What you’re signing isn’t necessarily what the nice salesman says you’re signing. A sad tax story in the Des Moines Register today shows how easy it is for a taxpayer to commit to a bad deal. The story, Misclassified: Iowa won’t refund veteran’s $5K payment, tells how a maintenance worker who was erroneously paid as an independent contractor by a Cedar Rapids furniture store ended up conceding a $5,000 sales tax liability he didn’t owe.
Iowa imposes a sales tax on “Janitorial and building maintenance or cleaning” for non-residential buildings. Because he was paid as an independent contractor, Iowa asserted sales tax on maintenance man James Robertson. He argued that he should have been classified as an employee, which would make the sales tax go away.
According to the story, Iowa was hounding him for unpaid taxes and preventing him from renewing his driver’s license. So he settled with Iowa for a $5,000 payment. From the story:
But he did so believing that the money he borrowed from a friend would be returned once a federal review process he was pursuing verified his claim he was not a contract worker.
The Internal Revenue Service on Oct. 14 determined that Robertson was indeed wrongly classified, documents he provided to The Des Moines Register show.
But that doesn’t mean he gets his $5,000 back, according to the Department of Revenue:
Victoria Daniels, a spokeswoman for the Department of Revenue, said it’s unlikely Robertson can win an appeal because he participated in what her agency calls its “offer in compromise” program.
Robertson signed a document during the settlement negotiations saying he accepts that “all administrative and judicial protests and actions filed in relation to these taxes and tax periods be dismissed.”
“When a person signs an offer in compromise, one of the things that they are signing their names to is the fact that they are giving up their appeal rights and the rights to get any of that money back,” Daniels said. “When you sign an offer in compromise with the Department of Revenue you are signing away any appeal rights you may or may not have had.”
Mr. Robertson didn’t think that’s what he had signed, according to the story (my emphasis):
Robertson said the documents he signed pertained to unpaid tax liabilities, not to his rights to a refund for taxes he never owed. And he said the department collectors led him to believe a refund would be made in the event it was shown he’d been unjustly classified as a contract employee.
This is why any battle between an unrepresented taxpayer and a tax agency is an unfair fight. The taxpayer drew a distinction between tax liabilities and tax refunds that doesn’t matter here. It’s all just taxes. While the nature of the document he signed may have been obvious to the people at the Department of Revenue who work with these things every day, it was all new and unclear to a taxpayer who had never encountered an offer in compromise. I hope he can find a way to get back his $5,000.
The Moral: In any tax controversy, be very careful what you sign. There are a number of ways you can forfeit important rights. If the dollars are big enough to matter to you, hire a tax pro. It doesn’t appear that Mr. Robertson did. Having a guide to the bureaucracy can be a big equalizer in an unfair fight. It’s not right to have to pay someone to help you avoid a tax you don’t owe in the first place, but it might be necessary to avoid something much worse.
Joseph Henchman, Open Letter: Errors on Peter Fisher’s Grading the States Website. The brilliant Mr. Henchman takes on U of Iowa prof and tax complexity advocate Peter Fisher’s attack on the Tax Foundation’s State Business Tax Climate Index.
Like most people who dislike the Tax Foundation’s ratings, Mr. Fisher doesn’t like the Index because it doesn’t measure things he wants to measure. But the Index only tries to measure business tax climate. It doesn’t measure regulatory climate, or quality of education, quality of life, weather, or income inequality. And because it makes states with certain tax policy sets look bad, people with an affinity for high taxes or crony capitalism try to change the subject.
Paul Neiffer, What Gets a Step-Up. “I continue to get questions regarding how much of a step-up in cost basis farmland gets when someone passes away. Again, as with most tax questions, it depends.”
Kristine Tidgren, Iowa Supreme Court Says Ag Lease Violates Iowa Constitution (Ag Docket). “Article I, section 24 of the Iowa Constitution states that no lease of agricultural lands ‘shall be valid for a longer period than twenty years.'”
William Perez, Should Married Couples File Taxes Separately? “The Married Filing Separately filing status provides fewer tax benefits than filing joint returns, but it does protect each spouse from any tax mistakes the other spouse makes.”
Jim Maule, “Who Knows the Tax Code Better Than Me?”. “No, it’s not ME asking that question. Who asked it? According to this story, Donald Trump did.” I suspect Mr. Trump knows just enough to hire someone who really does understand the tax law.
G. Brint Ryan, Fee Arrangements are a Matter between Taxpayers and their Advisors. “In an important win for business against government encroachment, a California Superior Court recently invalidated a rule restricting taxpayers from paying performance-based fees for professional services.”
Robert D. Flach, WHAT IS GOFUNDME?
TaxProf, The IRS Scandal, Day 993. “Citizens Against Government Waste, CAGW Names IRS Commissioner John Koskinen 2015 Porker of the Year”
Jacob Sullum, Corny Crony Capitalism in Iowa (Reason.com). “The RFS raises food prices and imposes a hidden tax on motorists because ethanol is more expensive than gasoline and produces less energy per gallon. Between 1982 and 2014, Manhattan Institute Senior Fellow Robert Bryce found, ethanol cost an average of 2.4 times as much as an energy-equivalent amount of gasoline.”
Howard Gleckman, Tyco, Tax Inversions, Income Shifting, and Lost Revenue (TaxVox)
Stuart Gibson, The Dissonance of European Tax Harmonization (Tax Analysts Blog). “The question: Why do so many Americans, even those new to the country or born to immigrant parents, find it so easy to self-identify as American, while so few Europeans identify primarily as European?”
Meg Wiehe, What to Watch for in 2016 State Tax Policy: Part 1 (Tax Justice Blog)
Career Corner. How Will Your Team Air Its Grievances This Busy Season? (Caleb Newquist, Going Concern).