So high net worth clients present several challenges. From dealing with things from an IRS perspective, the first challenge that you’re going to have is that high net worth clients don’t fall within the IRS’ unusual guidelines for ordinary and necessary expenses. So take for example San Diego. For a single person living in San Diego, the local housing and utilities standard is about $2,500 a month, so the IRS allows you $2,500 a month as a single person for your housing and utilities. I always play a fun exercise to see where you can get housing for a single one-bedroom apartment for $2,500 a month in San Diego including your utilities and the reality of the situation is you can go to Oceanside which is 45 minutes north of here or you can go to Tijuana which is 45 minutes south. And those are about the only places where you’re going to find $2,500 a month rate including housing and utilities but for high net worth clients this presents a big problem because number one you’re dealing with income levels that are way above the IRS as ordinary standards so the fact of the matter is you may have somebody with an $8,000 mortgage or $10,000 mortgage or $25,000. Just because
the IRS disallows that $25,000 mortgage or at least a large chunk of it doesn’t mean the taxpayer isn’t actually paying that much for their mortgage. So there’s a variety of complicated issues like that that go into representing a high net worth client so the trick with high net worth clients is being practical about the fact that they could probably full pay the liability if the IRS asked them to, they may just be running into a temporary cash flow situation or they may need long-term help to spread out their liability however large it is over a period of time. This is a relatively simple math equation, it’s just about managing cash flow and convincing the government to take less based on certain lifestyle choices. That’s not a hugely complicated problem, although depending on the income level of the person we’re dealing with, it does get a little technical but the harder part of the problem is factoring the human equation. Because you’re dealing a lot of times with a revenue officer or with another IRS employee who makes under $100,000 a year and isn’t in California, when you’re dealing with somebody who makes under a hundred thousand dollars a year and you’re dealing with somebody who makes a hundred thousand dollars or more a month, the income inequality and the wealth discrimination that occurs makes things really challenging because the IRS agent says this person makes more in a month than
I do in a whole year, why can’t they pay their taxes. The reality is that’s slightly insensitive to the particular person’s situation in my experience. When a client has more money their situation is more complicated. More moving pieces, they have more investments, they have more businesses, they have more moving parts and so from an IRS perspective this creates a big challenge. The biggest thing for high net worth clients is protection. You want to protect client’s and their assets against the imposition of the government or prevent the government from coming in and trying to kill the goose that lays the golden eggs. A lot of government agents haven’t run businesses before, they don’t have real estate investments, they don’t have partnerships, they don’t have a variety of things that high net worth clients have and so from their perspective when they see large liabilities and they see large amounts of income, the tendency is well why can’t they pay us and why can’t they vanish soon. So the biggest part of what we do is help translate the situation between the client and the IRS in terms the IRS can understand. Oftentimes it’s not about a desire not to pay, well sometimes it is, but in reality it’s more about how do we pay. How can we turn this from an adversarial relationship into a collaborative one? We’re working with the revenue officer when we’re working with the government to try and accomplish the government’s interest but secondary to what the clients interests are, what their family needs and what their ecosystem needs and so that’s the challenge with high net worth clients. If you’re a high net worth person, and a high net worth person can basically be described as anybody who receives $20,000 a month or more in income, even if you don’t consider that to be high net worth, but if you qualify within that category then we’re going to have to do a little bit of complex defense when it comes to your assets. Because if not the IRS will come in, they’ll mandate terms that there’s no way that you can accept and then there won’t be agreement between the solution that you propose and the solution the government processes, so I would encourage you to sit down with either me or another tax attorney to address the situation and try and find common ground. It doesn’t have to be complicated, it doesn’t necessarily have to be expensive but by putting a plan in place and executing it, it’s going to lead you on the path to better success.