Wednesday, June 16, 2010

What Does It All Mean?

Such questions as were posed in yesterday's posting characterized the cases of myriad taxpayers who appeared before me during my career as what was once stiltedly called an “appellate conferee.” That title gave way to the simpler “appeals officer.” But what didn’t grow simpler during my career was the Internal Revenue Code. It has grown thicker in every conceivable dimension.

Well, while you’re thinking about Doug’s chances, think about this. On March 3, 2005, Peter Jennings wrapped up the night’s newscast by saying, “Finally here this evening, one very large tax bill. The government says it has never seen anything like it before. Walter Anderson, a multimillionaire businessman, appeared in a Washington, D.C. court today, accused of failing to pay more than $200 million in taxes. The government alleges that Mr. Anderson used several elaborate schemes to hide his considerable income. It's a lot of money.” Anyway, that’s $200,000,000 smackers of taxes, indeed a lot of money. Any normal person would ask himself: with government going after the likes of Walter Anderson and getting that large a return on their investment in resources, why would IRS operatives even care if Doug deducts the measly costs of his trip to Vietnam to get pictures depicting oversized loads on motorcycles?

On August 29, 2005, the IRS reported that the accounting firm KPMG LLP (KPMG) had admitted to criminal wrongdoing and agreed to pay $456 million in fines, restitution, and penalties as part of an agreement to defer prosecution of the firm. In addition to the agreement, nine individuals—including six former KPMG partners and the former deputy chairman of the firm—were headed for criminal prosecution in relation to the multibillion-dollar criminal tax fraud conspiracy. The fraud per the IRS and Justice Department related to the design, marketing, and implementation of fraudulent tax shelters.

Again, does it make any sense to worry about the IRS devoting resources to Doug’s crummy little Vietnam trip? Even if—shame on him—he takes his family with him and deducts their costs, too? Why should the IRS care about Doug when it can get the kind of return they have on KPMG? Or the return they possibly got on KPMG’s clients, who claimed billions of dollars in tax benefits from the fraudulent tax schemes and all owed the tax back plus interest and penalties? We’re talking about billions of dollars. What’s the risk to little old Doug of the IRS throwing its resources after him for deducting one lousy trip to Vietnam? Not much? A lot? Somewhere in the middle? And if the IRS does go after Doug, what’s the risk to him that the IRS will prevail? How much will it cost Doug? Does he risk serving jail time? And what about monetary fines or penalties? Is he at risk? What about his reputation? He is, after all, an aspiring author on the possible precipice of great things. Could the publicity help him?

All good questions. Many things for Doug to think about, to learn, to consider and ponder before he puts the costs of that trip on his profit-and-loss statement on a Schedule C and attaches it to his Form 1040, exposing it to the potential ravages of a dreaded IRS agent or auditor. And maybe, just maybe, those answers and many, many more important ones like them, both for Doug and for you, are just as important as finding a perfect simile or eliminating an unnecessary gerund, finishing the last chapter of your novel, entering that disquieting contrapposto or portrait in an art contest, or acquiring an agent to sell your work or a gallery to display your sculptures.

What does it mean to carry on the freelancing of expression in a businesslike manner? How does a person maintain a complete and accurate set of books? How important is it to consult advisors and have expertise? How much time and effort does a person need to expend in the actual conduct of freelancing? Does anybody care? Questions. Many pertinent and probing questions for every freelancer of expression.

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