Episode Transcript
[00:00:00] Speaker A: Welcome to Money Gurus. I'm Matt Jaruf. We're looking for voices who bring practical insights, real case studies, and actionable strategies that help our viewers strengthen profitability, improve financial systems, and lead their business with confidence. We want to hear your story and help share it with a national audience. This is Money Gurus on NOW Media Television.
[00:00:23] Speaker B: Welcome to Money Gurus. I'm Harsh Chadhav. And today we're talking about a topic many business owners avoid until it becomes urgent, and that is IRS tax problems. Taxes are already complex, but when audits, collections, appeals, enforcement actions enter the picture, the stress can affect cash flow, operations, leadership decisions, and even, really, the future of the company.
My guest today is John Mitchell, an IRS tax problem resolution professional with experience as an enrolled agent, former IRS appeals officer, a tax attorney, a National Tax Practice Institute fellow, and a US Tax court practitioner. John, welcome to Money Gurus.
[00:01:06] Speaker C: Man, oh, man, harsh. I am overjoyed, happy, you know, just overflowing with joy to be on the big show with you today. It's an honor, it's a privilege, and I really appreciate being invited, so. So thank you for that, John.
[00:01:22] Speaker B: It's a pleasure for me and a privilege to have you on the show.
[00:01:25] Speaker C: Thank you.
[00:01:25] Speaker B: Now, John, you have a very impressive background as a tax attorney, enrolled agent, U.S. tax court practitioner, and you sat on the other side as an IRS appeals officer. That means you understand how the IRS works on the inside.
That's really powerful and a big advantage to your clients, especially when the IRS is being unreasonable.
Now, when business owners realize they have a serious IRS problem, what is the first thing they should understand before they react emotionally or make a quick decision?
[00:01:58] Speaker C: You know, the first thing I always tell people? Take a deep breath and clear your head, because you're gonna, you know, you're gonna need to look at this with clear, you know, clear vision and open eyes.
But don't, you know, don't panic, right? I always tell people, don't panic. Don't be afraid. A lot of times that. That being scared comes from not knowing, you know, not knowing what's going to happen, what's going to come next, etc. Right?
But I have been privileged to be in this game for many, many years now. I've been privileged to be able to help people kind of look past that and. And hold their hands and walk them through, you know. Yeah, I walked through the valley of shadow of death, something like that. Yeah, that's. That's me, right? I'm right there with you. And don't be afraid, because Sometimes people come to me and they think that things are way worse than they really are, right? So I would tell people, walk into it with open eyes.
Don't ignore it, but walk in with open eyes and know that there's probably a good chance that things aren't. Things aren't as bad as you think they are.
[00:03:11] Speaker B: That's encouraging. That's encouraging to hear. And I think, you know, like, you know, engaging with a strong tax professional like you early probably will make it easier for somebody to understand what the next steps are. And from your experience, you know, what are some of the most common mistakes you see entrepreneurs make when they receive an IRS notice or an audit letter or some kind of collection demand?
[00:03:34] Speaker C: You know, I mean, I'm sure you've seen this as well. It's. It's such a common thing that it becomes cliche, right?
You can always count on. There's going to be people show up in your office, and they'll come in, they'll make an appointment, they'll sit in your waiting room, and they'll pull out of a, you know, grocery bag or something, big stack, you know, this big of IRS letters, certified mail. And all of the letters are unopened, right? And so we have to pull out the big, you know, the big, long thing and cut the envelopes open and see what. What surprise there is. And these things are postmarked from, you know, two, three weeks ago, whatever the case may be. And so one of the things I tell people, try not to get so scared that you're scared to even open the mail from the irs, right? Because, you know, you might be, you know, TikTok. TikTok, right? Like, you might be. Time might be slipping by and you might be losing your opportunity to actually go through and, and fix some of this stuff, right? You let it go too long, you know, rights lapse, and you lose them. And now you got to start off, you know, from. From behind the eight ball, so to speak. So that's the big thing I tell people.
[00:04:55] Speaker B: That's actually a really great point because, I mean, you're right, like, all of the letters have some sort of time frame that you need to respond by. And usually the longer you take or if you keep avoiding some of those letters, you. Your rights beginning, begin to diminish a little bit. You don't have as much time or as much ability to respond the way you probably should. 100% agree. You know, I think the IRS knows being able to respond to them right away is a big thing. And, you know, if you're not sure, probably when you open it, you contact a tax professional like yourself to really discuss and understand, you know, really what are some of the nuances and maybe the best way to respond. So I agree with you. It's a great point you're raising.
Now, how does an iras tax problem typically affect, like, maybe business, cash flow, financing decisions, payroll, and even the owner's ability to plan ahead?
[00:05:47] Speaker C: Well, you know, that's an important thing. You have these, you know, any of us, I always say bad things happen to good people, right? And so you can fall behind. You know, you can maybe suffer a death in the family or an illness or, or whatever the case may be, something that precipitates, you know, you fell behind with your tax obligations. Right.
But what I always, what I always tell people is jump on it and get, you know, get that taken care of, you know, sooner rather than, rather than later is, I guess, my best advice in that, in that aspect.
[00:06:28] Speaker B: And that's. That's true. And John, do you find like, you know, let's say, you know, a taxpayer went through a divorce or maybe a death in the family, is the IRS understanding of those events or are they just really on it, strict and, you know, not really willing to listen to the taxpayer?
[00:06:45] Speaker C: No, I mean, in fact, rules and regulations of the IRS and the IRM Internal Revenue Manual, you know, go into great detail about how IRS officers and IRS employees should be taken into account.
You know, when they're going to do, let's say, an enforced collection, actually get somebody. Well, they need to take into account how that's going to affect that person. Right.
So that's actually written into the rules for them. And so that's kind of also one of the reasons why a guy like me can come in and get some more, some more traction, because I know how to just take a step back, hit that pause button and say, hey, wait a minute, irs. You, you guys know the situation here.
Take it, you know, take it easy on my guy, right? He's got a death in the family. He's had an accident. He's had a, you know, injury come about.
And, you know, it's usually it is on the other side, you know, on the other side of the table, there's not just a machine, a robot. Right. Artificial intelligence, although God knows that might change soon.
But there's a human being on the other side of the table. And I've found that if you're able to kind of get the story across and let the IRS folks know that you're not just somebody that's trying to get out of their obligations.
You've had some kind of problem that was outside the scope of your ability to not have that problem, and you're dealing with it. You're doing your best. I think you can find a lot of understanding on the other side of the table.
[00:08:30] Speaker B: I think you're right because I think even my experience when I was a former IRS agent, I would always try to understand where the taxpayer is coming from, really kind of what their story is. Because you're right, like you said earlier, bad things happen to good people, and we understand that. We're, we're all humans at the end of the day. And even working with an IRS agent, you know, I think they, like you said, through the Internal Revenue Manual and other, you know, of their policies, they are very, they're much more taxpayer friendly these days. So I, I definitely agree with you. I think there is hopefully a sympathetic ear on the other side. And I think, you know, your experience as a former appeals officer comes in in a big way because you really do understand, really how to deal with them maybe more administratively versus maybe another CPA or an attorney who doesn't experience. So I think that's a big thing, which we're going to talk about in segment two a little bit more about that.
But, like, in terms of, like, if there's a difference. Right. There's probably a difference between maybe, let's say a tax issue that's purely a compliance matter versus maybe taking a step back and looking at it more as a strategic business problem. And just wanted to get your thoughts and maybe how you work with your clients, differentiate the two.
[00:09:44] Speaker C: Right. Well, you know, that's a very important thing you're saying there. And I always try to look at, you know, nothing happens in a vacuum. And we even have a saying in the tax business.
Don't let the tax tail wag the financial dog. Right. Something to that effect. Right.
Which, you know, kind of means that taxes. Yeah, it's important to be in compliance. It's, you know, it's a good thing.
But don't lose sight of the big picture. And so, you know, when I deal with clients, the thing I like to do is I like to deal with them holistically. Right. I'll sit down with a new potential client that comes in. If we're a good fit, and they decide they want to hire me, well, the first thing I do is sit with them, if at all possible, in a kind of a meeting.
A lot of people don't want to come in person. Nowadays, they're doing either, you know, zoom or Microsoft Teams or Google Meet or whatever the, you know, whatever the app of app du jour is.
And you know, and so I like to, but in some way or another, I like to sit down with people and take a zoom out, take a look at the big picture and see is there something fundamental that we need to look at or change or modify or whatever so that tax, your tax compliance can be smooth, right? I don't look that as an end all, be all. I think tax compliance is kind of, you know, kind of a byproduct of having your stuff in order, right?
[00:11:15] Speaker B: I think so, yeah. I agree with you. And I think, you know, like you said, you know, having sort of that strategic view of things, you know, compliance is, you know, that's, that's mandatory. We all understand that's not an optional thing. But when you're looking at it strategically, you're able to plan ahead and really, you know, think about, you know, maybe some of the events that are coming up in your business that you need to plan a little bit better for. It may be a better way of handling things. So I agree with you on that.
[00:11:40] Speaker C: That.
[00:11:41] Speaker B: All right, so we're gonna, this is, we're gonna talk about this. The tax problem obviously does not have to define your business, but ignoring it can make the problem more expensive, more stressful, and harder to resolve. After the break, we will look at credentials and experienced business owners should understand before choosing someone to represent them before the irs. We'll be right back.
[00:12:04] Speaker A: We'll be right back with more financial insights, strategy tools to help build a more profitable business. This is Money Gurus on NOW Media Television. And we're back with more financial insights, strategy and tools to help build a more profitable business. This is Money Gurus on NOW Media Television.
[00:12:25] Speaker B: Well, welcome back to Money Gurus. Stay connected to Money Gurus and every NOW Media TV favorite live or on demand, anytime you like.
Download the free Now Media TV app on Roku or iOS and unlock non stop bilingual programming in English and in Spanish on the move. Catch the podcast version on www.nowmedia.tv. from Business News to lifestyle, culture, wellness, innovation and beyond, NOW Media TV is streaming around the clock. Ready whenever you are. Welcome back to Money Gurus. And before we had before the break, John Mitchell and I were discussing why IRS problems can quickly become a business problem. Now we're going deeper into who should be on your side when the stakes are high and why. Credentials, experience and confidentiality and Strategy matter.
John, I think most of us are aware what an attorney or what a CPA means, but you have a very unique credential as an IRS enrolled agent. Could you tell us a little bit more about it and why it's important for taxpayers and business owners?
[00:13:34] Speaker C: Yeah, sure.
Happy to go into that Enrolled Agent. I'll tell you something funny.
I started my tax journey back in 1990 doing 1989 tax returns by hand, right? And so many, many, many years, I was just an unenrolled preparer, right? In fact, I had heard of the enrolled agent credential, but I did not know what an EA credential would even do for you. Right. Like, if you're an ea, what does that mean? What can I do as an EA that somebody else that's not an EA might not do?
[00:14:15] Speaker A: Right?
[00:14:16] Speaker C: And so I have for years thought that enrolled agent was just basically nothing more than a fancy tax return preparer, right? And I thought, for years I thought, well, why do I need to get my EA license? I've already got a P10. I've already got, you know, an Efin number, lets me electronically file. I'm good to go. I don't need another thing. Right?
And so for many years, I had wanted to be an attorney.
So I went down to. I was living down in Guadalajara back in the early, late 90s, early 2000s. We lived down there for 14 years.
And I always say, you know, in my life, when there was time to study, there was no money, and when there was money, there was no time. Right. Well, in my early 40s, 42 years old in fact, time and money kind of came together, and I was able to set aside some time, have a little cash in my pocket, and I was able to pursue that dream.
But wouldn't you know it, after 14 years of living in Mexico, I actually graduated law school.
Excuse me. And I ended up. I had my youngest son with me, and he wanted to come back to the Houston area for school. And that's when I started figuring out what the Enrolled Agent credential would do, which lets you. They're on par with attorney and cpa.
And with the EA credential, you can actually represent folks at all levels of the IRS in all 50 states. Right. And so it's a very nice little credential to have. I'm glad I have it. Even after I passed the California Bar and other things, I always lead off with my enrolled agent credential, because even on the IRS website, it says, as what is an enrolled agent? Enrolled agent is a recognized expert in taxes. Right. And, and so I always lead off with that expert in tax. I'm proud to be an enrolled agent.
[00:16:25] Speaker B: Very nice. And I know it's not easy to earn an enrolled agent's license. You have to either take an exam or you have to have at least five years of service with the Internal Revenue Service.
So, you know, it's not easy. It's not an easy exam to pass. So there's people who are licensed as one, you know, there's some rigor involved and they've proven themselves as, you know, real strong tax professionals. So, yeah, that. It is a very, very powerful credential in the tax rules. So thank you for sharing that.
Now also, you know, I love your background as a former IRS appeals officer. Let me ask you, you know, how does that, how do you like, maybe evaluate a case or, you know, maybe negotiate or, you know, prepare a taxpayer for the process having that background.
[00:17:11] Speaker C: Right. Oh, my goodness. That, you know, that's, that's kind of a funny thing because I went to work for the irs. I went through all their training, you know, handled, you know, handled a few more than a few cases when I was working for the service. And what that kind of does, right. Like when I went to work for the IRS, they hired me as a GS14 exam appeals officer. And if folks out there, if, you know, the GS pay scale, it only goes up to 15. So I got hired as a level 4 GS 14, level 14, because I was already, shall we say, quite technically competent when I went to work for the irs. I, I did not need in, in fact, in my appeals officer training, I asked my manager were they going to send me to.
They've got IRS has a course they send appeals officers to called fitla.
So Federal Income tax.
Federal income tax law for appeals. Right. And I asked her, how are you going to send me the Fitla? She says her direct quote was, no, John, you could teach that course.
We're not going to send you off to a course for that. You're already good. So I was already technically good to go.
But what the big, big thing, thing that I got out of that was, number one, my Rolodex. Remember those Rolodexes? Right?
My virtual Rolodex. My list of contacts in my cell phone, shall we say, grew. And so now I've got lots of, you know, kind of private behind the scenes numbers, cell phone numbers for a lot of folks at the irs. So I can kind of get through and get things done maybe a little bit a Little bit easier. You know, they know me because they used to work with me. And so there's kind of a relationship there. But the big thing is also, you know, people.
I had a client say to me a couple of years back, john Harris must hate you. Why? He says, because, you know, you're out there fighting the fight. You stand up for people, you know, you don't. You don't let them walk on the people, whatever. So then, and I, look, I understand why you might think that, but they don't hate me because, you know, when you've got a tax problem, that problem is very near and dear to your heart, right? Because that's your money, right? So, you know, if things don't go your way, you know, you're going to be suffering in the. In the pocketbook, right? But the IRS guy on the other side of the table, I'm not going to say he just doesn't care. That's not accurate. But the focus is different, right? And I understand the mentality, right. When I went to work for the irs, first thing, my on the job instructor told me, john, if you're going to be successful appeals officer, the number one thing you need to learn is how to get that file off your desk and make it stay gone. Right. As soon as possible, quickly, with this little, you know, little.
As little trouble as possible, right?
So when I handle a case now, and I'm in front of appeals or even in front of a revenue officer or a revenue agent, which is not the same thing, but whenever I'm dealing with the irs, I have a kind of a perspective to know that this is not personal to them. They're not trying to squeeze every last dollar out of you. It's not like they get a bonus from that. They don't.
The thing that number one thing that drives them and their decision making is the ability to get that case off their desk. And so I understand that. And so I kind of know the shortcuts of how to make it, how to make things go away in a simpler fashion, so to speak, if that makes sense.
[00:20:53] Speaker B: It absolutely makes sense. And I mean, I think you said it right, because, you know, at least in my experience also when I, like, deal with the irs, you know, just them knowing that I have an IRS background, it just. There's like this brotherhood or camaraderie that's already there. They know that, you know, I understand where they're coming from. You know, they understand that, you know, I'm going to be following the law, you know, legally. So there there's, there's some level sets that's already done that. You know, they don't really need to ask. And I know it's only equated to like the, the military. Right. It's like a brotherhood or sisterhood. You know, once you were a military person, then throughout your life you're always treated the same way with that as a, you know, military person with a lot of respect. So I definitely agree with you on that.
Now, when does a business owner actually need a licensed tax attorney? Especially like when confidentiality or legal risk or, you know, possible litigation might be involved.
[00:21:47] Speaker C: You know, Circular 230 defines who can practice before the IRS. And as you know, CPAs, attorneys and enrolled agents are all on, on a level playing ground, on a level field from that perspective. Right. So we've got unlimited practice rights.
We could represent Microsoft before the irs, or we could represent Joe the Plumber. Right.
And any office, any level of the irs, we're qualified to do it all when somebody might want one thing versus the other. You mentioned tax attorney.
You know, there is a question of privilege, which if you have any kind of a need to have your things be really tightly privileged, then you're at an advantage with an attorney because we've got attorney client privilege that is kind of over and above the taxpayer privilege that's statutorily provided for enrolled agents and CPAs and, and basically anybody else. Right.
And so especially if you are looking at a situation where something might go criminal, that's going to be a big deal.
I'm admitted to the United States Tax Court as a ustcp, which I got before I got admitted to California Bar.
So being a member of the California Bar, I can now get admitted to federal court. So if you have something that needs to be taken care of, district court or the court of federal claims, we can do that.
But even before that, I was admitted to tax court.
So that's one advantage, but the big advantage is privilege. And the other thing is if you think that your IRS problem might end up going down the criminal investigations road, you got CI involved, then it's very kind of worthwhile to think about getting a tax attorney involved.
[00:23:53] Speaker B: That's huge. And that is definitely a differentiator because I think, you know, like most CPAs like myself, we know that, you know, once it gets into fraud or anything legal, where we might get the.
Might need to make the next step into tax court, need to get involved with a tax lawyer, you know, to really help us with that. So thank you for that perspective.
Now the professional sitting beside a business owner during an iris dispute can affect the strategy, the confidence and the outcome. Coming up next, we will talk about the inner workings of audits, appeals, collections and business owners can use to prepare with less fear and more clarity. We'll be right back.
[00:24:33] Speaker A: We'll be right back with more financial insights, strategy and tools to help build a more profitable business. This is Money Gurus on NOW Media Television. And we're back with more financial insights, strategy and tools to help build a more profitable business. This is Money Gurus on NOW Media Television.
[00:24:54] Speaker B: Welcome back to Money Gurus. I'm Harsh Jadav and I'm here with John Mitchell of J. Mitchell Law Firm. We have talked about why IRS problems affect the whole business and what credentials matter.
Now let's take a look at how these cases actually move to the system and what business owners can do to protect themselves with preparation and with discipline. Now, John, when the IRS reviews a case. Right. What kinds of documentation, facts and financial patterns actually carry the most weight?
[00:25:27] Speaker C: Right. Oh, man, that is, that is so important.
You know, I was never a revenue agent, but when I worked in appeals, I was not on the collection side. I was on examination side. And so one of the things that I know to be very important.
So if you're, let's go back to the beginning, like a basic standpoint, right. You know that if you're going to file a tax return, you, the taxpayer are liable. The burden is on you, burden of proof to prove whatever you put on that tax return. So if I say I drove 10,000 miles for business last year, the auditor revenue agent is going to ask me, well, where's your mileage log, Right. Where's your gas receipt receipts? Where's your this and that? Where's your backup documentation that would tend to back up and demonstrate that what you put on the tax return is accurate. And you know, you can use anything you want. You can use even sworn statements, right. If I have nothing else, I'll type up a statement and say here, sign this under penalties of perjury. And we'll, you know, we'll present that to the irs, you know, and I've had that work. That's fine. But the, the king of all of the proof in my mind is I really take seriously when the taxpayer can show me something that corroborates their position. They've taken on a tax return through a third party documentation, right.
So if I see did the taxpayer claimed $900,000 in gross revenue last year and then that taxpayer is able to show me a QuickBooks ledger, you know, with all the, in all the entries. And then if they're able to back that up by showing me bank statements, I can do a bank deposit analysis. And oh my God, now put a smile on my face by letting me see that what's on the tax return versus what's in QuickBooks versus what's on the bank statement all kind of match up, right? Nothing ever matches up exactly. Right. But if you get within, say, 95% of it, you're, you know, probably good. Right. But I love to see things that show a third party, third party type documentation because a third party is not lying for you. Right. I had a, had a case a few years back where there was a guy and we were, you know, what we were discussing was some business mileage and the guy had a corporate credit card for gas. And when you swipe that card at the pump, the pump prompts you to put the mileage in. So we've got a printout from the bank that I was able to show the irs, by the way, showing every day. And he drove a lot of miles. His, his job was literally on the road, and so he was filling up gas almost every day. So you imagine me showing the IRS a printout with day by day, all the fuel this guy purchased, and it's tracking like a spreadsheet down this one column, all of the, all of the mileage entries. Right. And so you can see the mileage climbing from the beginning of the year to the end of the year.
Something like that would be super hard to fake, and that's going to be really important.
So I like to see third party documentation, if I can would be nice.
[00:29:19] Speaker B: That sounds like a dream client, you know, somebody who actually has their information put together, organized, you know, easy to verify through a third party.
Do you ever encounter, like, taxpayers who maybe lost their records or maybe a fire or something burned the record so the records are no longer available?
Do you have, like, do you rely on third parties more at that point or have any other way of, you know, helping them validate those expenses?
[00:29:46] Speaker C: Right. Well, I think, you know, what you're getting at is probably the Cohan rule.
But let me, let me just tell you this quick, funny little 32nd story, right? I had this client once wander in our office and they're going to get, you know, undergo an examination with the service and they've already been contacted by the revenue agent and they want to, you know, they want us to handle the examination.
And so I said, well, if you can get Me. You know, your records get me this and that. Xyz. I describe what we should. What we should try and get and never, ever have I ever seen in my life what this guy showed up with next, right?
So the guy brings me a flash drive right after, you know, he met. We did our initial meeting. They went away. They came back a couple of weeks later. The guy's got a flash drive. It's. Okay. So we plug the flash drive into the computer, open it up. It's extra Excel spreadsheet, actually, as it's an Excel book. And at the bottom, all the tabs are the different tax deductions, right? So there's advertising, there's professional fees, there's, you know, contract labor, you know, all the good stuff, right? And when you click on that tab, it opens up all of the transactions that add up to the number that's on the tax return, all right?
But that's not. All right. I've never, ever seen this before or since.
But then it was hyperlinked, like blue. Like the blue letters on a website, right?
So it was hyperlinked, and when you click on the hyperlink, it opens up a little window with a receipt that backs up that transaction.
And never before had I ever seen this before.
Usually you get, you know, if you're lucky, you get kind of one of those PIN DEFL folders with the different receipts categorized in it, maybe something like that or a quickbooks file or something.
But. But I got this, right? And it's hyperlinked, and you click on the thing, right? And I said, oh, my God, Everything matches up. And it's, you know, it's all right here. And I. I've never seen this before. Sometimes you get just the. The grocery bag or the shoe box with receipts. Holy crap. No, this guy brought me a spreadsheet with scanned receipts that are hyperlinked back to the spreadsheet, right? I had to ask the guy. I said, look, wait a minute. How. How did this thing come about, right? Because I've never seen this before. And the guy says, yeah, you know, my niece helped me put this together.
My niece is a CPA at one of the big four accounting firms and, you know, did this for me on the weekend as a favor for her favorite uncle. And I said, well, good job. So thanks for that. But now. So that was kind of like a little thing that stands out in my mind, right? That never has happened before. But in any event, you talked about the. The coin rule, and I have, yes, literally seen all of the above, right? Here in Houston a few years ago, we had, you know, Hurricane Katrina and Tropical Storm Allison. I've seen people tell me, yeah, my. My business records were all carried away by a flood, right? I've had people come into my office and say, john, you know, my records all burned up except for. For a few, which I was able to save. And I brought them, and here they are, and literally, I pull them out of the banker's box, and they smell like smoke and they're singed around the edges, right? So I had fun showing that to the revenue agent, saying, yeah, the rest of the records really did burn up in the fire, and these miraculously survived. But I'm sorry, I don't have records for every deduction, but here's what we've got.
And they're singed around the edges, and they're brown and there's ashes, right? So I've seen that. And basically what you're getting at is the Cohen rule, which IRS knows that if you own a business, your business is not operating free and clear of any money, you know, any expenses, right? So there are costs to do in business, and you can pull things off of, like, biz stats or whatever. And you need to be using.
If you have to estimate on your expenses, you need to be using a reasonable. Be reasonable. Right? Be you. Some. You know, it's like a movie I saw. I forget who's that comedian that does the funny movies. And, and. And this character had a tattoo on his neck in Sanskrit, and somebody asked him about the tattoo, and the tattoo in Sanskrit translates to make good choices.
So be that as he. So he tattooed Sanskrit on his neck. Make good choices, right? So I always tell people, be reasonable. We're going to estimate your. Your. Whatever the case may be, business expense. Just be reasonable about it and be able to back that up. How did you come to that conclusion? Right.
[00:35:07] Speaker B: I'm so happy you brought up the Cohen rule. And see, that's. That's another reason why you use a very good tax professional, because they will know some of these other ways to, you know, reconstruct records and things like that, which you might not know if you're not in the tax field. So that. That's a great one, John. Thank you. Now, I will tell you, in my time, you know, doing CPA work, I often hear, can the IRS actually put me in jail if I don't pay my taxes? Can they actually go to jail?
[00:35:38] Speaker C: Yeah. I mean, that's. To be perfectly honest with you, right? That's kind of rare. But I mean, that does happen.
And when it happens, it usually they, you know, put a U.S. attorney's office will put out a press relief release and stuff. So, you know, there, there are crazy criminal penalties associated with failure to file, failure to pay.
There's another one hindering the operation of the Internal Revenue Code and stuff like that. So I mean, yes, people could potentially end up in jail for not paying their taxes. Now that said, thank God, that's kind of rare. It doesn't happen very often. And as long as you, you can show that you're making a good faith effort and you're not some kind of crazy tax protester or you're not some outright criminal, that just doesn't file at all. I mean, the big famous case was the mobster.
God, what was the, what was that famous, the mafia guy?
[00:36:42] Speaker B: Was it Al Capone, maybe?
[00:36:43] Speaker C: Al Capone, Yeah, that's right. That's right.
I went blank for a second there. But yeah, he, he actually, they had, you know, they suspected him of all kind of murders and racketeering, all kind of stuff and they actually ended up getting him for, for tax evasion. So, yes, that does happen.
[00:37:00] Speaker B: Interesting. Well, tax resolution is not only about reacting to problems. It's about preparation, documentation, strategy, and understanding how decisions are evaluated. After the break, we will connect this to a bigger mission of Money gurus helping owners protect profitability, reduce uncertainty and build companies that with a stronger financial foundation. We'll be right back.
[00:37:27] Speaker A: We'll be right back with more financial insights, strategy and tools to help build a more profitable business. This is Money Gurus on NOW Media Television. And we're back with more financial insights, strategy and tools to help build a more profitable business. This is Money Gurus on NOW Media Television.
[00:37:47] Speaker B: Welcome back to Money Gurus. Stay connected to Money Gurus and every NOW Media TV favorite live or on demand, anytime you like. Download the free Now Media TV app on Roku iOS and unlock non stop bilingual programming in English and Spanish on the move. Catch the podcast version at www.nowmediatv.
from business and news to lifestyle, culture, wellness, innovation and beyond, now Media TV is streaming around the clock. Ready whenever you are now. Welcome back to Money Gurus. We have talked about tax controversy, representation, appeals and strategy. Now I want to bring this home for the entrepreneur who's trying to build a profitable, sustainable company while avoiding the kinds of taxes that can disrupt everything they've really worked for.
John, what should entrepreneurs do throughout the year to reduce their likelihood of a tax surprise, IRS problem or some kind of cash flow shock?
[00:38:50] Speaker C: Man, oh man. Oh my goodness. You are not lying, man.
This is a year round thing, not something that you do at the end of every quarter or God help us, knock on wood, that you do at the end, end of the year, right?
January, you rush around, get your stuff in order so you can file your tax return, right? That's not going to be the really the best way to go about it.
I would recommend for people go ahead and make the effort of making that kind of an integral part of your business, right? Make sure and fold that into your processes and procedures. Make sure that you're on an ongoing basis taking care of your liabilities, not only paying estimated taxes, but also keeping up with your books and records and just be organized because that is going to carry with you. It's, you know, it's one thing to just be in compliance with the IRS and that's pretty simple to do, but the, another tax thing is to actually be able to use that to kind of help manage your business, right?
So if you're on top of it and every month you have your bookkeeper handing you, you know, which I try to get every month from my bookkeeper around, you know, fifth or sixth, eighth of the month, whatever. Hey, do you have last month's numbers? Right?
And so I can see, sit down for 15 or 30 minutes and look over the financials. I'm looking at my balance sheet, I'm looking at my profit and loss.
Is it in line with expectations? Is it within, you know, what you're trying to budget it for before, you know, by the end of the year? And that's kind of helping me to really manage my business better. I'm looking at accounts receivable, right? I'm printing that out and I'm looking at the age, right? How many of my people, and I can't ever say it's zero, but how many of my people are, you know, over 90 or God help us, over 120, right.
Those are the guys I need to bug first, right?
So having your records in and folding that into your day to day routine I would say is a, you're going to be really big step ahead if you can do that.
[00:41:15] Speaker B: It's interesting. You know, John, you bring up a good point because, you know, I've talked to, you know, clients in the past and you know, we don't do any bookkeeping, but we always recommend, you know, that our clients, you know, seek a qualified bookkeeper to help them. They should be focused on their business and let the professional handle their bookkeeping. But sometimes it comes down to cost, right? And you're talking to an entrepreneur or a business, you know, that may be struggling a little bit, and they're looking for ways to cut cost, cost, and sometimes they think about bookkeeping as being one of those costs to cut. Do you have any thoughts on whether it's. They should really, it should be required for them to have a professional bookkeeper, or do you think that some owners should just try to do it themselves?
[00:41:56] Speaker C: I mean, everybody's got skill sets, right? And now I, you know, I. I have a master's degree in taxation, which is a branch of accounting, so I have a master's degree in accounting, many years experience, etc. Etc. Right?
And I have a bookkeeper at my business because I don't want to be day to day grinding out transactions and stuff.
I find it better and easier, more convenient for me to be able to go ahead and just farm that out to somebody else that's going to do it for me. And so that's the way I do it. So I would not go so far as to say that I think that people should be, quote, unquote, required to have a professional bookkeeper. I wouldn't say that, because if you've got the skills to do it, then you can do it. I used to work for a gentleman named Pat Cantrell for many years, and he was licensed as an attorney in 1967 and licensed as a CPA in 1969. Right? And that guy, mister, Mr. Cantrell, he took care of all the bookkeeping for the, you know, for the law firm where I was working, right? He does not need to hire a CPA or a bookkeeper or anything.
Yeah, he's very well able to do that. But, but let me put it to you like this, right? Right? Let's say, what if I go home today and my wife Melania says to me, papi, she's Latina, so she calls me papi, right? So, so let's say I go home today and she says, poppy, I really would like to remodel the kitchen, right? Let's rip out these counters and let's put brand new counters up or brand new cabinets, right? We're gonna rip it out and put new stuff up, right? I could grab a crow bridge bar and a hammer and God knows whatever else the hell you need to do all that, right? I start ripping stuff out and I go down to Home Depot and buy some countertop and some stuff.
Problem is, right? The problem is, and I admit this, right, Nobody's perfect Nobody knows it all. If I do that, when I'm done, you're not going to like the results. Right. Countertops are going to be too, you know, this much too short.
Better not open those doors on the cabinets because the plates are going to slide out because they're crooked. Right. So I don't have the skill set to do that. So, you know, I guess it comes down to kind of knowing our own limitations and act accordingly. Right. I know I need to hire somebody to come remodel my kitchen. I'm not going to try and do it myself. Right. And if you, you're a business owner, you might be a grade A roofer or you might be a savant as an auto mechanic. Right. But that doesn't mean you know about keeping your books and records in compliance and stuff. So I think that, you know, use your best judgment in that. I wouldn't say mandatory, but I would say do a little soul searching, look in the mirror, see if you need to hire somebody or not. A good bookkeeper should be not an expense. They should make it kind of clear to you. It should be clear.
The value that they bring to the table and the expense should be a nominal thing compared to the value they're bringing you. Knock on wood, I hope. Right?
[00:45:32] Speaker B: I love that. I love that and I love that example too, because I remember the time I tried to pretend I was going to be a plumber and try to do some work, and it didn't really turn out that good. So I agree with you. You know, you try to hire, you know, the best people to do the job. And, you know, I think like, you know, when it comes to entrepreneurs especially, it's easy to get sidetracked and you need to be focused on your business and anything that takes you away from, you know, growing your business, including like, you know, bookkeeping and things like that, leave that to other experts, you know, is usually the best strategy for us. Even we, you know, hire a bookkeeper and we're a CPA firm or, you know, so we just know that our, our goal is actually providing advisory work and having bookkeepers do all the work behind for our clients. That, that's usually what works now in terms of like mindset, Right. That always is a big concern for business owners. Right. Like, what kind of mindset do I need to really make taxes become part of the strategy instead of the April 15 yearly crisis? And I wanted to get your thoughts on that.
[00:46:33] Speaker C: Right. Well, what I would say in that regard is two things basically. Right. Number one, looking back to what we just talked about in the last part of our conversation, right. Integrate this, get into the habit of seeing the value of keeping your books and records up to date and then get in the habit of integrating that into your daily, you know, your daily routine. Right. I try and set up one of the first days of the month every month to. That's my day to go back and look at billing, for example. Right. So I'll go and finish up filling out all my time sheets and try and get invoices is out to the clients that might owe me money on a consistent basis the first few days of every month, things like that, integrate it in and make sure that you're doing that on an ongoing basis.
And the other thing is tax. If you think about it, taxes are one of the big 2, 3, 4 expenses that your business might have. Right.
You know, one of the big things is all for any business is rent. Then you got your payroll and then taxes is right up there as one of the biggest expenses that you have. And so if you can kind of get a lock on that and be able to implement strategies and know where you stand, so much the better. You, you're going to have a better chance of, of being able to streamline that and cut those expenses down and be much more.
Run a much healthier business overall in the end.
[00:48:19] Speaker B: No, that totally makes sense. And you've got about a minute here, but maybe what's, maybe a final lesson you would want every entrepreneur to remember about protecting their business, their cash flow and their peace of mind.
[00:48:31] Speaker C: You know, I would tell people, look, it's your business. Nobody's going to, nobody's going to look after it better than you do. Right. And so you need to make sure you got your finger on the pulse and make sure that you're paying attention. You know, don't. I wouldn't drive down the freeway blindfolded and I wouldn't run my business without good books and records to keep track of where we are and where we're going. Right. So I would definitely, that would be my kind of closing piece of advice for people. Don't think of it as a chore that you have to do. Think of it as a thing that's going to help keep your business happy and well run for the long run.
[00:49:14] Speaker B: I love that. John, for the viewers who want to learn more, how can they connect you and the Jay Mitchell law firm?
[00:49:21] Speaker C: Right. Well, a couple of different ways. They can go to my website, www.kntaxhelp.com.
you can find me there.
You can call me 1 899, tax help.
Or you can email me Attorney Mitchellm me. And I love hearing from people, especially if you say you saw me on the show.
That's a good start, a good start to the phone call. So that's the ways you can find me.
[00:49:50] Speaker B: Very good. I think this conversation reminds us that financial empowerment is not only about growing revenue, it's also about protecting what you build, understanding your obligations and knowing when to bring the right professional into the conversation. IRS problems can feel intimidating, but clarity, documentation, representation and strategy can help business owners move from fear to action.
Thank you, John, for joining us on Money Gurus. I'm Harsh Jadav. We'll see you next time with more practical strategies to to help business owners grow faster, keep more what they earn and build lasting financial success.
[00:50:29] Speaker A: Thanks for watching Money Gurus. And I'm Matt Chodav, host of Money Gurus on NOW Media Television.
