8:53 AM -:- Posted by Allen    

Proof of Nothing

A refund from the IRS is proof of nothing.

Now and then someone will come breathlessly running by with a photocopy of a refund check or checks from the IRS, or a letter telling them that they'll be getting a refund. And they'll tell you that it's proof that their nifty new way of filing works.

Yet they cannot show facts that corroborate their claim.

This is not to say that there is no nifty new way of filing that works. Heck, there may be nifty old ways of filing that work, too. But the first question would have to be, What do we mean by "works"?

If all we mean is that it gets a refund, then sure, almost anything will "work" for a while. But even there, the claim is questionable, because we need to know if it will work forever and for everyone in similar circumstances.

It's the "forever" part where it usually breaks down.

The IRS refund policy is to process out refunds as quickly as possible. This prevents them having to handle a lot of extra calls about where the refunds are. And it limits the amount of interest that must be paid on monies held.

This policy causes returns to be processed quickly for numerical accuracy only. If the numbers add up, and the computer doesn't flag anything, the refund is automatic.

Then the returns are forwarded to a review process that checks for facual errors. This is where allowances and deductions are questioned. This is where the IRS catches the nifty new filing method and objects to it.

This is from 2-5 years *after* the return was filed.

So here is what too often happens.

Tax Whiz has an inspiration and files a 1040-whatever form with the IRS using a nifty new approach, and gets a prompt refund. Sighs a big sigh of relief, and heads to market with the money, to support the economy. He tells a few people about it; they caution him that he'll burn in Hell.

Next year, he does it again. Same thing. Money comes back, money gets spent, dire warnings of Hell.

But now he's emboldened. He files amended 1040s for the three years previous to his using the nifty new method. And he gets the refunds! He's ecstatic. It works!, he says to himself and everyone within the sound of his voice and keyboard.

Eureka! I have found it! 5 years of refunds! Or so he thinks.

But it's really only been a year and a half since he started using this nifty new method. Right about now his first new method return is up for factual review.

Meanwhile, people are clamoring for his nifty new method so they can get their refunds too, and even if reluctantly, he goes into the business of helping people use the nifty new methods. Of course, it needs a name, and everybody already calls it by his name, so he makes it official: it's the Tax Whiz Nifty New Method. Or, since it so clearly resembles a silver bullet, the Whiz-bang Method.

A bunch of people pay TW the money he needs to live on and travel and speak to groups, and he shows them how to do the Whix-bang Method. TW gets onto talk radio and even a TV spot here and there, and everyone's all a-chatter about the Whiz-bang method and how hundreds, even thousands, of prople are getting quick unquestioned refunds.

Then one day someone doesn't get a refund. He calls TW and complains. They talk it over and decide to pressure the IRS to perform. They do whatever they guess will work. Or they go in search of the next-level Whizzer who might know what to do when IRS holds out. Generally, they end up flailing about, spinning between competing 'practitioners' who spend as much time selling themselves agains their competition as they do selling themselves on the merits of what they can do.

But it's all downhill from there. Why?

Becasue just before the last guy filed his amended 1040s, the IRS auditors noticed a new numerical pattern showing up in the computer results of returns they'd been feeding it. They cross-checked with the crew who does factual review, and they've identified a set of returns that used the Whiz-bang Method. They've reviewed the Method and found that they have a rule they can use to refute it, and now the refunds stop.

And the inquiries start. And the investigation begins.

It's been maybe 4 years. The grind finally gets around to the Whiz-bang Method.

And a bunch of people get hurt.

Why?

Because as Gramma used to say, "Only time will tell."

Because simply getting a refund is Proof of Nothing.

When I see these claims and photocopies, my first thought is always, "How many years?" How many years since the first refund?

If it's less than five, it isn't even time to relax yet. More than seven? Maybe it's okay to schedule a celebration another three years out.

But it will never be time to get confident. Because the IRS can discover a pattern or method at any time, and begin to onject to it then. 10, 12 years down the road, if he was quiet about it and told no one, TW himself might be the trigger, when his latest return trips the fancy new computer algorithm the IRS just bought and installed to compare present and past returns for new red flags.

The IRS may be limited in how far back it can go in "correcting" returns and collecting on them, but all that does is cut off the first few years. It does not mean that they can't start now and get what they can.

So my concern is that it takes something a little stronger than a successful filing method, no matter how well it might seem to work, or even for how long.

This monster is not going quietly into the night. It will take a major court victory (yeah, that's waiting right out there on the bright shiny horizon of our stellar judicial system, as upright and independent that it is). Or an Act of Congress (right).

Or a "secret weapon" surprise. That might be possible. One that would "work".

It could happen.

But in the meantime, everything that has happened so far is Proof of Nothing.