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PaperclipPerfector  5d ago (text post)   2081 thread views

Friday Fun Thread for December 13, 2024

Be advised: this thread is not for serious in-depth discussion of weighty topics (we have a link for that), this thread is not for anything Culture War related. This thread is for Fun. You got jokes? Share 'em. You got silly questions? Ask 'em.

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This IRS investigation was due to poor accounting, not to any allegedly-exploitative lending practices.

This is the Friday Fun Thread. I posted this opinion to enable people to laugh at the car buyers. Alternatively, you can laugh at the dealership, if you prefer:

Around 2014 Mr. Aboui decided to close HPPO because his family was experiencing serious health issues and because HPPO was unprofitable.… HPPO ceased business by 2018.

 

Respondent [the Commissioner of Internal Revenue] began an audit of petitioners’ and HPPO’s returns in September 2015. **At that time petitioners’ accountant was gravely ill, and he later died. His death contributed to a lack of progress on the audit. In October 2018 petitioners gave a power of attorney to a new representative who erroneously told the Internal Revenue Service (IRS) revenue agent (RA) that HPPO was a cash basis taxpayer and that HPPO did not include the total sale prices in gross receipts in the year of sale. Other actions by the new representative further delayed production of HPPO’s records.** Petitioners later replaced the representative in an attempt to resolve the audit. However, by that time, after working on the case for nearly five years, the RA decided to close the audit.

During the audit petitioners produced or provided access to the DMV sales reports and dealer jackets as well as other records. These documents contained sufficient information to determine HPPO’s gross income but likely not HPPO’s deductible expenses. Petitioners delayed providing access to HPPO’s accounting software because HPPO did not retain a license for the software after it ceased business. The RA never had access to the software, but petitioners reactivated it before trial.

Or you can laugh at the IRS:

Because the RA concluded that petitioners did not provide sufficient records or access to HPPO’s accounting software, she went through the arduous process of reviewing thousands of pages of bank statements and canceled checks to determine whether the debits from HPPO’s bank accounts were used to pay expenses related to HPPO’s business.

 

When the parties were preparing for trial, petitioners offered thousands of pages of records to substantiate HPPO’s expenses and COGS as well as HPPO’s income. Despite encouragement from the Court, respondent did not review the records.

 

The RA testified that she treated HPPO as a cash basis taxpayer. The Code requires the IRS to use a taxpayer’s chosen method of accounting as long as it clearly reflects income. It is clear to the Court that HPPO used a hybrid method of accounting that reported its gross receipts from car sales using the accrual method and its expenses (and possibly other income) using the cash method. Taxpayers are permitted to use hybrid methods. Respondent has not argued that HPPO’s hybrid method does not clearly reflect income, and we find that it does. Rather, respondent tries to deny that the RA used the cash method even though the RA testified at trial that she used the cash method.

 

Mr. Aboui was incredibly forthright in this testimony. He admitted that HPPO received cash and used it to pay wages and other expenses. Also, HPPO acquired significant inventory through trade-ins that was not accounted for as debits in HPPO’s bank records. These facts, in addition to the RA’s calculations that show reporting of gross income significantly greater than HPPO’s deposits for 2013–15, make use of the bank deposit analysis to determine HPPO’s COGS and deductible business expenses extremely inaccurate. Furthermore, there is no indication from our review of HPPO’s returns that it deducted the payments from HPPO’s bank accounts that the RA identified as nondeductible.

How many man-years were spent on this case between everyone involved?

The saddest tragedy of the IRS is how it wastes such a massive amount of everyone's time on an activity that is among the most painful and boring possible.

After ditching several accountants for making mistakes, I do my own taxes now. My business is much simpler than this car dealer's. And yet, I spend on the order of 50-100 hours a year on taxes and other government bullshit. I hate every moment of it.

It boggles my mind that there are people, millions of people, who do this full time. What a horrible waste.

The negative externalities of our tax system are enormous. Imagine if the government forced everyone in the country to sit in a dentist's chair getting their teeth picked at for 10-20 hours a year. That's the level of pain we're talking about here.

fwiw, blame Congress (and the tax preparation industry), not the IRS. The IRS has asked Congress for years to simplify the tax code (and made suggestions about how it could be done). Congress chooses to make it complex, and guess which industry is opposed to making it less so?

I haven't read Graeber's Bullshit Jobs so I don't know if this is what he had in mind, but at least in my head canon the US tax preparation industry is certainly up there when it comes to bullshit jobs.

My business is much simpler than this car dealer's. And yet, I spend on the order of 50-100 hours a year on taxes and other government bullshit. I hate every moment of it.

It boggles my mind that there are people, millions of people, who do this full time. What a horrible waste.

I do this full time (don't worry, it's not too bad, it's only endless pain and suffering) and I endorse the sentiment in your comment wholeheartedly. Ideally tax should be easy, but it's prone to accrete over time and increase in complexity as politicians play political football, and in addition there are a massive amount of anti-evasion mechanisms in the tax code in order to try and cover up every loophole as they're discovered, like trying to plug a pipe that keeps springing leaks. The legislation inevitably becomes an unwieldy, incoherent mess that most people would give their left testicle never to look at again.

In addition, tax collectors' incentives are so ridiculously misaligned with that of the rest of the public that it's often farcical. Their leniency or harshness is highly dependent on their revenue collection targets at any given point, their audits can be capricious and arbitrary, and in cases of conflict between the tax office and a business (I have actually seen this before) they'll try to wear said business out through attrition and limit the avenues for appeal. Contesting them in court is difficult because they have a practically endless reserve of public money to fight you, and if you're a small business lacking knowledge of the intricacies of taxation law and accounting, your best course of action is to submit to the terms of the tax office. The whole thing is fucked beyond belief.

If you haven't read The Pale King, it may be consoling. Or infuriating, it could go either way.

As I understand it, one problem is that in our modern, (relatively) light touch economy*, fiddling with tax incentives is one of the government’s favourite ways to incentivise or disincentive things. Want to incentivise children? Then why not say that people have to pay 20% less VAT on a car purchase when they provide proof they’ve bought a child seat (so as not to be seen unfairly penalising the childless). Or the endless bickering about charitable offsets. Half the loopholes are there on purpose and the other half arise from the constant attempts to give out pork.

*As opposed to medieval monarchies or autocracies where people are comfortable giving orders.

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