Apr 132015 0 Responses

How the IRS Stole From My Grandparents

Do the right thing. Of all the things my grandparents taught me, none were taught as clearly as this lesson. Rarely through words, but always by their example, they taught me to do the right thing no matter the personal cost.

On one occasion this cost them $10,000. (See: Stop Spending Your Spouse’s Dreams)

A Bank’s Mistake 

Late in my grandparents’ lives I became their power of attorney. While they still had their minds, their bodies began to fail and it was just easier for me to handle some banking, medical, and other discussions.

One day my grandmother called me and she was clearly upset. My grandparents received a letter from the IRS claiming they had failed to properly pay taxes and threatened to take action if they did not pay.

Years earlier, my grandparents had inherited money from an aunt. It wasn’t six figures, but it was more money than they had ever had. Typical of their generation, they wanted to money to be as safe as possible so they put it into a CD. Every time the CD matured, they would reinvest the money.

The letter now claimed all of the current CD was taxable profit rather than properly understanding taxes had been paid on the original amount.

I wanted to call the bank, but my grandfather was not a phone call kind of guy. So we went to his local bank. The Branch Manager was great. She took extremely good care of my grandparents and was happy to see us. She looked at the letter, reviewed her paperwork, and quickly found the mistake. The bank had checked the wrong box. It was a simple mistake which could be easily solved. She assured us the situation would be rectified.

A month later she called with bad news. The lawyers at the corporate office refused to admit the mistake. Since my then 87-year-old grandfather had signed the paperwork, the lawyers said it was his responsibility.

I tried to reassure my grandfather. We wrote a letter explaining the situation to the IRS. They never responded to the letter, but continued to send threatening letters to my grandfather.

Despite our accountant telling us not to pay it, my grandfather finally wrote a check for $10,000. If they said he owed it, he would pay it. (See: Please Stop Me from Doing Stupid Things)

Doing the Right Thing

Paying one’s taxes is doing the right thing. There is no way around it. We can debate how much taxes the law should require. “Less” is usually how many taxes I think I should pay.

But there is a difference between debating tax rates and violating the law by refusing to pay taxes.

Failing to do the right thing has consequences:

  • Guilt
  • Shame
  • Fear
  • Embarrassment

All of these are present when you fail to do the right thing. When someone fails to pay the taxes they owe, tension is created between the person they want to appear to be and who they actually are. While they may not show any stress on the outside, internally the fear of being found out, the shame of not doing right, and the guilt of knowing they are not doing the right thing can be overwhelming. (See: The One Piece of Advice I Would Give a 7th Grader)

As a pastor, I have performed funerals of men who became overwhelmed by the negative emotions created by not doing the right thing.

If you owe back taxes, you should make things right by settling with the IRS. If nothing else, you will feel better for having done the right thing.

Fear of the IRS

My grandfather was terrified of the IRS. I didn’t understand it at first. I knew my grandfather. He was an honest, upright, veteran. What did he have to fear?

Then I began to hear stories, not about him, but about the IRS.

  • Frozen bank accounts
  • Garnished pay checks
  • Contacting business associates
  • Mounting interest rates

I never knew the power the IRS had until my grandfather shared his fear with me. In an attempt to comfort him, I researched what could happen. Then I began to share his fear. (See: You Should Be Very Afraid)

While I knew he wouldn’t go to jail (he thought he might), I did not realize he could be irritated and harassed because of  a mistake that was not his.

Two Mistakes to Avoid

There are two mistakes most people make when confronted with back taxes.

Some ignore it. They live in denial and pretend that if they lay low, nothing will happen. They throw away the notices, avoid the phone calls, and do their best to not think about their problems. This approach might work for a while, but eventually it will catch up with you. Ignoring the problem won’t make it go away. Eventually more serious actions will be taken and your regret will grow.

Others simply pay everything. Out of fear, they blindly assume the IRS is right and simply pay the whole bill. By doing so, these individuals grossly overpay. The IRS is willing to settle with individuals and often times the total bill can be greatly reduced.

The second mistake is the one my grandfather made. Instead of contacting someone who could give him help, he simply wrote a check. His action was noble–he wanted to do the right thing and “if they say I owe it, I must owe it.” However, his action was wrong. He sadly gave the government money which was not theirs.

A Better Way

Whether, like my grandfather, you are dealing with the IRS because of someone else’s mistake, or if you are waiting for the phone to ring because of your own negligence in paying taxes, there are better ways to handle the situation than ignoring it or blindly paying whatever you are told.

The most important action an individual or business can take in regards to taxes is to get help.

If you are in good standing with the IRS, build a relationship with a good accounting firm and happily pay a reasonable fee to ensure your taxes are paid properly, but that you aren’t paying any more than required.

If you owe back taxes or could be in dispute with the IRS, contact a well-respected tax attorney and allow them to negotiate a lower settlement with the government.

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