Due to the unfathomable wisdom of the Federal government and particularly THE IRS, my corporation, Star Solutions, Inc. received a letter from the IRS on April 13, 2012 for the tax period ending December 31, 2011. The letter is dated April 23, 2012 (10 days in the future) and reads: "We charged a penalty under Internal Revenue Code Section 6699 (a) (1), Failure to File S Corporation Return, because you filed your S Corporation return late." The penalty was $195 due in full by May 14, 2012.
I chuckled over this letter... it was dated April 23rd and here I was reading it on the 13th! Two explanations presented themselves 1) Either this letter was prepared deliberately, or 2) There was some sort of system error at the IRS.
I forwarded the letter to my CPA and on April 17th he sent a letter to the IRS containing the following text: "...We have included [...] a copy of Form 7004 Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. The Form 7004 is stamped as received on March 14, 2012, by the Little Rock Field Assistance Office of the Internal Revenue Service..."
I was out of town for a few days after this and when I returned and received my mail on April 24, 2012 there was a letter from the IRS dated April 30, 2012 adjusting the penalty for a total of $0.00 due. Ok seems to point to a systems error right? I emailed my CPA to confirm that the IRS had adjusted the balance due, and he replies to the email saying, "Talking to another CPA at training and this appears to have happened all over country." Interesting. Now we're talking about a BIG systems error or a higher possibility that there was a deliberate preparation of these letters.
A few years ago our family started sending tax payments (personal and corporate) to the IRS and the Oregon Department of Revenue by certified mail because we were being slapped with late penalties when we had filed and paid within the appropriate time frame. Sure enough over the last couple years we've had to use these return receipts to prove we don't owe late fees. This seems analogous enough with the theory of deliberate penalties, but why could it be deliberate? Let's think about it for a minute.
It's a fact that both Federal and State governments are desperate for funds right now. Last year on the Federal level we saw the possibility of some serious cuts before Congress decided to raise the debt ceiling. Raising the debt ceiling, of course, didn't resolve the issue but rather compounded it... it's another way to send the bill to people like You and I in the form of inflation.
But the Federal Government is still short on funds. Given the circumstances, it's altogether possible that the IRS might try to collect some extra money. Just how much money might they hope to collect with these phony penalties if this is what they were after? I don't know, but I did some searching online and found that there were about 27.5 million businesses in 2009. (I'd think there are probably later statistics, but wasn't finding them.) Now I know some businesses didn't get late penalties, so let's assume the IRS sends late filing penalties to 10 million businesses. Now many of them, like Star Solutions, Inc., will dispute these and win. If pressed, the IRS can always fall back on "a systems error" and specifically cite the wrong dates on their letters, but what about the corporations that cannot prove they filed on time or consider others who will probably just pay the bill they're sent without questioning it? Let's assume 20% (2,000,000) of these businesses pay the penalty. This comes to total penalties of $390,000,000. As I'm writing this www.usdebtclock.org indicates the US Income Tax collects around $1,097,020,000,000 so this would be an increase in collections of a little over 3.5% which is huge. You think this might come in handy to a government that's short on funds? It would be interesting to know how many businesses actually received this penalty... my example here could be way out of the ballpark or it could be an underestimate, but it's interesting.
Just think of the cost in time and resources dealing with these penalties... or with the whole income tax for that matter. A lot of time, resources and money could be saved if the Income Tax was abolished as presidential candidate Ron Paul wants to do (checkout out www.RonPaul2012.com.) What would you do with extra money? How about the extra time? Could you help more of the people that God brings into your life?
Regardless of what happens it's important to isolate yourself as much as possible from the negative effects of taxation. Conventional financial wisdom recommends putting money into Qualified Plans, and other similar vehicles, but is this really the best option? Following these recommendations one puts away money and cannot access it for most of their life. While the money is locked away like this it might earn a rate of return or it might not, but inflation will eat away at the purchasing power of that money guaranteed. And when the money comes out, you, or your heirs, will end up paying more in taxes then you ever deferred.
The alternative to this style of managing ones finances is first of all to consider the following questions:
1. Is the dollar stronger today or tomorrow? (Inflation)
2. Do you think taxes will go up or down in the future?
3. Do you want to pay taxes on the seed or the harvest?
The answers you gave to these questions were most likely:
3. On the Seed
1. You want to have access to and be able to use your dollars today to make more for tomorrow, before inflation makes them weaker.
2. & 3. You want to pay taxes now at the lowest rate you will probably ever pay them and on the seed money vs. whatever harvest you will reap in your life.
The only way to accomplish the above is to act like a Banker with your money. The best vehicle to use in managing your finances as a Banker is Participating Whole Life Insurance. Why?
1. Because your money is highly liquid and you can use it in your life right now to counter the effects of inflation on your finances.
2. & 3. You can pay taxes on the Seed money rather than on the much larger Harvest.
To learn more you can download and read the free e-book Prescription for Wealth and then call our office and setup a complimentary meeting with one of our team members. We coach people all around North America in Becoming Their Own Banker and taking responsibility for their own finances. We'd love the opportunity to work with you, your family and friends.