The first “Tax Master Class,” masterminded and hosted by Sam Brotman, took place on Thursday, April 29, 2021. Due to the current COVID-19 climate, the event was on Zoom, but for those who missed it, a recording will be made available.
Brotman's message was aimed at business owners owing more than $100K in taxes. Although the IRS is systematic he warned that with its new influx of money and pressure from the U.S. Treasury to fill the widening $441 billion tax gap, it is far less likely to let the “big whales,“ slip through their nets .
The Business of Taxes
“I’m a big proponent of knowing about someone’s background before I retain their services, so here’s a little background about me,” said Brotman after asking the audience to have pen and paper handy.
Brotman didn’t grow up wanting to be a tax attorney, although his birthday is on April 15. He wanted to run a business. That’s what several generations of the Brotman family did – run successful businesses.
In the late 1800’s, Brotman's great grandfather ran a pickle cart in Brooklyn which he later sold to Heinz. Today, his mother runs a business, too. “Growing up, I listened to the men and women in my family talk about business every day. I learned the ropes in ‘Brotman Business School.’”
By the time he was 23 years of age, Brotman had moved from Texas to New York City and was working for corporate America. “I had more responsibility than anyone that age should ever have,” he laughed. Not long after that, he moved out to San Diego, got his law degree and fell in love.
After finishing law school at USD, Brotman thought once again about corporate work and ended up taking a job where he defended business owners against the IRS and the state of California.
“Not the big guys like Coca-Cola and Nike, but smaller businesses like family-owned plumbing companies and boat repair outfits. These businesses were just trying to get ahead but got behind on taxes. The IRS and California were kicking them in the teeth, seizing their assets and levying their bank accounts…they were just getting crushed by the government.”
Brotman talks frankly about what he really likes and is good at. “Math and taxes are not my favorite subjects, but what I do love to do is to help people to overcome the odds — and I've gotten very good at it.“
He continued, “There’s a stigma of being a bad person if you owe taxes but really, owing the IRS money is like owing money on your credit cards. People think of Donald Trump… you’ve been spending thousands of dollars on haircuts and taking them as business deductions.”
And Then Something Clicked
In 2014, Brotman started his own firm with an IKEA desk and a cell phone, determined to stop being a punching bag for the Internal Revenue Service. His first two years were spent living in the trenches, sitting on the phone with the IRS and California FTB all day and every day.
“I started talking to them, learning from them and understanding who they were and why they worked for the IRS or the state. I learned about their positions on different tax matters. More importantly I learned how the system works – the way the rules are written and the ways they are enforced.
“Then things started to click for me – I started kicking ass and we started getting really great results for our clients, doing damage to the IRS and it was fun!”
Due to that success, the Brotman Law firm is now located in a high-rise building in downtown San Diego, its staff now numbers 14. What hasn’t changed? They're still a firm where people do business with people. Whatever walk of life you’re from, Sam Brotman and the people he employs enjoy helping others get to the next level. “That’s my superpower,” he says with a smile.
“I figured out that negotiating with the IRS is a lot like playing poker. You have to understand the psychology of the player across from you, what you’re holding in your hand, and the odds. There’s a system in place and you need skill to make it work for you or you’re in for a lot of frustration.”
#1 - What are the motivations of the guy on the other side of the poker table? Remember, Poker is not a game of luck, it’s a game of skill. You must completely understand what the IRS wants at the beginning of the card game and being upset and emotional won’t help.
This is about money, yes, but it’s not all about money. The story they tell about money is different from yours. If you don’t understand how our government works, you’ll probably get pushed around. You won’t understand how to negotiate.
You can give them something valuable that doesn’t cost you a lot, or they can take something valuable from you that doesn’t cost them a lot.
#2 - The IRS does not care about you. It’s not their job to care. The IRS collects taxes on behalf of the government…taxes from 350 million people. It’s a large system but it’s not a Death Star. Compare it to Amazon…lots of offices and departments all over the U.S. Their criminal unit differs from collections and collections differs from audits.
The Tax Gap and the One-Trick Pony
The IRS is set up to address a problem called the Tax Gap. If everyone paid their taxes, there might not be a need for the IRS. Instead, there are a lot of people who don’t pay their taxes for one reason or another.
The Tax Gap boils down to three things:
- People not reporting their taxes properly – both intentionally and unintentionally. This is why the IRS performs audits. Audits exist to correct peoples’ stories on their tax returns.
- People don’t file their taxes at all – there is an IRS collections unit that chases down these people.
- People file but they don’t pay what they owe
Because of this, the U.S. Treasury is currently in arrears about $441 billion dollars. With a recent influx of cash, the IRS is building back up. This will allow them to make a bigger strides in collecting back taxes.
If you have the tax debt, especially a large amount, you will probably have contact with either the IRS audits or collections departments. Both of these departments address the tax gap. They are very concerned with getting people into compliance.
When you start getting upset about the IRS, remember they don’t care about you in particular. They are trying to close the tax gap. If you owe tax debt from 2015 to 2020, they will ask that you pay 2020 and 2021 before addressing 2015. They are more concerned about your future compliance than the past debt.
Remember, the IRS is a “one trick pony.” It’s not a sophisticated AI machine, it’s not a computer like the IBM Watson. It does the same thing over and over again. There’s no grand wizard behind the curtain at the IRS.
“Computers and systems don’t have feelings. Sweet talking or yelling at IRS agents is not going to help. What you need to know is how to input your numbers. What you put into the system, you get out of the system. I’m going to teach you the mechanics behind it,” said Brotman.
He emphasizes that procrastination will not do any good. Adopting an “out of sight, out of mind” attitude will just make it worse. The IRS will come knocking on your door. They could take everything out of your bank account. They can also file a tax lien and try to sell your house. That’s what happens when you don’t understand it’s systematized. When you continue to procrastinate, you set yourself up for certain failure.
You have a series of inputs and outputs. From the IRS’ perspective, this never changes. There are policies and procedures, and the IRS agents have to color within the lines. Compare this to what happens at the post office when you mail a letter. There is a process for mailing a letter from the time you drop it in the mailbox to the time it reaches its destination.
When you owe a tax liability, there is a process with the IRS that describes how they deal with it. There is document called the Internal Revenue Manual that will tell you everything you want to know about how the IRS runs. Chapter five is all about the collections process for how the IRS looks at things…where the magic numbers come from. It’s a process, and there are guardrails.
Brotman said he used to get mad at IRS agents when what he should have been doing is learning how the system works…what seemed random or targeted is really just a bunch of rules and regulations that they follow.
The stacks of correspondence someone might get from the IRS are a part of the system, too. Most of it is computer-generated every 30 days to six weeks, and much of it is worthless. “Sometimes clients come in with a stack of notices from the IRS and most of it is useless,” he said.
He repeated that the IRS is a one-trick pony – it follows the same action over and over again. If you know what’s coming down the road, you can get in front of it. Once you understand this mechanized process, you can start to use it to your advantage.
What the IRS really doesn't want you to know? The system largely treats people the same. Whether you owe $10 million or $10 grand you have six options. That’s it. Six.
Consider that although the system is large, there are real people that operate it – the human component. The people who work for IRS are government servants, they aren’t bad people and it’s not a glamorous job. They don’t sign up to get yelled at all day.
“They believe they are doing something good for the government,” Brotman said seriously. “Sometimes when I’m in court and they inform me that they represent their client the United States Government, they act like it’s THEIR money. I say ‘Hey, this isn’t YOUR money, calm down.’”
He continued, “If you understand the human component, you have an advantage. Sometimes you’ll get the guy that was beat up in 7th grade every day and is difficult to talk to. But, most of them are pretty easy to strike up a conversation with.
IRS agents don’t like people who don’t pay their taxes. It is an affront to the job they’re trying to do. Some will try to educate you, and most will not have any sympathy.
However, they are people, they watch Netflix and shop at the same supermarkets and go to the same restaurants. Knowing this, if you can impact them a little bit, you can really get things done.”
Doing The Math
On any IRS financial statement, there are two things to look at: business and personal income. There’s no magic to it…what’s your income, what’s your expenses and what’s leftover. The IRS forms 433A and 433F are the math equations that the IRS looks at.
The IRS will look at your income and they’ll take out personal living expenses. They have certain rules as to what allowable expenses are. They’ll give you enough to live on. The IRS uses the Bureau of Labor statistics, which is outdated. The frustration is that most people don’t fit into the the little boxes that the IRS sets up.
If you’re a business owner, you’ve got another problem. The IRS thinks that every dollar of profit from the business goes into the business owner’s pocket as profit. They don’t take into account the money it takes to run your business.
The trick or strategy is controlling the inputs going into the system at the beginning of the process. If you do this, you can also control what comes out. We can help you to present your income to the IRS in a way that they’re willing to accept.
The IRS has to collect taxes from 350 million people – they don’t have time to go through your life. They’re not sitting outside in a car with a newspaper and dark glasses watching your every move.
Now that you know what the IRS wants it's like knowing your opponent's hand. That means you can play your hand to beat him. This also means you don't have to deal with massive life changes like having to sell your house.
When the attorneys at Brotman Law take a look at your bank statements, patterns result. They can structure these patterns into terms that the IRS will accept. They will point out the strong cards you hold. Everyone has individual circumstances – factual things that can be used to your advantage to beat the IRS.
If you want to settle your taxes, some of the choices you will have to make may not be the ideal, but you’ll be in control of the outcome. You get to make the choices. You get to structure the input to get the right output, controlling the game at the table.
Now that you understand the system, it’s equally important that you don’t procrastinate. Most people do. The system is designed to get worse the longer you put off action.
“The reason most people procrastinate is because they’re scared and angry and frustrated and don’t want to deal with the IRS. Take the emotion out of it. If you get a head of them, if you’re proactive, and if you move this thing forward, you can beat them. You’re not too busy to get this done,” advises Brotman.
“It’s not too stressful. There’s nothing wrong with owing the IRS money. They are not going to put you on the street. Don’t think ‘I’ll pay them off after my next big deal.’ You need to stop procrastinating.”
The IRS uses the carrot and stick approach. The stick approach includes having an IRS agent trail you around, they’ll talk to your neighbors, show up at the job, start investigating your life. The penalties and interest will also spiral out of control…you either pay when you owe, or the penalties and interest will quickly snowball and start to roll with you in its path.
Make A Tax Action Plan
Resolution is a lot easier than most people realize. If you consult with Brotman Law, we’ll have your tax issue taken care of. You get to go back to doing what you’re doing – running your business, doing what makes you money.
Call us to schedule an appointment where we will design a Tax Action Plan. Your Tax Action plan is a 60-minute session where we sit down and go through your tax issue.
In the space of an hour we will give you a step-by-step plan of what you need to do. If you've read this far, you know that it's not rocket science. The last thing we want to do is waste our time or yours.
Think differently. Think about the IRS differently. Think about your tax liability differently. If the stakes are high and the deck seems stacked, give Brotman Law a call and we’ll come up with a tax action plan that can help you beat the IRS.