you call the phone numbers you don’t get any relief that way necessarily, very common, very uncommon for the IRS to say “well this happened and that happened, and this is the problem is”, that’s not the situation at all. So what happened is very often people end up paying these and of course if they got the resources they just write the check, that’s one thing. But unfortunately most people don’t have the resources to just write the check and so these are the folks that end up with a collection problem at their face with these tax and so on.
Dave: What’s scary that you talked about is it’s almost like half of those correspondents are actually wrong.
Dan: Yes, there’s no question about that, this has been documented over and over and over again. I have extensive research in my book, the book that you mentioned The IRS Problem Solver, extensive research in that book about the error rate and these notices but it’s even worse than that it’s not just that the notices are wrong half the time which is bad because they are. But the other part of the problem is people simply do not know how to deal with them and this is something that I’ve been saying for years that the IRS simply does not tell the truth when it comes to tax payer’s rights. They don’t tell the truth when it comes to the options that people half for dealing with the IRS and I’ve said this for years that the IRS doesn’t tell the truth, well I tell you in 2013 the National Tax Payer Advocate issued this annual report to congress and in that report she talked very specifically about tax payer’s right. In that particular report she said “Most tax payers have no idea what their rights are and therefore can’t take advantage of them” and then even worse she went on to say “The IRS employees do not clearly communicate these rights to tax payers at appropriate times”. So this is a hundred percent consistent with what I’m saying for thirty plus years and that is you have rights but people don’t know what they are and the IRS doesn’t tell you what they are.
Dave: And so you know if any of you that are listening to this podcast, get a notice in the mail from the IRS and you really want to stop, don’t just write that check, take some time to think about what is this? And to get more information.
Can you think Dan of any situations with health care professionals where they get these notices, they mishandle it and this is going to be a cycle of bad stuff happening?
Dan: Well you know as I said healthcare professional what we’re dealing with this a group of people that is so highly focused on their practice because of their skills and their training have taken so long to develop and their time is so precious that often they don’t spend the time necessary to deal with the notices, they might see the notice and I think this is true the what happens part is true almost across the board whether we’re dealing with a medical professional or a plumber or a housewife or whatever. When people don’t know what to do they often do nothing which is the exact wrong thing to do when you’re dealing with the IRS.
The thing that is important to understand is whenever you get any notice from the Internal Revenue Service, that notice carries with it specific rights that you have to challenge whatever it is the IRS has done. However your rights are time sensitive, you have to exercise those rights within a fixed period of time and if you don’t your rights expires and it becomes more difficult, almost never impossible but more difficult to deal with the situation when you have let important deadlines go by. So you know it’s important if you’re in your neck and if you would do it yourself directly because of the time constraints that you have and so forth, you need to get somebody to deal with it on your behalf so that your rights don’t expire, so that you take advantage of the appeal options that you have to protect your interests along the way, that’s a critical thing right there.
Dave: Well I think in the book and some of the publications so many helpful really good hints, tips and tricks and one of them that I think many people should be aware of is something called the Individual Master File. What is that and when could people need it?
Dan: First of all let’s start with you first question what it is. The individual master file is the computerized account record that the IRS keeps for every person for every tax year. The individual master file records for example the date that your tax return was received by the IRS, the amount of tax liability that was assessed for the returned. IF the IRS didn’t audit it will show you the amount of tax liability that was assessed for the audit, when it was assessed. It will show you how much money was paid through wage withholding or estimated payments or refund off-set. In other words it’s a complete account history or account transcript of what happened for that particular tax year and when it happens. So it gives us great insight into what the IRS do or dint do in a particular case and for that matter what the tax payer did or dint do. I deal with people with tax problems like for example haven’t filed tax returns for a couple of years and they say to me “Dan I dint know when the last time I filed the tax return” okay if that’s the case we get an individual master file transcript and it tells us what returns were filed and which returns were not filed. If the person doesn’t have information on how much withholding was taken out of his paycheck in a particular year these transcripts can tell us not only the amount of the withholding but the source of the withholding as well. In other words maybe a person have two or three jobs or maybe a person have a ten ninety nine work like a lot of medical professionals are, they work for different clinics or hospitals. So they get ten ninety nine by the hospitals or clinics and so we can get the ten ninety nine from the IRS to show exactly who paid you and exactly how much did it paid you and all of these information is available in these transcripts.
Now the question of when to get them, I think it’s a good idea to monitor these transcripts on basically on ongoing basis because for one thing the post office loses mail all of the time. Most people don’t file the tax returns by certified mail, they just send them in a regular mail which I think is a mistake, I think you should file these stuff by certified mail with return, receive request. because the burden of proof is on you to show that you filed your tax return and so if there’s no tax return file, there’s no stanch with limitations on the IRS, it has right to go back and secure that return and assess the tax. So if they go back five years from now from now and they will say that you didn’t filed your tax return, well you have to prove that you did. So if you’re monitoring these transcripts you can see if there’s a mistake in some place and you can react to before it becomes a problem and it’s out of control.
Likewise if you have a tax problem, if you’re dealing with an enforcement issue these transcripts are vital because it gives us the information we need to know about assessment dates and if the IRS filed tax claims and if they issued certain required notices to a tax payer and so on. So there’s all kinds of advantages to having this stuff.
Dave: Cool and one of the other things that I love about your book which everyone should have because it has templates. These are letters that you have in there and it’s like finding gold where people can use it. They can plug and play when they have a given situation which you have, I don’t even know how you have, do you have a hundred?
Dan: I don’t know how many there are but there’s dozens of them for sure and there are the sample letters that I show you, that I provide to you to show you exactly how to respond to the various notices that the IRS mails out.
Dave: And do you think if you could point one out in particular or maybe two out, what do you think people miss out on with these templates? Which ones would you say are the most important? I know they are all your babies.
Dan: Well yes, let’s give two examples here okay. The first one is just generally speaking the response to the IRS’s letter where we talked about it earlier in the program here where the IRS writes this letter and said you’re a tax payer, “you made a mistake in your tax return, we fixed it don’t worry, now you owe us the money” right? Well there’s a response to that and first of all people make the mistake calling the IRS. You can’t call the IRS with these things, you got to respond in writing and the law is perfectly clear Dave that if you respond within 60 days, within 60 days of the date of the notice the IRS is required by law to set aside the assessment as though it never existed, in other words once you respond and you tell them “I disagree, I demand an abatement of the tax liability” they have to set it aside, it’s not discretionary, it’s not a matter of “well let’s do an investigation and see if this is okay”. No, they have to set it aside, they have to cancel it and now if they believe that you really owe the money, that you really made a mistake they have to send a letter called a notice of deficiency which gives you an opportunity to appeal before you have to part with a nickel’s worth of your money. So I give you the template for this letter, so there’s no confusion, I show you exactly how to make this response so that it’s done correctly and on time.
The second example Dave is probably one of the most important things that every single listener here this morning needs to know about and that is the right to challenge penalties. One of the biggest things that we see with the Internal Revenue Service year after year after year is the assessment of penalties against individuals and businesses. As I said there’s going to be about a hundred and forty million tax returns filled this year, the IRS is going to assess upwards of forty million penalty against individuals and businesses. I mean that’s almost one out of every three people being hit with a penalty of some kind. In the book I’ve got an entire chapter that deals specifically with penalties and I give you all kinds of sample letters there that show you how to respond to get the penalties cancelled. What the IRS doesn’t tell you, consistent with what the tax advocate’s testimony to congress was what the IRS doesn’t tell you exactly how to get these penalties cancelled and the book takes you right through that.
Dave: And just to get back to health care professionals and docs in particular outside of what we’ve been talking about so far, what do you think you find that people are having, doctors are having to wreck the biggest mistake you see them making?
Dan: Well I tell you what, what happens with medical professionals in my experience is they get sucked into this tax schemes that promise a reduction of tax liability. I see this over and over again and not just, it happens with medical professional of curse because we got two things going on here. We got high dollar individuals, as you said they might not be making a million dollars but they’re probably making north of a hundred or in many cases north to two hundred thousand. So they are high income people by definition, certainly the top five percent of income earners and in many cases the top one percent, no doubt about that. Keep in mind that the top five percent of income earners in the United States make more than about a hundred and forty thousand dollars, so it’s not that difficult to be in the top five percent these days. Mathematically speaking I’m not talking about effort, it takes a heck of a lot of effort but mathematically speaking you get up there pretty quickly.
So these people then, these medical professionals that are in that income bracket become targets for promoters that come along and say “well if you set up this trust situation or you set up this LOC situation, or you set up this “investment situation” that we have over here, we got this plan that will do this for you, that will do that for you and it will save you all these taxes”. Again these medical professionals they are: a. they’ve got the high dollars that may come with target and give them the capacity to “invest” in these things but then secondly you got the problem of because they’re so focused on their profession and their practice and because they are so, their time is so precious they don’t have the opportunity to really study these things the way they should. They end up getting themselves in trouble with the IRS because these things are often scams and I see that a lot with medical professionals and of a lot.
Dave: It’s like upon this…
Dan: Yes, it depends on what were talking about but they end up with a pig in a poke and then plus a tax problem on top of it.
Dave: Yes I have one particular client, they invested in a winery that was based in the Cayman Islands and those kinds of things you just have to deal with it.
Dan: Exactly and everybody knows that the best wine in the world comes from the Cayman Islands, right?
Dave: Right. Well time is starting to run out on us as wrap up here. Do you have any other thoughts you want to close out with?
Dan: Well I would say this, for anybody that is struggling with any kind of a tax problem whatsoever, I like to say this: no such thing as a hopeless tax case. I don’t care what kind of problem you have or how long you’ve had the problem or who has told you, you can’t fix the problem, there’s no such thing as a hopeless tax case. The book that you’ve been mentioning: The IRS Problem Solver is going to help anybody if you’ve got a tax problem or not. It’s going to help anybody and as a matter of fact if you don’t have a problem all the more reason to get the book because it will show you how to avoid most of the problems that people come in and develop in people’s lives.
Dave: If people want more information, where can they contact you and get a copy of your books?
Dan: The best way is right off my website which is taxhelponline.com, it’s all one word, no spaces of any kind. Taxhelponline.com and you can get the book The IRS Problem Solver there and all of my books, all of my materials are there including my latest book: How to Win Your Tax Audit.
Dave: Okay great, now its taxhelponline.com.
Dan: That’s right.
Dave: Alright, awesome. Thanks again for joining us Dan!
If you are a physician or someone servicing physicians and want to tell your story, grapple with these tough issues, and get on the soapbox for a few minutes, I’d love to share it too in the next Freedom Formula for Physicians Podcast. Make sure to contact me on my website daviddenniston.com/physicians and subscribe to this Podcast at www.DoctorFreedomPodcast.com or on ITunes.
For the Freedom Formula for Physicians podcast, this is Dave Denniston. Thanks so much for joining us and make sure to subscribe and check in again soon! Have a good one.