An Interview with Bruce Bronstein: The I.R.S and Teachers

Jul 20, 2012 by

Michael F. Shaughnessy –

1)      Bruce, tell us a bit about yourself and what you have been doing for the past few years.

I retired from the IRS at the end of 2008 and took several years off to travel and relax in the sun.  I started writing novels in early 2011 based on my 30 years at the IRS.

2)      Death and Taxes- can’t avoid them—or can you avoid taxes with these Swiss Bank accounts and Cayman island trusts and all these other things?

Within the past decade, the IRS has aggressively pursued US citizens who have maintained foreign bank accounts.  While ownership of foreign bank accounts is not a crime, the Treasury Department requires full disclosure of such accounts.  Within the past several years, many foreign governments have allowed the Justice Department access to its records in order to proceed with criminal investigations where US citizens have transferred assets to tax haven countries to escape US taxation.  The IRS has recently instituted projects to go after taxpayers who are transferring assets abroad.  These programs now allow agents to do a better job in their investigations.

3)      I have heard that in Europe, the VAST majority of people CHEAT on their income tax, but apparently, in the U.S., the vast majority are very honest and ethical- Your thoughts?

Back in the 1980’s, a number of foreign countries sent their tax officials to the US to study our tax system because it seems to work.  In many foreign countries, there are underground economies where people simply do not pay taxes on their earnings.  This has become a serious problem when people immigrate to the US and have this perception that out tax system is the same as what they had back home.  Thus, they don’t pay US taxes as well.

Overall, our system seems to work because most citizens are generally honest and may not have the ability to cheat.  For example, they may be W-2 workers with no deductions to speak of so the returns are pretty simple.  The more abusive situations here involve people who are self-employed and may have multiple Sch C forms in which they can manipulate deductions.

4)      Now, let’s help out some teachers- since this IS an education web site—I have heard about home office, supplies, lap tops etc. What CAN teachers legitimately deduct as job expenses?

Teachers often incur out-of-pocket expenses due to budgetary problems with the school systems.  The basic rule with unreimbursed employee business expenses is that the taxpayer is required to request reimbursement from the employer before the deduction can be claimed.  If the employer is unable to reimburse the expense (in the case of teachers, this is a common problem because of a lack of funds) the deduction is allowed provided it is ordinary and necessary in connection with the taxpayer’s employment.  While I don’t have a discussion of teachers in my novels, there are numerous instances in my books (particularly NONDISCLOSABLE and FULL DISCLOSURE) where I discuss unreimbursed employee business expenses.

5)      Bruce, let’s talk person to person here—-I get frustrated because it seems that every few years, there are some new laws or changes in deductions. Am I off on this?

Making changes to our tax laws is a common practice and is pretty much an annual event.  Each administration wants to put its own stamp on tax legislation.  You can expect to see even more changes within the next few years.   While this may sound strange, the Joint Committee on Taxation has been very concerned with simplifying the tax laws and this is something that Congress has been studying.

6)      I try to pay every penny that is owed to Uncle Sam, and I try to keep receipts. But could you give us some generalizations about the “average “ tax payer in America?

Proper documentation is critical.  If you are operating a business, you have to keep adequate books and records.  This is so important because from an audit standpoint, IRS agents are mostly concerned with documents that establish the payment of an expense more so than the legality of the expense.  This is because agents are generally limited to examining 2 issues and are under pressure to close the case as quickly as possible in order to move on to another case.  If a taxpayer maintains good records, the chances are good that the audit will be over very quickly.  Without good records, there could be problems which could open up the audit beyond its original scope.

7)      Now the IRS ( often referred to as the Infernal Revenue Services) is notoriously adamant about people cheating on their taxes. Does this vary from year to year or does it change as the economy changes?

The auditing side is pretty much the same.  Less than 1% of tax returns filed are examined.  This is an incredibly low percentage but it is because of a limited number of agents.  On the collection side, the economy has a definite impact.  If the economy is struggling, you will see more small businesses fail and this often results in unremitted employee trust fund taxes due the IRS.  This is a huge problem from a collection standpoint and the amount of delinquent taxes that goes uncollected is staggering.  In addition, as more people and businesses file for bankruptcy protection, there is more money that is not being paid to the IRS.  Many tax debts are discharged in bankruptcy, so this is also a collection problem.

8)      Let’s talk to a typical 21 year old college grad- what does this person need to know in terms of planning for their future?

 I’m not sure about what kind of advice to offer a college grad.  In terms of employment opportunities, I would think a career with a federal government agency may be preferable to the private sector because of the job security and benefits (health care, leave, retirement, etc).

9)      Now, we can inject some humor here – getting married- good, bad, or does it make no difference tax wise?

First, I wouldn’t marry someone for tax reasons.  All kidding aside, some married taxpayers elect to file separately rather than joint.  It all depends on one’s particular circumstances.  One such benefit would be if one spouse felt that the other spouse had unreported income or claimed excessive deductions which would generate additional tax due.  By filing separately, that spouse would not be legally responsible for the others spouse’s tax deficiency by virtue of the innocent spouse provisions.

10)   What would you say is the biggest mistake the average tax payer makes ?

On average, I would think taxpayers believe that if they incurred an expense that somehow relates to something, it must be deductible.  The Internal Revenue Code has numerous provisions that call for the allowable deduction of specific expenditures and there are other sections of the code that specifically provide that certain expenses are not deductible.  While this may be somewhat confusing at times, I find that a common sense approach as to whether a particular expense is deductible works best with most taxpayers.  I think that once it has been explained to them and they grasp the concept, it is no longer a recurring problem.

11)   How does the AVERAGE teacher avoid getting audited?

Having your tax return selected for audit is like winning the lottery.  The IRS has what is called tolerances for categories of income and expense.  For example, if you attempted to claim $53,000 in charitable donations and only made $60,000 in income, bells and whistles would go off and your return would be surveyed.  It would then be sent to an office for examination for other issues as well.  As long as your deductions are in line with your income and nothing stands out as unusual, the likelihood is that it will not be audited.  The same rule applies to teachers.  The only possible issue that could arise with a teacher is if that person had an unusually high deduction for employee business expenses or claimed a  Schedule C business activity where there is little income and substantial deductions, thereby resulting in a loss that is applied against their W-2 income.

12) What have I neglected to ask?

Your questions were pretty good.  There are other things I could get into but we can save that for another day.  I hope I gave you some helpful information.  Feel free to read my novels.  I think you would enjoy the stories.

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