Read The Transcript Below:

Steven (00:52):

Hello everyone and welcome to the next episode of the Retirement Tax Services Podcast, Financial Professionals edition. I’m your host, Steven Jarvis, CPA, and I’m particularly excited for this week’s episode because we get to talk about one of the comments I make to my clients all the time, to advisors all the time, and that’s, Hey, no one’s going to jail over this. And I’m really excited to welcome my guest, Robert Nordlander, who’s a CPA and a Certified Fraud Examiner. Someone with years of experience working for the IRS to talk to us about when people do in fact potentially go to jail for tax issues. So Robert, welcome to the show.

Robert (01:28):

Thank you, Steven, I appreciate it. It’s a pleasure being on your podcast.

Steven (01:31):

Well, super excited for the conversation. Before we dive into all of the questions I’m interested in asking, why don’t you give us a little bit more about your background and just kind of the place of authority you’re speaking from on this topic.

Robert (01:41):

Well, when I was a teenager, I wanted to be an FBI agent and FBI at the time was hiring attorneys and accountants. That’s where they were hiring back in the 80s, and I ended up getting an accounting degree. My father was a CPA, graduated a little early from college, a little too young to join the FBI, started with the CPA practice with my father’s, my father and I. We did the compilations, the reviews, the audits, the whole thing. We were a jack of all trades, right? Left there, went to, spoke at a part of a college for two years, tax and accounting, intermediate the whole, the CPA exam prep, all that type of stuff. Didn’t get a job. June of 2000, I got a job with the IRS criminal side IRS criminal investigations and they had the sole authority in tax crimes and it was a perfect marriage between my love for law enforcement because I grew up watching chips and Miami Vice, SWAT, all this great TV shows, and it was a great marriage between law enforcement and accounting. And so I took my accounting skills and worked with the IRS criminal division and did nothing but trace the money. Where did money come from? Where did money go to? And spent 20 years, a little over 20 years doing that, chasing the bad guys, carrying the gun, the blue lights, the undercover operations, going overseas, all that stuff. When people think of Homeland Security, DEA, secret Service FBI, they think of gun toters, right? Well, the IRS has their own law enforcement function and that’s called criminal investigators or AKA special agents with IRS, but they just do nothing but tax crimes, white collar and money laundering. So that’s what I did for 20 years and after that started a CPA practice and now I focus on two things, tax resolution, how to solve tax disputes, large ones with the IRS, and then number two is forensic accounting, which is really nothing accounting in court. So I follow the money where the money come from, where to money, go to, divorces, partnership disputes, bankruptcy, fraud, criminal issues. I do the whole gamut, but that’s what I do now.

Steven (03:42):

That’s a really impressive background. You’ve done a lot of great things in your career, Robert. The question I want to start with is I work with hundreds if not thousands of advisors at this point, and by extension many of their clients, and I see people who in my opinion, are trying to do everything by the book. They really are trying to pay their taxes. Maybe they’re trying to be proactive with their tax planning and not tip the IRS, but none of these people are out there trying to hide things from the IRS, but they seem to be the ones who are most concerned about getting in criminal trouble with the IRS. So put people’s minds at ease, or at least the people who are doing their best. When does something actually rise to the level of, Hey, I should be scared of the IRS?

Robert (04:22):

Well there’s two different ways to deal with the IRS, civilly and criminally. Those are the two main things, civilly where we all deal with the form 1040, we file our personal tax returns, our corporate tax returns and that type of thing, but the burden of proof is on the taxpayer to have the receipt, right? If you don’t have a receipt, you don’t get the deduction. That’s typically how it works out, and for the most part, the civil is just what the civil does. They audit, they collect, they get nasty sometimes. They’re not very customer service oriented. It’s just what the civil does. The criminal side is a slightly different animal because the criminal side is proof beyond a reasonable doubt, but the proof is on the government to prove this. It’s no different than bank robbery. It’s no different than murder. Your audience are 12 people sitting in a jury box who determine whether or not someone should go to prison or be found guilty of some type of crime. So the burden shifts from the taxpayer to the government on the criminal side of things. Now, when taxpayers get in trouble, typically there’s something called willfulness, criminal intent. What was the mind frame of the taxpayer when this happened? I’ll give an example. Transposing numbers. It should be a nine or a six, six versus a nine that has no criminal intent. That’s a mistake, not a problem. Missing something, a 1099 off your tax return. That’s a mistake. It’s not a problem. , That would be criminal. When they look at is the willfulness side is many factors. One would be the number of years you’re doing this. Was this a one year mistake or a 10 year mistake? Is it technical in nature? They’re not going to put you in prison because you’d depreciated something over five years versus seven. That’s it’s just too technical in nature. What they’re looking for are people that are going 85 and a 55, weaving in out of traffic, throwing beer cans out the window and giving everybody the middle finger. That person has to be stopped. So that’s what criminal investigation does, are the people that are obvious that need to be stopped. For example, large tax losses. Many years we’re dealing with hiding things from the IRS hiding things in the return, prepare, not disclosing all their income, put in their income in a nominee name like the girlfriend’s name, putting money overseas and not telling the government about it. Then spending the money. Because what people, when they commit tax evasion, they’re typically not reporting everything to the government, but then enjoying the fruits of it, right? The easiest case that I had as a criminal investigator were the ones that were getting earned income tax credit. They claim to make $10,000 a year, but lived in a million dollar house. It is called a clue. It’s obvious something is going on. Now, they could have inherited things, which is fine, but for the most part, if it’s, I’ll give you an example. The typical construction general contractor, right? He’s got all his money coming in, he is building houses, remodeling houses, and yet he makes only $10,000 a year, but he lives in a nice house and has a fancy truck, right? And his kids go to Disney World three times a year and go to private school, but reports $10,000 a year. That’s something that they would definitely look at for sure. So there has to be a criminal element to it, and usually it’s the willfulness angle that causes it go from a civil issue to a criminal issue. We’re not talking about mistakes, we’re talking about the intention. If you’re creating a false document, that’s easy. It’s really easy to say you’re criminally trying to hide things from the government. If you’re transposing numbers or somehow forgot a 1099 on interest, that’s not really a criminal issue.

Steven (08:11):

Really helpful perspective. I appreciate the specific examples in there because really my goal, and you’ve really reinforced this, is to illustrate to your typical taxpayer that this isn’t something that you’re going to be inadvertently at risk of. You either have to be incredibly ignorant and stupid about what you’re doing, which if you’re working alongside a financial professional, you’re at least making an effort in that direction or you’re, I like that word willfully. You’re intentionally going out of your way to try to hide things from the IRS to try to pull one over, and yeah, of course, that’s going to come back to bite you just like in any other area of the laws that we all get to follow. So that’s really helpful. Robert, if we change gears just a little bit. We were talking about this before we hit record. I think what might also be interesting to listeners is just some perspective from someone who’s been on the other side of this on the IRS side of this, of how do we navigate just what can be an incredibly frustrating system that is the IRS that mistakes get made. Communications are unclear, trying to unravel some of these things that come up when a tax return gets filed, but the IRS doesn’t associate the payment correctly with the right year. What’s your advice to people as we try to navigate working alongside the IRS on non-criminal issues?

Robert (09:26):

You’re not alone. Everybody’s got a problem and there’s no real good fix. This is an internal systemic problem with the IRS. This is not the taxpayer’s fault. It’s not the tax professional’s fault, it’s the IRS’s fault. Now, how do you fix a government agency that just misbehaves or is sloppy? The answer is you got to vote. People in that actually put the squeeze on the IRS to get their act together. That’s really the answer, but I’m on the same page with everybody else. When I worked for the IRS, yes, I knew that things were sometimes archaic, kind of weird. While they’re doing certain things, some things make sense, some things didn’t. But when you get on the other side of the table with the IRS, you realize that there are, and we knew this internally, there are a lot of, and sometimes there are good people, don’t get me wrong. There’s a high percentage of laziness or incompetence that gets glossed over. As long as they have a warm body, they’re happy. And frankly, we had this saying at the IRS, you could be as a dumb as a box of rocks and work there, but don’t be dishonest because we can fix issues internally in the IRS. If someone was just incompetent, we can fix these types of things and no one gets hurt, but if someone lies, especially from a criminal standpoint, when someone lies, then there’s integrity issues and they have to be fired. So they put up, frankly, with a lot of stuff at the IRS that they shouldn’t have, but because of the unions and how it operates, once someone gets entrenched in that seat, you just have to deal with it, and I have to deal with it too on the other side. So it’s not just you as a tax professional. II’m dealing with this and the thing and the fact of the matter is that I know garbage when I see it, I know where to look at because I worked for the IRS. I know what files to look for. I know what should match. That doesn’t match, and I call ’em out on it, and at the end of the day, I don’t get to do the evaluation of the auditor or the revenue officer who’s collected. The manager has to deal with it, and so if I have to go to a manager or above the manager, it’s fine. I have to do what I have to do. Taxpayer advocate, we can deal with it, but at the end of the day is that person will get fired. More than likely not. That’s just the way it works, unfortunately.

Steven (11:56):

Yeah, there’s some really good reminders in there. I like that you started with, you’re not alone. I mean, just like any organization, especially any large organization, there’s going to be people who are good at their job and people who are bad at their job. There’s going to be a handful of people like you who were excited about getting into the criminal investigation side that you had this enforcement interest. There’s a lot of people who work at the IRS who just wanted a good job with good federal benefits that this wasn’t for most people working at the IRS, this wasn’t their dream as a child that they’re now fulfilling. They’re punching a clock and trying to do the best they can, and those are important reminders. I think to keep in mind when you get those love letters from the IRS and I look at some of ’em and think, how are we even dealing with this? It is such just an administrative debacle of what box did or didn’t get checked, but again, you got to remember there’s real people on the other side of that table. You got to remember that if we’re doing everything, if we’ve got the right documentation, if we’re not willfully disregarding the IRS rules, we can get these things sorted out. It is probably going to be a bit frustrating, but there’s absolutely avenues for getting these things resolved. Which leads me to another question I wanted to ask you, Robert. You mentioned that you now specialize in tax resolution, which within the tax professional world, that’s really common terminology. It’s not terminology that a lot of taxpayers are familiar with unless they’ve had to go through it themselves. So talk a little bit about what tax resolution is and at what point someone should start thinking, Hey, I need to work with someone who specializes in this as opposed to just my CPA who’s preparing tax returns.

Robert (13:28):

You’re right. The IRS is a behemoth of an animal, and most of the times when they get something from the love letters you get from the IRS is a standard form letter that says, Hey, ding, dong you forgot to do something or We don’t have these records, and even though you sent it, it is just what it is. And you’re right. You tell your taxpayer or your client, just be patient. We can get these things fixed. It’s just not going to happen tomorrow because of the customer services stink, honestly, and if you call the phone number, good luck even getting someone to answer it courtesy disconnect, that type of thing. But you were talking about tax resolution and how it’s different. Well, the IRSs is interested in one thing. Compliance. Everybody except for a small business, people who don’t qualify has to file a tax return, right? The issue is that when this tax return is audited or the tax is off, the IRS starts collecting, and when they start collecting or start delving into people’s finances through either through an audit or through some type of a collection procedure like garnishment of wages and liens, well, it’s a different animal than just the tax law itself. The reason why I say this is because of this. When you go to accounting school or you go to CPA training, you learn how to calculate taxes, not a problem at all. What you don’t learn is how to solve the problem. Once the tax has been assessed and the IRS is on their back, no one teaches this stuff. You have to learn it almost yourself. It’s not taught in schools. You take a course on it or I get experience in it, so intentionally, I’ve done my fair share of taxes in the CPA world. I just don’t prepare tax returns anymore because number one, there’s a couple of things. It’s cumbersome. The laws change every year. The software changes. It’s now becoming a commodity in a lot of ways because you’ve got all these computer software that supposedly can do it for you, right? Even though they’re probably not very good at it, but they still do it for you. People still have errors they put into the system, and so the value in my opinion is the tax resolution side is that when a client gets themselves in trouble and the IRS is bearing down on them, what can I do to help solve this problem between the IRS and the taxpayer, and then that’s what tax resolution is. It’s just dealing with tax disputes. It’s going from, oh, by the way, I withdrew money out of my IRA to pay for some medical bills, and the IRS now says I owe $30,000 and with an extra $20,000 in penalties, whatever else, it’s like, oh, $50,000 going to take money out of my IRA. They need help solving this problem because the IRS is not known for its caring their customer service, so they have to have someone to understand the ropes to do this, and so that’s what tax resolution is all about, is help solving these large tax problems, and that’s what I think I do well, I’ve written a couple books about it. Frankly, my value in the marketplace is higher because if someone’s looking at a $50,000 tax bill and the IRS is putting liens and threatening to gar of wages, they’re going to pay a little bit more than $500 for that tax return that you prepare to begin with, so they’re going to pay my fee and they’re going to pay it well, and they’re going to be happy at the end of the day because we’re going to resolve this issue. Some things can be resolved well, and sometimes the client frankly shot themselves in the foot. Only thing I can do is mitigate the damage, just what it’s, and sometimes the IRS end a mistake, and there has to be people that stand in the gap between the taxpayer and the IRS to keep the IRS from steamrolling over our clients. So that’s kind of what I do is just stand between the IRS and the taxpayer and making sure the taxpayers getting their affairs shake. I don’t change the tax laws. I can only just implement without their, and just give the client the best deal possible. That’s what I do.

Steven (17:26):

Yeah, that makes a lot of sense. Just to draw out a couple of things there, if I’m hearing how you’re describing that correctly, and just pulling from my own experience, I don’t do the full tax resolution side myself, but I definitely will come alongside clients when it feels like a more simple matter because there’s a couple of things that can come up in what you’re describing. One could be, Hey, the IRS just flat out made a mistake. We definitely see that. It feels like we’ve seen more of that recently. Sometimes that’s as simple as writing letters and clarifying what happened. We can cross our fingers and hope that works the first time. It usually takes a couple of tries, and I definitely get to points where I say, Hey, the IRS is not responding to what’s going on here. We need to work with the tax resolution specialist. There’s this bucket of, and this sounds more like what you’re describing with the additional distribution for healthcare expenses from an IRA where we attempted to apply the rules correctly and maybe not all of the information got to the IRS, so it’s not necessarily that the IRS made a blatant mistake, but clearly something hasn’t been addressed correctly, and so we’ve been assessed a tax bill that ultimately we don’t believe we owe, but we somehow have to show the IRS that we don’t owe that. Then the next step from there would be, Hey, I owe a crap ton of money to the IRS and I have no idea how to pay it or how to resolve it. I’m trying to make sure my house doesn’t get a lien. My wages don’t get garnished because I think all of those things can fall under this umbrella of tax resolution, but there are different categories of what that looks like.

Robert (18:52):

Yeah. What you’re looking for in a sense, you’re looking for a guide. There’s a guide that either is helping you solve that small problem or a guide that’s helping you solve that large problem. Either way, it’s a problem with the IRS. Some are small and it can be resolved easily. Some are bigger and have to have a little bit more expertise behind it, but yes, it’s kind of a big umbrella of tax disputes. Some are small, some are large. The small ones, frankly, some people can do by themselves, but it is just frustrating and there’s a cost-benefit. Do you hire a tax professional to help you solve this problem or is it just you just paid the bill and be done with it? There’s that element to it. There’s also an element, I’ll give you an example. I have a lady that owes a million dollars in taxes because of a divorce. The iIRS is threatening her to sell her children and everything else in order to pay this tax bill. She wants to know what can I do the best way to resolve this thing without losing everything I have, and so I got to deal with what the rules of the IRS has to abide by what the regulations say and just kind of guide her through the process. Does she still owe the million dollars? Absolutely. We have no dispute over to bill. Now. We have to dispute whether or not how we can pay this to the best of our ability within the guidelines set by the IRS and set by Congress. That’s where, frankly, where the value of someone like myself gets paid is the Navigate is the guide. I’m like, Yoda, you got to just tell ’em how this is how you do it. This is how you figure it all out and it work out okay, we still owe the million dollars, but we still got to make sure that the IRS is not steamrolling over our client either.

Steven (20:27):

Robert, as you’re describing that, I mean part of the reason I wanted to have you on the podcast and talk about this, I am sure there’s people listening who think, Hey, that all sounds nice, but I’m never going to have to deal with those issues. That’s not what my clients do. My clients don’t have back taxes, whatever justification you want to give yourself, but what I would encourage people to think about is that paying taxes, which to your point, almost all of us have to do and file our tax returns. This is a lot like driving a car. If you drive a car long enough, you are going to have a flat tire, you’re going to have engine trouble. These things are going to happen inevitably. Just because they haven’t happened yet doesn’t mean they can’t happen, and I think what’s so much more frustrating about the IRS than driving a car because most of us don’t know how to fix our cars either, is that I think most people accept that, Hey, I could get a flat tire. My car could break down. I think a lot of people aren’t even aware of the fact that some of these things can happen with the IRS in just kind of the normal course of being a taxpayer, and so it becomes a lot more just emotionally draining and shocking and scary and all of these things because for a taxpayer who hasn’t been through this, they think, well, I’m going to file my tax return every year. Nothing could possibly ever go wrong. I’m an upstanding citizen. I’m never going to get in trouble with the IRS. And so when they get that letter that says, oh, actually, Robert, you owe this extra $27,000, so go ahead and pay that in 30 days, and here’s the penalties and interest. It’s almost this completely shocking moment of life is not what I thought it was.

Robert (21:54):

In a lot of ways, as a tax resolution professional, we are a therapist. We have to talk our clients off the ledge. This is going to be okay. We’re going to be able to fix this, and fixing this means either you don’t owe all the money or maybe you owe some of it, or maybe you owe all of it, but we’re going to be able to deal with the IRS. It’s not going to be a month. It maybe six months for us to deal with this, but we can fix this thing. But I will tell you this, Steven, in my opinion, tax problems are a symptom of underlying problems. They’re not really the problem itself. They are an underlying problem. They could be the bookkeeping issue. It could be a client. You’re not turning over everything to us. There’s a reason why the 1099’s missing because you didn’t tell us about it. It’s your bookkeeping state. You’re not telling us everything. You’re not putting a little bit more due diligence into this. You’re not paying your payroll taxes because you don’t have a good business. You have a lemon, and you will admit you have a lemon just yet, but you’re not paying the payroll taxes because your business stinks. You’re going to have to do something to solve this issue. So what I talked to my clients, there are a couple of times where frankly, the iIRS is messed up, but I would say or say 90% of it is self-inflicted somehow. Some way it’s because people are missing things. They don’t keep the right documentation or they go on TikTok and get some financial advice and then wonder why things messed up. So as a tax professional, me, I get down to the root of it going, this is not really the IRS’s fault. It’s your fault because this was not in place. Let’s fix this. So next year we won’t have this. Hire me, we’ll get it done. But your problem is, is your bookkeeper just know what we’re talking about? Yes, they’re your cousin. Yes, they’re your sister-in-Law or your daughter-in-Law, and yes, I know you love them, but they should not be the bookkeeper, right? This is causing you more headache than what it’s worth, but I got to have these conversations with them, and sometimes I guess they appreciate the truth, but it’s tough pill to swallow. And so even when it comes to forensic accounting, forensic accounting typically is because there’s an underlying issue. Someone’s stealing money, lack of internal controls. There are these issues that cause this to have me be hired. So that’s the way I look at it. Steven is from our tax resolution or tax dispute standpoint, and most of it’s self-inflicted. They just didn’t think this thing through or weren’t due diligence in their record keeping, and this is why I get hired to help solve these problems. Sometimes it’s the IRS’s fault. Yes, many times it’s just not. Sometimes it’s just a penalty that got assessed that the client does have a legitimate excuse. They’re in a hospital, the tax term wasn’t filed on time. Those are easy things to deal with. I can handle those, but yeah, the IRS is just assumed evil, and then we have to fix that. Most of the stuff I’m seeing, Steven, frankly, is just self-inflicted.

Steven (25:04):

Robert, there’s a lot of really great wisdom in there. I really appreciate you sharing that. Take it back to this car example. There’s a lot of preventative maintenance we can do with our taxes as well. There’s a lot we can do to get in front of it. That doesn’t mean you won’t ever hit a bump in the road and still get a flat tire, but you’re absolutely right. We should focus on what we can control. And so for action items out of this conversation for our listeners, making sure that you are looking for those things and helping your clients be preventative. We would rather do a little extra work upfront to get things clean and avoid these situations. The IRS, because once the can of worms is opened, they are incredibly frustrating to get resolved. And so another important action item on this topic is that if your clients are getting communications from the IRS, you need to help set the expectation that this is going to take months, if not years to resolve, not days and weeks. That’s just the reality of it. And so we don’t want to get carried away thinking, oh, you know what? One phone call, one letter, this is going to be done. I routinely set the expectation with clients when we’re interacting with the IRS that, Hey, this takes a long time. So Robert, before we wrap up the episode, talk to us just a little bit about the books you’ve written and where people can find them.

Robert (26:11):

I got a couple books. One of ’em is called, lemme See This Criminal Tax Secrets. It’s really for tax professionals, especially attorneys that deal with things that go from a civil issue to a criminal issue. If you really want to know how the IRS evaluates this book is regarding all that, there’s also something called unpaid payroll taxes, which is another one here. Unpaid payroll taxes is really, frankly, the easiest way to lose a business, to lose friendships, to lose your income, and frankly, to go to jail. Unpaid payroll taxes is the easiest way to go to prison. It’s unbelievable how people think that, oh, I’ll just pay the IRS later. But people don’t realize that when they pay the payroll tax, when they take money out of employee’s paychecks, that’s held in trust. And trust means that it’s really the government’s money that should be turned over to the government on time.If it’s not turned over on time, the government considers a theft. That’s another one and how to deal with that. The other third one is called erase the penalty. It’s also on Amazon. This deals with how to fix those penalties that get assessed on taxpayers. There are ways to fix this. Many times they can be removed, but you got to craft an accurate story with documentation. And this book is for tax professionals. All of these books I’m mentioning are on Amazon. You can look up my name and see it, but they’re out there. There are four tax professionals for these individual topics, and if those who are CPAs or listeners here, I have courses out there. You can Google my name. You see, I got courses out there that you can get CPE credit for, and a lot of these courses that I have are really the books in a course format. So that’s how that works.

Steven (27:55):

Well, Robert, thank you for all the time that goes into creating those resources. That is not a small commitment and really appreciate you coming on and sharing your experience here on the podcast today.

Robert (28:03):

Well, thank you, Steven. I appreciate it. I appreciate all the work you do.

Steven (28:06):

And to everyone listening, thanks for being here. Until next time, good luck out there, and remember to tip your server, not the IRS.