Dan Pilla is a tax litigation specialists with over forty years of experience helping people and tax professionals solve IRS problems. Now, his research and work started the tax resolution industry. And The Associated Press said that Pilla probably knows more about the IRS than the commissioner of the IRS. I could guarantee that's true because Dan is a real professional and a lot of those people are pencil pushers.
NOTE: Complete transcript available at the bottom of the page.
Screw The Commute Podcast Show Notes Episode 423
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See Tom's Stuff – https://linktr.ee/antionandassociates[04:47] Tom's introduction to Dan Pilla [09:16] Payroll taxes and 1099 contractors [12:10] Gray area working from home during the pandemic [13:26] Outsourcing outside the U.S. [15:10] Written contracts vs a “handshake” deal [18:19] Kicking butt on the IRS at 18 years old [27:55] Little known things about what the IRS can and can't do [33:40] The “Hardship” Rule [41:08] Sponsor message [44:20] A typical day for Dan running his business
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Episode 423 – Dan Pilla
[00:00:09] Welcome to Screw the Commute. The entrepreneurial podcast dedicated to getting you out of the car and into the money, with your host, lifelong entrepreneur and multimillionaire, Tom Antion.
[00:00:24] Hey, everybody it's Tom here with Episode four hundred twenty three of Screw the Commute podcast. I'm here with Dan Pilla. He is our favorite topic of the show. He's a tax litigation specialist and he actually testified to Congress several times and was a consultant to the National Commission on Restructuring the IRS. I mean, I'm telling you, I would just love to testify at Congress. Sometimes I would get contempt of Congress for sure, because I believe that people people should earn their respect, not because they're sitting in a chair in a Capitol building, that's for sure. I would definitely get contempt of Congress. Anyway, back to Dan. It's just one of his books. Where do you hear this? He's he's really helping out small, but just one of his books has sold 250000 copies. So so he knows his stuff. So we'll tell you more about him in a few minutes now. Hope you didn't miss Episode 422, Anatoly Spektor. This is a guy faced obstacle after obstacle and he just would not quit. And now he's very successful. He lives a few months in every country that he feels like. I interviewed him when he was in Bali. And he has a perfectly portable lifestyle that I've been preaching for 27 years, that I've been on the commercial Internet. So that was episode 422. Now, how would you like to hear your own voice here on Screw the Commute? Well, if the show's helped you out at all in your business or giving your ideas to help you start a business, we want to hear about it. Visit screwthecommute.com and look for a little blue sidebar that says send voicemail, click on it, talk into your phone or computer and tell me how the show helped you. And hey, put your website on there, too, and you'll get a big shout out on a future episode of Screw the Commute. Now, we always give away something here, so make sure you grab a copy of our Automation eBook. This book we actually figured it out a couple of years ago is just one of the tips in the book has saved me seven and a half million keystrokes. And that's not hype. All kinds of automation techniques has allowed me to handle one hundred and fifty thousand subscribers and 40000 customers without pulling my hair out. And it's yours free. We sell for 27 bucks, but yours free for listening to the show. It's screwthecommute.com/automatefree. While you're at it, pick up a copy of our podcast app. It's screwthecommute.com/app and you can take us with you on the road. Now I know everybody still crying the blues and suffering over this pandemic stuff and your kids are in school one day. They're not the next day. And you had to quit your job or if you had a job and I don't know, they're trying to tell you your kids are going to burst into flames or something.
[00:03:17] I don't know what kind of crap they're telling you, but but I do know that there's a lot of pain and suffering out there. However, I have been preaching since I've been teaching this stuff for 23 years that if you could sell from home legitimately, you wouldn't have to suffer like this. And I haven't been affected at all with this pandemic, and neither are my students we've been able to sell around the world. And I formalized this training about thirteen years ago as the only licensed, dedicated Internet marketing school in the country, probably the world certified to operate by SCHEV, the State Council of Higher Education in Virginia. But you don't have to live in Virginia because it's good quality distance learning, not these four year colleges that are that are all of a sudden have a distance learning. Since they can't rip you off locally, they're going to try to rip you off remotely, I guess. And then, of course, you're going to pay big tuition and then compete for a job at Starbucks when you get done. So you can be very proud of that. So anyway, our school doesn't do that. We teach the hard core skills that I've been using chat boards, email marketing, blogging, all the shopping carts, all the things that every single business on Earth needs. We have people making money a couple of months into the school because a lot of the business need this and they're clueless on how to do their social media and all those things. So check that out at IMTCVA.org, and a little later, we'll show you how you can get a scholarship to the school if you're in my mentor program.
[00:04:49] All right. Let's get to the main event. Dan Pilla is a tax litigation specialists with over forty years experience helping people and tax professionals solve IRS problem. Now, his research and work started the tax resolution industry. That's the stuff that you hear like every second. On XM Radio, some Sean Hannity or some, you know, somebody is telling you, oh, this is our best tax resolution firm, you know, solve your problems for 100 bucks while this guy started that whole industry, his his work. So he was there at the beginning. And The Associated Press said that Pilla probably knows more about the IRS than the commissioner of the IRS. I could guarantee that's true because this Dan is a real professional and a lot of those people are pencil pushers. Look, he's written 15 books, hundreds of research reports and thousands of articles on taxpayer rights issues. And I was just watching him on YouTube on some of the things that are right in front of your face that you don't know about and you can't depend on, apparently, the IRS to treat you fairly. Isn't that amazing? So hopefully he'll tell us a bunch of stories about that. And his latest book is directed at small businesses. I'm not sure which title that is in him. I'm sure he'll let us know. But it's helping small business owners structure their business for optimal tax advantages and the stay out of tax problems. Dan, are you ready to screw? The commute?
[00:06:25] I'm ready, Tom. How are you?
[00:06:26] Oh, I'm great. It's so glad. I'm so glad to meet you, because this is an important topic that, you know, most small entrepreneurs push clear to the back of their their on fire list of things to get done. But it is critically important. So so tell everybody what you're doing and then we'll take you back, see how you got here, because you got some interesting stories with your own family to share.
[00:06:48] Yeah, absolutely. I'm happy to do it. First of all, you know, I don't do tax return preparation Tom we do some of that in my office. Most of it's remedial. What I do primarily is help people that have IRS problems. I deal with small businesses and individuals, particularly in the area of tax collection, but also audit defense appeals, tax court litigation. I've got somebody in tax court every day of the week Tom I it's like a revolving door around here with tax court cases I prosecuted on behalf of small business owners and individual taxpayers over one hundred and thirty cases in the United States tax court and that that practice continues today. So in particular, let's just focus in on small businesses. I deal with small businesses that have every kind of tax problem you can imagine and a few that you can't imagine Tom. And so, you know, the fact is we got a four million word tax code and most small business entrepreneur type folks find out about the booby traps and the and the trap doors in the tax code. They find out the hard way Tom much too late. And so I help folks extricate themselves from those problems. And then you mentioned my latest book is called The Antion, a small business tax guide. This book is based on 40 years of experience of litigating with the IRS on behalf of small businesses. And it shows these small businesses how to stay out of these booby traps in the first place.
[00:08:11] Yeah, and I kind of bet, like I have been fortunate enough to to not have to butt heads with those folks, but but I would suspect that payroll taxes have a big part in problems that small business people run into. Is that true? Not true.
[00:08:29] Well, it's funny you mention that because I focus on payroll taxes not obviously extensively in the book for exactly that reason. Let me get let me give you a hint here. The IRS, every single year, the IRS assesses over thirty five million penalties against individuals and businesses last year, the last year for which we have data is twenty nineteen. There were there were over 42 million penalties, Tom. About two thirds of all those penalties are associated with payroll tax problems. Why? The single biggest problem that businesses have is failures with respect to payroll taxes. So it's huge. If you learn nothing else about dealing with the Internal Revenue Service, you need to learn cold the payroll tax rules because this is the one area where most businesses fail.
[00:09:17] Well, you know, another thing that that a lot of people try to fudge and get around is with ten, ninety nine employees, they say, oh, well, is a contractor. Well, you're telling him what to do if you're telling him what hours, you know. So I actually had the state of Maryland come after me one time and I had my ducks in a row and I sent them packing because they were legitimately ten ninety nine people. But what the what's legitimate there to have an actual ten ninety nine person where you can get out of the payroll taxes?
[00:09:47] Well and that's a good question, Tom. And it's a growing issue because as more and more burdens are put on small businesses, not not not just the financial burdens of actually withholding money from people's paychecks, but the reporting burdens and all the different things you have to do to comply with this with this growing laundry list of regulations with respect to. You know, people are looking for ways to minimize that. There's no question about that. And for decades, companies have been using the independent contractors to do exactly that. But the key here with staying out of trouble and the independent contractor issue is understanding what the primary rules are for purposes of determining whether somebody is an independent contractor or a W-2 employee. And let me hold that down to a simple concept that all your viewers, all your listeners can wrap their heads around. Then, of course, I discussed this at length in the book as well. There's a chapter in the book on independent contractors. But here's the key they need to know Tom. The question boils down to control, right? Who controls the workplace, the worker and the manner in which the work is performed. If the company for whom the services are being performed controls the worker, that is to say, you have to be here at a certain time. You've got to do things a certain way.
[00:11:01] If they control the workplace, the worker has to come in and do the job on a company computer, in a company office with company tools and equipment. If they control the manner in which the workers perform, you have to do it exactly to specifications that are that are put out by that by the company. Then that worker is an employee. On the other hand, if the worker controls the workplace, the the the worker controls himself, the workplace in the manner in which the workers perform, then he's an independent contractor. And that's the key focus on this question of control. The greater the extent of control the company has over the worker, the worker in the workplace, then the less likely that worker is going to be an independent contractor. So you've got to carefully evaluate this. In the book, I lay out 20 specific guidelines that the IRS is going to look at to answer those questions, because it's not a simple yes or no answer. In most cases, there's factors, there's gradients and so on. And so you got to evaluate all this stuff and you got to know what you're looking at. That's the biggest thing is companies, company owners, Tom, small, independent entrepreneurs, small business people don't know what they don't know. That's what gets me trouble.
[00:12:10] Well, I'll tell you what. In the past year, that thing got even muddier because of everybody shipping out to work at home that were employees. And now now you're getting into another great gray area because they were forced to work at home. So they control their workplace, I guess, technically or not?
[00:12:29] Well, no, no, I think you're right. They control the workplace. But that's only one of two one of three factors. All right. So the employee is at home, but he is still under the control of the employer because he's got to do this work. He's got to do it in this fashion. I mean, the IRS has been dealing with at home workers for four for four decades, not just the last year. And there's all kinds of court rulings on at home workers being independent contractors. If the other factors of control are prevailing in the equation, that's the key. And it's to talk to. And here's the other thing. You got to realize Tom. And it's a totality of circumstances. It's not just one little fact or one little one little issue here or there. Well, the workers at home and he bought his own desk. OK, fine. Those are just two small factors in an overall pretty pretty invasive is not the right word, but pretty broad equation. It has to be evaluated to come up with the answer. All right.
[00:13:27] Now, what happens? How does this apply to you know, I have outsourced to the Philippines, I treated those as contractors. Is that make a difference if they're a U.S. employee or what?
[00:13:39] No, it doesn't matter whether they're U.S. citizens or a US company. But I'll tell you this. If you've got if you've got a situation where where you're where you're outsourcing, say, well, let's let's just use something very, very simple. If I bring and this is going to take me a little bit here, OK, if I bring a thousand letters and a thousand envelopes and a thousand stamps and a thousand address labels over to my neighbor and I ask her to stuff the envelopes, put the address label on it, put the stamp on, and then I pick them up and drop to the mailbox. That does not make her an independent contractor in and of itself. That's a piece kind of a thing. She's still she's still under my direction. She's still using my tools and equipment, so to speak, with with my letters and so on. And so that's still any kind of contract situation. On the other hand, if I contract with a mailing company to develop the whole program and, you know, help me write the letter and do all the machine work to to get it printed and all the various, and we're dealing with a company that here's another factor that makes its services available to the public. That's a key factor. Tom if that lady is stuffing envelopes and she's only doing it for me versus she's got twenty five customers that she stuffing envelopes for, that is a big factor, making your services available to the public and in fact contracting with other individuals and business. Out there to do the same work, that's that's a key fact.
[00:15:11] Well, that's that's what saved me in Maryland and being a being a packrat. And I notice you're kind of a book freak like me. I have three libraries in my state here, and I saw you on video where you had this gorgeous circular library behind you. It's like, wow, that's beautiful. But that's what saved me, is that I, I had this entertainment company and this real snooty I don't want to say what she was, but the real snooty lady from the Maryland state comes and says, these are all employees and we're going to hit you up for, you know, a fortune and back payroll tax. I said, oh, is that right? OK, all right. Have a seat, lady. I pulled out all these Washingtonian magazines when I lived up in D.C. where all of these people, these entertainers working for me had ads in the magazine. And yeah, I threw a matter. I said, here, check them all out. Fine. Find somebody in there that's not advertising themselves to the public. And she was mad and she left. But I could care less. But anyway. Yeah, you got to you got to really watch. That's another reason all the people listening here should get your book and then talk to you if necessary on your situation, because the last thing you want is somebody pouncing on you for back payroll taxes.
[00:16:30] I got it. That's for sure. And on the right, let's talk about another very important factor in this whole equation. And that is, you know, do you have a written contract? And is that written contract specific to the individual or the company that you're working with? Or do you have? In most cases, these companies have no contract whatsoever. It's a handshake deal on a handshake. Deals are fine with honest people. But but the handshake deal is not going to help you when it comes to a challenge from state or federal government regarding the employment contract, the employment relationship. So you got to have a written contract, in my opinion, Tom. I think it's essential. And the other point I make is don't go download something off the Internet, just fill in the blank. So that's a mistake also.
[00:17:12] No, you don't download off the Internet. You just steal it off of somebody else's site.
[00:17:18] And you know what? I'm not saying you can't get guides and ideas. And there's a lot of great sources out there for four forms and so forth that you can use to guide you through it. That's OK. I've got some guides in my book as well, obviously. But but the point is this time that you've got to make sure that you've got a particular contract to a particular job with a particular person, so so that the the the IRS can not just brush it aside as just check the box piece of paper work that you did that you did for purposes of CIA, that the IRS is all in states do this, too. They're always going to use what they call the substance versus form equation. And that is this if the form of the transaction suggests one thing, but the subjects but a substance suggests something else, they're going to disregard the form and go by the substance. Yeah. So just because you've got a piece of paper that says it's a contract doesn't substitute for the specific facts and circumstances of the real relationship. And that's what they're going to focus on.
[00:18:20] Yeah, absolutely. You got to have something. There's certain things that you can get away with, but there's certain things you shouldn't mess with, that's for sure. Now. Now, you mentioned earlier about dating yourself. I don't know, then you were 18 years old, kicking butt on the IRS, from what I hear.
[00:18:37] Well, well, that's that's true, but that's that's true, but that's because I didn't know what I was doing.
[00:18:43] So tell us about that.
[00:18:45] I got I got into this business when I was just a kid. My father had a small business in our hometown of St. Paul, Minnesota. And my dad was was that was the quintessential entrepreneur, entrepreneurial addict. He bounced from one from one get rich quick scheme to another, chase this chase that all kinds of things that that whole subjects. That's a whole book in and of itself. But this primary is primary operation that he started when he was a teenager was it was a printing business, a commercial printing business. And he had by the time I was 10, 12, 13 years old, he had a pretty doggone good operation in downtown St. Paul with a number of employees. Well, he got behind on his employees withholding taxes. Guess what? Tom that problem that we're talking about affecting so many small businesses got my dad's side was the IRS in the early 1970s. And one of the things he tried to do to fix the problem was to convert these people to contractors. But of course, that didn't work either. Just made matters worse. So all of this stuff I grew up with. Right, the things we're talking about here in the last ten minutes, I grew up with these problems. Well, by nineteen seventy four, you know, the IRS, a bunch of money. And they closed his shop down, they padlocked his doors and they auctioned the equipment off for a couple of cents on the dollar. And then in nineteen seventy seven, seventy eight I guess it was, they turned their attention to our family home one and they tried to seize and sell it for the back tax liability.
[00:20:12] And that's when I got started. I remember coming home one day my mom sit at the kitchen table and she hands me this envelope from the IRS and she said, What do you make of this? And I read it. And I said, well, looks like they're going to try to seize the house. And she said, what do we do it? Of course, I had no idea what to do. I was just a kid, about eighteen years old. What I did do Tom is I went over to the local law library, the law school over on the other side of St. Paul. I started fumbling around in the library, the Internal Revenue Code, not even knowing what I was looking for. And I literally stumbled on to an area the tax code that deals with with limiting the power of the IRS and establishes certain taxpayer rights. And so I start reading in this code section and I didn't get six pages into it and discovered that the IRS was proceeding illegally to seize my mother's home. So I did what any eighteen year old would do under the circumstances. I sued the IRS. I love I just literally literally use using the the forms and the paperwork that I found in the library. I pasted together a Mickey Mouse lawsuit against the IRS.
[00:21:10] This is before this was slightly before legalzoom.
[00:21:14] I yeah, it was before this was before legalzoom. So this is when they had this is when the Internal Revenue Code sat on a library shelf and was fifteen feet long. No, no. Now if we had it on a library shelf today would probably be 60 or 70 feet long,
[00:21:31] Would stretch from here to the southern border.
[00:21:34] And when you add the regulations to it and all the court decisions and all the rest of that stuff, all the written IRS guides, the guidance that comes out every single day, it would circle the globe a couple of times, probably. But but so anyway, I find myself in this courtroom in Minneapolis, Tom, front of a federal judge. The IRS flew this attorney from from Washington, D.C. It turns out he was from the Department of Justice Tax Division in Washington, D.C. And he came in to have my case thrown out. And I'm standing in front of the judge and I'm asking the judge to stop the IRS. And I said, Judge, you know that the law says this and they're doing something different. They shouldn't be able to get away with it. And, you know, this court should stop them. And and my argument was about that long and about that policy. That's about all it was. And this this DOJ attorney stands up and he starts blathering on about court cases, this and statutes that. And I had no idea what this guy was talking on. I'm not sure you did either. But when he was finished, the judge looked at him in the eye and he pointed at me and he said, he's right. And he slammed the gavel. I thought, well, this is easy. And so I stop the IRS from taking the property.
[00:22:39] Now, here's the fascinating part of the story in between the time that, my God, that my that my dad got in trouble with the IRS in the first place and the time that I was in that courtroom and probably by now nineteen seventy nine, my dad got involved, the tax protester movement Tom. And these are the folks who say the tax law is unconstitutional and protest. And I know it's voluntary and all this not. You've heard all that nonsense, right? Well, he got involved with this stuff and so he starts doing this tax protester stuff to fix his problems. And he's going to these tax protester meetings and meeting all these tax protesters around town. And these people are tax protesters primarily because they got tax problems. And so they're grasping at straws to get their problems fixed. That's typically what happens with these people. Well, the courtroom was packed that day and the vast majority of people in the courtroom were my dad's tax protester was, all of whom had tax problems. So they were they were in the courtroom. They saw the judge slam the gavel. They saw the judge. Still, the DOJ attorney that I was right, you was wrong by the time I got home to my mother's house, they were lined up at the door.
[00:23:45] They saw you with angel wings on your property.
[00:23:47] I'm telling you, Tom was an instant practice. They said they said, can you help me with my tax problem? I said, Sure, baby, I'm undefeated. Let's go. And I approached I approach every single problem that I that I that I dealt with exactly the way I approach my mother's problem. I stumbled onto two questions that I that applied to my mother's case subconsciously, but have been actively applying ever since. And those two questions are, number one, what is the IRS doing in this case? What action are they taking, what stance they've taken here with respect to this particular individual? That's number one. Number two, what does the law allow them to do? And in half the cases, time Tom, the answers are two different, the questions are answered two different ways. They're not following their own rules, they just don't follow their own rules half the time.
[00:24:43] Now, is there an incentive inside there for people to collect more money? I mean, do they get some type of badge of honor if they if they took took your dad's house or not?
[00:24:56] Well, you certainly would think so. The way they act. Yeah, but yeah. You know, there's there's never been any evidence of it. There's certainly no statute, no published statute, no published regulation, no published IRS guidance statement.
[00:25:11] Of course. Of course not.
[00:25:13] Of course not. Now here's the funny thing about that Tom. In fact, I just wrote it. You aren't going to believe this. I just wrote an article on this not too long ago in light of the passage of the Consolidated Appropriations Act that that was signed by a former president. Trump might have been his last act as president. I don't know. We'd have to go back and look that important. But that was that bill was signed December 30th of 2020. So it took effect January 1st. So here's the thing. In 1988, Tom, 1988, the first taxpayer Bill Rights Act was passed. And there was language in that first Taxpayer Bill of Rights Act that said the Internal Revenue Service may not use collection or audit enforcement statistics or criteria as a method of evaluating or promoting or so on its employees. Right. So there was specific statutory language condemning what you've what you just asked about. That was nineteen eighty eight. Now, of course, during those hearings on the taxpayer, the IRS denied that it ever did such a thing. Congress passed a law anyway saying you can't do it. OK, fine. So now let's fast forward to nineteen ninety seven on the heels of the Senate Finance Committee's investigation of IRS abuse, the question came up again. Is the IRS promoting or promoting employees on the basis of performance criteria, specifically audit and collection actions? And of course, they adamantly denied it again. But Congress passed another law as part of the nineteen ninety seven restructuring act that said you can't do it. So now we're up to two of them. So now in the Appropriations Act, guess what? There's a third one that says that says they can't do it. So my question Tom my question is, if you seem like a sharp guy, if they're if we need three specific statutes telling the IRS they can't do something that they say they aren't doing, why do we keep passing the law?
[00:27:13] You can be sure they're doing. I come from a town of 500 people in western Pennsylvania where we all had common sense. And if if you told here's here's something they would say in my small rural town, if you told me that the IRS was not doing that, they would say something like if you told that to a mule, he'd kick your brains out. So I love a John Kennedy guy on the senator. He comes up with all kinds of good things from Louisiana.
[00:27:54] So now I was ticking up a little bit on some things that kind of surprised me. But you were talking about little known things that a person wouldn't know. But the IRS just can't come after you forever and and put you out on the street. Right. There's limits.
[00:28:16] Yeah. Yeah, that's exactly right. And and just for example, Tom, what happened to my father in the early 1970s never has to happen to another American. And I'll tell you, the single most important thing that people don't know that they need to know is the is the process called collection due process of field collection, due process. Right. What that means is the IRS could no longer shoot first and never bother to answer questions. That's the typical approach they would take to collection pre nineteen ninety seven. And what was it, about nineteen ninety seven that changed the rules. Well I already mentioned that nineteen ninety seven was the year that Congress passed the restructuring act that was a consultant to the National Commission on Restructuring the IRS, and I made thirty three different specific recommendations for statutory changes. And one of them was this power of the IRS to just blast their collection weapon in every direction without asking any questions first, without bothering to consider collateral damage. In the meantime, while it grew out of that, was this collection process. And what that means, Tom, is that when you all the IRS money before they can collect a nickel's worth of your assets, they have to issue. It's called the final notice of intent to levy and notice of your right to a hearing, and that letter says you owe us X dollars.
[00:29:37] You've got 30 days to pay up. If you don't pay up in 30 days, we can enforce collection with levy seizures, bank account attachments, tax liens and so on. But but if you file a request for an appeal within that 30 day period of time, we can't do any of those things. So what happens is when you get that final notice letter and you submit your request for collection due process hearing that operates as a statutory toll on collection action, it's just like getting an injunction against the IRS Tom it shuts down in their tracks. The case is taken out of the hands of the collection function. It's passed off to the appeals office, the IRS Office of Appeals. They call it the independent Office of Appeals. Now, I don't know what that's all about, but that's another topic. Anyway, the point is it goes to the appeals office, the written job description of the appeals office, Thomas, to negotiate settlements with taxpayers and their specific statutory guidance with respect to these appeals is they must they must determine that the that the assessment is legitimate. The first place that the IRS follow the rules and has to follow to get the assessment. And then assuming it is legitimate, then they must consider any proposed collection alternative that the IRS that the taxpayer presents. All right. So just in terms of collection alternative, the IRS wants all the money.
[00:30:53] Now they're threatening lien, levy and seized. The taxpayer says. Well, I can't pay everything now. Seizure will cause a hardship. I should have an installment agreement. So the appeals office has an affirmative duty to sit down and consider and negotiate an installment agreement with the taxpayer. All right. So so we've got these protections in place. Now, here's the next thing that's remarkable about these CDP rights that are so important. Once the appeals office reaches a decision and they issue an order, the IRS has to follow it and it's enforceable. All right. So that's the beauty of that part of it. Now, there's a there's another part that's remarkable. If you can't come to terms with the Office of Appeals, if you just there's a disagreement about what they did or didn't do or should have done or whatever, you've got tax court review. Right. So you can have a judicial appeal to the United States Tax Court to review everything the appeals office did to make sure that it's right. And if the appeals office was wrong, guess what? The court will slap them down and send it back Tom. This is a tremendous negotiating tool and it's a remarkably important right the taxpayers have. And I'm telling you, there's not one person in five thousand that knows this. Yeah.
[00:31:58] And they don't want to go through that process. That's why you can negotiate a smaller settlement. Right? I mean, I don't know if this stuff you hear on the radio is correct. I owed fifty eight thousand seven hundred. I don't know if that's true or not, but. But the thing is, is who wants to go through that next level of judicial and then if they're wrong and get slapped down, that's a slap in their face. Basically, you guys overstepped their bounds. I mean, so I imagine this is all where that happens. The the negotiating tools that the business owner can use.
[00:32:32] Yeah, yeah. No question about it. And in so far as that's concerned, what happens is when you're on I call it a CDP track. That's how I refer to it. When you've got that collection to process appeal that's on track, going through these channels that I've talked about, you have leverage with the IRS and they know it now when you blow your copyrights Tom when you don't respond to that final notice on time or you don't respond correctly or to the proper office or any number of things can go wrong, you don't know exactly how to do it. And it's not complicated. It's not it's not witchcraft by any means. It's just understanding which buttons to push. It's just simple as that. But if you're not on that keep track, what happens is you do not have tax court appeal rights. You can't get the IRS into court. So if you've got one client that's on the CDPR track and another client that's not on the right track, guess what? We can have exactly identical factual and legal scenarios involved. And the CDB case we win and the other one we don't win. Why? Because we don't have leverage and the IRS knows it.
[00:33:39] Got it. Got to get that. So so the one other thing I want to hone in on before we take a break is the the hardship rule that I heard you talking about. You know, the. They just can't take everything and put you on welfare, right, right.
[00:33:56] Yeah, that's exactly right about that. Yeah. So here's the thing. The word hardship is used in the levy statute. It's used in all the levy regulations. Basically, it's basically in all of the literature that deals with with the collection guidelines that the IRS has to follow the word hardship. The word hardship is a term of art. All right. If I use the word hardship to you, you're going to have some image in your mind as to what that means because you're a literate individual. The word is not unusual. It's not a legal word by any means. And so you're going to have this image in your head as to what that means. And you may or may not be correct, but how it's defined in the law is this Tom the word hardship means the inability to pay necessary living expenses. It's simple as that. The IRS cannot put you into a position where you cannot pay necessary living expenses. So their level of activity has to take into account your necessary living expenses, including mortgage or rent, utility bills, current taxes, of course, medical expenses, medical insurance, car costs, any expense that you have.
[00:35:04] How about food?
[00:35:08] Believe it or not, food's on the list.
[00:35:15] Now, you wouldn't think the IRS would think of that, but food is on the list. Absolutely. And so all of these things have to be taken into consideration Tom. And, you know, they don't have to consider lavish and extravagant expenses. Of course, you know, if you're living and you're living in a twenty thousand square foot house, that your your mortgage payment is thirteen thousand dollars a month, they're not necessarily going to say, well, OK, we're going to give you the benefit of that so you don't have to pay your taxes. But all things are looked at through the lens of reasonableness based on the facts and circumstances of each individual taxpayers case and the expenses that are necessary to maintain a minimal standard of living in the area that you live in are all factored in as well. It's one thing to live to housing expenses, and Alameda in Los Angeles and San Francisco, for example, are going to be remarkably different than living expenses and in Des Moines, Iowa. So all of those things are looked at. But the IRS cannot impose enforcement action in a situation that's going to cause a hardship.
[00:36:17] So they can't put you on the street, they can't put you on welfare. And let's talk about this house situation. All right. We talked about collection, due process. That's one thing, but that's the restructuring act. Also changed the law Tom with respect to the IRS is ability to seize a home. And what it did is it took away the IRS, its ability to seize a home. Your principal residence cannot be levied by the IRS. The only way the IRS can get your house is if they go to court and get an order from a federal judge. Now, imagine this Tom since 1913 when the federal income tax laws came into effect until nineteen seventy seven I'm sorry, nineteen ninety seven from nineteen thirteen to nineteen ninety seven. The Internal Revenue Service did not need a court order to seize your principal residence, the place you live with your family. Can you imagine that. But now they need a court order to get it. No IRS person can walk up to your door and pound a red tag loving notice on your front door.
[00:37:15] Beautiful, beautiful. You you know, the only bad part about this then is that I kind of wish I hadn't paid all my taxes so I could get off cheaper. And I think that's the best way to go.
[00:37:28] But it probably isn't the best, especially in light of the fact that in any negotiation with the IRS on payment, they're always looking at ability to pay. So if you just didn't pay them and you got the money socked away in equity and you're in your house or in stocks and bonds, your 401k is all blown up. And and, you know, you got the cash stashed in the bank someplace. Guess what they want.
[00:37:51] And I guess this is the it's just the people that have paid purposely and sacrificed forever to do it right. And when they see these people, other people getting off cheap, it kind of irks them a little bit. But if they're ever in that situation, though, they'll be glad somebody like you is around.
[00:38:09] That's what will and that's a good point, because because people raise that a lot. You know, I pay my taxes. I do what I'm right. Why should this guy get off? Well, here's the thing. We need to understand that the vast majority of people that are in trouble with the IRS in trouble through no fault of their own right. We're not talking about tax criminals here. The fact of the matter is that you've got a better chance of being eaten by a shark than you do of getting in trouble with the IRS from the standpoint of a tax crime, because because the tax criminal has a deliberate intent to break the law. This is the person that is specifically and overtly not doing what they're supposed to do. The vast majority people, the vast majority of people that are in trouble with the IRS are in trouble because of. Some circumstanced, some curveball that life threw them that put them into a position where they had to make the choice between paying their taxes and feeding their families, and those folks chose to feed their families and they would do it again in any person in that situation would make the same choice. You're going to feed your family and worry about the Irish later. Now, what happens Tom is the IRS starts and not penalties and interest. So you talk to a person that owes, let's say, fifty thousand dollars, the IRS. You don't owe fifty thousand dollars in taxes to the IRS.
[00:39:20] They might owe 20. But now the IRS has added in the penalties and the interest to the point where it's. I've heard people tell me a thousand times I can pay my taxes. It's the penalties and interest that are killing me. And so these are the situations where we want to get in there and get this negotiation done, because here's the other thing that happens. And we've seen this over and over and over again to the point of millions of occurrences over the 40 years that I've been in this business. When the IRS steps up collection and starts enforcing against a guy who can't pay and they take you know, they take levies of five hundred a month or maybe even they get you on an installment agreement for three, four, five hundred a month. The penalties and interest accumulate so fast that you pay this money for the rest of your life and more when you're dead than it did when you started. And it discourages people and it drives them underground. When the IRS starts its enforcement action Tom, it drives people underground. So not only not only are you not collecting the back taxes, you're not collecting the current taxes either. So when you negotiate settlements with these people, it helps everybody because we get these people back on the beam, back in compliance, paying taxes going forward. And that's a big deal.
[00:40:29] Yeah, and if they ended up on the welfare rolls, the regular people are going to end up paying for it one way or the other anyway.
[00:40:37] Absolutely. And that's even in the worst case scenario, because now you take particularly we're talking about entrepreneurs because entrepreneurs are creators, right? They're creators. These are people that make something out of nothing. These are people that make everybody else's life easier. I love entrepreneurs because they're so creative and ingenious and they're willing to bet on their own, their own initiative and their own creativity. You frustrate those people to the point where they throw up their hands and say, forget it, I'm not doing this anymore. Guess what? Everybody suffers. Everybody suffers because of that,
[00:41:08] That's for sure. We've got to take a brief break. When we come back, we'll ask Dan, what's a typical day look like for him running his business? And has it changed because of the pandemic and how to pivot and all that stuff? So, so about about 23 years ago, folks, I kind of turned the Internet marketing guru world on its head and that people were at my level were charged in 50 or 100 grand up front to small businesses to teach them what they knew. And I knew a lot of these people. They'd be hiding out not only from the IRS, from in Mexico, because a lot of them were rip offs and wouldn't even help the small business. So I said, I can't put up with it. I'm going to I'm going to fix this problem. So what I did was I instead of charging 50 grand, I charge an entry fee was 10 times smaller. And then I tied my success to their success. So for me to make my 50 grand, they had the net. Two hundred grand. Well, people people really like this idea and they knew I wouldn't disappear on them. And so. Seventeen hundred students later and in 23 years, the thing's still going strong and it's the most it's the longest running, most successful, most unique Internet marketing and digital marketing mentor program ever.
[00:42:17] It's and I have no trouble saying that because I've been daring people for years to put a program up against my line for line and they'd be too embarrassed to do it because I'm a crazy fanatic. And it's so unique in that you have an immersion weekend here at the you actually live in this estate with me for an immersion weekend. We have our own TV studio here. We shoot marketing videos for you. Everything we do is one on one because I don't believe in group training. It would be easier on me, but I don't get the results because if you're advanced and I'm talking to you, the new people are lost. And if the new people I'm talking to them, the advanced people are bored, no, that's no way to get the job done. So it's all one on one with me. And my staff will even take over your computer, show you where to click and be with you for a whole year doing this. And you get a scholarship to my school, which you can either use yourself or gift to someone. We had one guy join the mentor program gift and he had spent eighty thousand bucks on his daughter's crap education where I don't know. All they do is teach you how to protest nowadays.
[00:43:26] And she's working a crappy job. He gives my school to her. After four months, she was up to six thousand dollars a month as a side hustle. Working for other people didn't even graduate yet. So it's all very powerful, useful stuff. And if it's a cell, if you want to think of this selfishly, you could gift it to a person so they don't go come home and live in your basement. How about that? They'll actually have their own career, it's an in demand career that in my school is actually considered vocational because it's an actual skill that's in demand by every business on Earth, but the mentor program and the school combined is a power powerpack that nobody can compete with. So. So check it out at greatInternetmarketingtraining.com. Give me a call him easily accessible and we'll talk about your future and maybe one of your loved ones future online.
[00:44:22] All right. Let's get back to the main event. Dan Pilla's here. He's a super man of tax stuff. I'm here to tell you, he's been in this 40 some years, 15 books, to his credit. The latest one, I believe it's Dan Pilla's small business tax guy. Is that the one?
[00:44:41] Yeah, that's exactly right. And, Bill, a small business tax cut.
[00:44:44] Yes. There you go. In the so then you actually run a business. So tell us about your business, how you run your business, how people work with you and and all that.
[00:44:55] Yeah, there's there's three elements to my business Tom three things that we do on a weekly basis. I don't do any one thing every single day necessarily, but it's just always a mix of things going going going forward. No one is. I have my representation business where I help people that have current problems with the Internal Revenue Service. And there's two levels of that. I have a coaching problem program for four for folks that I walk, I walk them through the execution of their their resolution strategy, whatever that might be. All right. So these are folks that that are capable of doing it themselves. They're comfortable doing it themselves, are not intimidated by the system. They just need direction. So I provide coaching to those folks. And then the higher level is direct representation for more complicated problems. And that's this. And those are the cases where I will submit a power of attorney to the IRS and actually become a person's representative or represent them in the United States tax court, as the case may be. So that's that's.
[00:45:54] Let me let me interrupt you one second. Something that wasn't clear on I think you just might have cleared it up. So you are not an attorney, is that correct?
[00:46:03] I am not licensed to practice law by any state Tom. I am admitted to practice before the United States attorney, before the United States Tax Court, and I'm admitted to practice before the Internal Revenue Service.
[00:46:16] And how did you get that designation to be able to do legal stuff if you're not an attorney?
[00:46:24] Because the United States Tax Court has a separate bar examination. And if you can pass that exam, you're in and I
[00:46:29] Say, OK, so maybe accountants would do that.
[00:46:32] It's possible. Yeah, it's a test Tom designed not to pass. When what I took the test many, many years ago, there were seventy six I think. Or was it eighty two of us. I forget the number that was right, call it right around 80 that took tests and forecast.
[00:46:52] Yeah. Yeah the I thought I just, I was thinking about it years ago. I'm glad I didn't but I was just trying to take the LSD and I said this is I don't want this. I can make a fortune by the time I ever become an attorney. So yeah. So they give you a power of attorney and then you are able to represent them. Okay.
[00:47:12] Exactly. So there's that. So that's so that's so that's one aspect we'll call the client work the representation. The second aspect is publishing between my newsletter and the books. I'm writing something almost every day I circulate articles to to the media. The National Review publishes a lot of stuff I write. The Los Angeles Tribune publishes a lot of stuff that I write. World Net daily Internet news site publishes a lot of stuff that I write. So my stuff is out there circulating on a regular basis. And then, of course, the books and as you mentioned, 15 books, the latest one, Small Business Tax Guide. And then the third element of our business is education. I teach tax professionals how to do the tax representation business. And so at at some point along the way, during the course of the week, I'm doing one or more of those things on an ongoing basis.
[00:48:07] Now, do you get paid on a percentage basis frequently like attorneys get paid a contingency fee, or how does somebody like you charge for your services?
[00:48:18] My coaching program is a flat fee. My representation program is billed hourly. I built my bill at at various rates, depending on the specific nature of the case. And so and so that's how the representation works. As far as the as far as the Tax Professional Association is concerned, that is a membership program.
[00:48:40] Ok, now do you have to travel like if you were representing somebody and I don't know, let's say Oklahoma City, do you have to go to the tax court in Oakland? A city to work on it or can it be done anywhere?
[00:48:54] Well, it can be done anywhere. I mean, my practice has been over the phone and through the mail from day one, 95 percent of my clients. I never I never meet. And that was that was true before the pandemic with the tax court. You know, if the case actually went to trial Tom in the old days, then, yeah, you'd have to start with the door of a courtroom in Oklahoma City or wherever you happen to be in Birmingham or, you know, just go down the list of where these cases might be during the pandemic. We're doing what they call Zoome trials, which is kind of a joke. I haven't actually done a Zuma trial.
[00:49:30] I say that you see the attorney that had the cat filter on him.
[00:49:33] Yeah, yeah, yeah. Exactly, exactly right.
[00:49:36] And please, please don't pull it. Jeffrey Toobin on on.
[00:49:39] You know that. I assure you, Your Honor, I am not a cat.
[00:49:43] You have to know that. Jeffrey Toobin from CNN, that story. No, I don't. Oh, my God. You got sick because he was the senior legal analyst for CNN, was masturbating on a zoom, got kicked out. Look, yeah, it did look it up and just put Jeffrey Toobin and there'll be plenty of.
[00:50:04] That's unbelievable.
[00:50:05] Yeah. Yeah. If somebody says don't pull Toobin on me, that's all. I'm going to
[00:50:10] Try to try to avoid that.
[00:50:12] Really, if I can remember to avoid that.
[00:50:16] So, so. So how do people get a hold of you.
[00:50:19] Yeah. The best way is right through my website. Taxhelponline.com. That's all. All one word. No spaces of any kind. If you're a tax pro in the tax professional business, you're looking to learn a little bit about representing folks before the IRS TaxFreedomInstitute.com. So taxhelponline.com is the consumer site for small businesses and individuals. TaxFreedomInstitute.com for tax pros.
[00:50:47] And the and the books are best bought through your site or Amazon.
[00:50:51] Yeah, that's the best way to do it, because if you buy a book from my site, any book that we have in print, if you buy from my site, you'll get a free 15 minute consultation directly with me personally. So for all you small business folks out there, they've got a question about this or that. Here's your opportunity to get an answer from somebody who has seen it all get the book. Dan Pilla, Small Business Tax Guide. You'll get a free 15 minute consultation personally with me.
[00:51:14] Beautiful. And what time zone you in?
[00:51:17] I'm in Central Time.
[00:51:19] All right. Well, boy, thanks so much for coming on. You've been a wealth of information and we could go all day probably with stories in the in this, but I really thank you. This is I love having somebody on here has been there, done that. And there's no question about their expertise, that's for sure.
[00:51:37] All right. Well, I appreciate it, Tom Thanks for having me. My pleasure.
[00:51:39] Ok, everybody. Hey, go check out taxhelponline.com, if you're a pro TaxFreedomInstitute.com, pick up some of Dan's books. I mean, I'm just going to read off some of the other titles. Are all of them still in print?
[00:51:56] Not all my but the ones you see on the website are in print. OK, he got all the fifteen are the ones on the website.
[00:52:02] Are they all physical or is there any ebooks. They're all physical. All physical. Now we got how to get tax amnesty. Still good?
[00:52:12] Oh, yeah, absolutely. In fact, that book, Tom, is about nine different revisions since it was first released in nineteen ninety two. That's the book that started the industry.
[00:52:22] And that's the one quarter of a million sold at least.
[00:52:25] Yeah, absolutely. That one of by the last revision of that book, Tom was just a couple of years ago, I went through and rewrote every word of that book. It's completely revised from start to finish all up to date.
[00:52:38] So you say nine revisions? Yep, nine of them. I always tell people I had a book that's in its fourth printing only because the first three were blurry. So how about the IRS problem solver?
[00:52:54] Yeah, absolutely. That's still in print. That's a bitch. And that's the book you want. If you don't have any problems with the IRS, you just want to learn some basic, basic things, some things to be aware of, some heads up kind of things. That's the one to start.
[00:53:06] So you don't get in trouble with the IRS. OK, how to win your tax audit?
[00:53:10] Yeah, that's a new book, too, that was released in twenty sixteen, I believe. And that is the most comprehensive book that has ever been written on defending the tax on beautiful taxpayers.
[00:53:23] Ultimate Defense Manual.
[00:53:25] Yep. That's still that's still in print. Still viable. Absolutely.
[00:53:28] And how to eliminate taxes on debt forgiveness.
[00:53:32] Very very very very important book. Tom. I wrote that book on the heels of the real estate market collapse in two and twenty twelve, twenty thirteen because there were millions and millions of people that were being being blindsided by the by the hidden tax on debt forgiveness income. Wow. This book is a unique, unique tool for folks to use that have gone through a bankruptcy or a foreclosure or a failed business or they've got any kind of problem financially where they where they really have hit bottom. And now you get blindsided by the IRS on debt forgiveness income. This is the book you need.
[00:54:13] Are they going to do that on these people?
[00:54:15] On things? States are doing it. The tax from the federal government cannot tax the loan forgiveness income, but some state governments do it. And right now there's just it's just a crapshoot as to whether they're all going to change the law or not. But most of them are taxing. It is debt forgiveness income? Yes.
[00:54:34] Where would people find what the list of states and what they're doing?
[00:54:39] Yeah, that's a good question. Go go to your State Department of Revenue website, whatever state you live in. Check out your State Department of Revenue website and do a query on their website as to whether for forgiven PPP loans are taxed as debt forgiveness income. That's the key. Is the forgiven loan taxed as debt forgiveness income?
[00:55:00] Wow. That's that's important for a lot of people to know. Nobody's even thought of that. You probably have a thousand of these to have you back to give a bunch more people things that. Absolutely.
[00:55:10] And I'll tell you something, Tom, there's all kinds of these these little programs, these giveaway programs that are in these last two bills. And I just I'm just finishing an article. You're an employee retention credit that every small business needs to know about. I just wrote an article last week that got National Review is going to be publishing on the restaurant revitalization program. If you've got any clients, any of your listeners that are in the restaurant business, they need to know about this. In a month and a half ago, I wrote an article on the so-called shuttered venue operators credit. I mean, there's just one thing after another one of these programs that nobody knows about.
[00:55:49] Wow. Yeah. This is a crazy time, that's for sure. But but thank God we got somebody like you around to figure it all out for us. So so thanks to the mountain in the hope, we'll have you back one of these days if you if you do it for us.
[00:56:05] Yeah, absolutely, Tom. I look forward to it.
[00:56:07] All right, everybody. Boy, you got an education today, I will tell you that. So check out all Dan's stuff and we will catch you on the next episode. See ya later.
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