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Having read what famous people like Wesley Snipes, Willie Nelson, Leona Helmsley, and Pete Rose went through with the IRS, I have developed great sympathy for people who get into trouble because of tax problems. In many instances, it’s a matter of people just being dishonest, of wanting to pull a fast one over the government, or of being negligent in their responsibilities. Other cases involve people who get taken or deceived by those who manage their finances. Whatever the reason, tax problems can literally railroad a person’s life.
My own dilemma began when I decided to open my own business. It was an employment history preparation agency — more specifically, a résumé writing outfit, although we also provided copy and technical writing services. At first, the idea sounded simple enough and it actually functioned well, ultimately turning a profit ahead of schedule. Some of the things we did, however, eventually created some problems.
Because we could not afford to hire staff at first, we went on to hire some writers as independent contractors. That in itself is common in the industry but what some people don’t know is that the IRS is very particular about terms like “employee” and “independent contractors.” It is also very particular as to how each is paid, treated by the organization, and compensated.
We ran into problems when some of the “contractors” we had on call sometimes came by to use our facilities while working on assignments for clients. Now, we allowed them to use office equipment and facility strictly as a favor to them, especially if they did not have adequate office equipment and supplies at home. The problem with this situation was, however, that the IRS defined “employee” as people who worked at the business’s location, doing work under the supervision or direction of managers.
While we did assist writers (mostly in regards to going over requirements of clients or abiding by agency guidelines), they performed — or were supposed to perform — the work on their own. We reviewed the final manuscripts, of course, but only after the work was completed, ready to show to their client, hopefully resulting in final payment. Needless to say, questions came up as to the arrangements we had with writers. Surprisingly, though, it was one writer that threw the first stone, not the IRS.
One of our top writers wrote a nasty letter to the IRS complaining that we had not adequately compensated him; he went on to allege that he had in fact been hired as a staff writer but was not being paid like one. At the time, we only had two such positions but, as it turned out, the contract we had had all the writer sign was not as clear as it needed to be. The contract did designate that all the writers were either “staff” (i.e., employees) or “independent contractors” but, since the same contract was used for both types of writers, the arrangement we had on paper was, at best, unclear or vague. From this point on, we were put on the defensive.
Looking back, one mistake I made which I would not make today was to attempt to deal directly with the IRS without legal representation. Figuring that I had nothing to hide and that I had not done anything unethical or illegal, I thought that I would just explain myself to the IRS agent assigned. After all, a simple explanation should have sufficed, or so I thought.
What I did not realize at the time, though, was that, when it comes to the IRS, it’s not whether you are guilty or innocent but whether you can substantially and unequivocally establish your innocence in their eyes. If there is any doubt whatsoever you may be found guilty, and that’s when things get hairy and scary. Then, it becomes a question of appealing, of reaching out to higher-placed IRS officials and, if that fails, to the courts. As any attorney can tell you, though, overturning an IRS-provided verdict against you can be very costly, assuming it is possible. Ideally, you do not want the IRS to bear its full weight upon your shoulders, if at all possible.
After months of interviews, letters, and reviews of available testimony and documents, the IRS did dismiss the allegations, although the writer in question in a way ultimately won, if only by virtue of the fact that he had caused us hours of wasted time and a great deal of money, not to mention the fact that he had permanently put an umbrella of suspicion over our company, at least as far as writers were concerned. We did finally bring in legal representation but, as they immediately told us after being engaged, lawyers should have been dealing with this mess from the beginning.
We had erroneously thought that this was a minor matter which we could handle on our own–we were dead wrong. So is anyone who thinks that he or she can take on the IRS without competent assistance. As I have heard from attorneys, anything you say to the IRS can be held against you; consequently, you should let your attorney and only your attorney do the talking–the only exception being those things cleared or approved by your attorney.