Understanding Tax Non-Compliance: Hunter Biden's Case and How to Stay on Track with the IRS

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Hey, this is Daniel, the founder of Bookkeeping for Painters.

And this is Richard, tax director for Bookkeeping for Painters. How's it going, Daniel?

It's going well. How you doing today?

Pretty good, pretty good. It's a beautiful summer day.

Yeah, a little, little cloudy. I think there's a hurricane headed our way, but— or maybe it's a tropical storm now, but it's a little cloudy, but I think it's gonna pass over here.

So that's, that's pretty early in the season. I hope, uh, I hope you guys are okay down there.

Oh yeah, we're good.

So yeah, anyway, um, I've been going through the news. Big topic this week has to do with the president's son, Hunter Biden. He has pled guilty to a couple of tax-related crimes. I don't know if you saw this story in the news this week.

I did. I saw the headline, but I do not know the details. Yeah, that sounds, that sounds like a lot of fun though.

Right? Right. It's interesting because usually you don't see too many, you know, tax situations get criminal execution. But in, in Hunter Biden's situation, he was charged with two misdemeanor violations for failure to pay his 2017 and 2018 taxes. Now, I thought this was interesting. It's, it's not tax evasion, it's not tax fraud. He filed all of his taxes, he just didn't pay.

And that's actually a crucial step to, uh, to make sure you're good on taxes is to pay, file it, and then pay it. Can't forget that step. Two-step process.

Right, right. I think our life would be a lot easier if we could just take— if we could just file and not worry about the pay.

Right.

But it got me thinking, you know, now I don't know Hunter's personal situation, why he chose not to pay his taxes. You know, room for speculation there. But it's not uncommon for, you know, for business owners or for, you know, the regular Joe to not be able to afford to pay the entire balance due to the IRS. Right. I mean, sometimes we have really good years in our businesses. We make a lot of money and we owe a lot of taxes and we think we're going to have that cash flow in the following year. And maybe we don't. Maybe our business isn't doing quite as well, or maybe we've got, you know, personal, uh, circumstances where we just don't have the cash. So, so it's not uncommon for people to be unable to pay their taxes. I—

yeah, for him, I, you would think that being Hunter Biden, the, the president's son, that he would have the resources, at least if he didn't have it himself, the money to pay the IRS, that he would have you know, his dad maybe throw him some, some cash or something to, to pay. It's hard to imagine that he wouldn't know that he owed that. And, and because the IRS is not shy about telling you what you owe them, um, even if you don't owe them that money, um, sometimes they make mistakes and tell you, hey, you owe us X amount of money, but you actually don't owe them anything. But, uh, they will definitely let you know with a barrage of, uh, of communication through the mail. So it's like, so he had to have known that he had this. And then you would think that, you know, he would have more resources than most people to take care of something like that. So it's just weird that he'd let it get this far.

Yeah. And I think that's one of the important distinctions on this case, you know, so, so getting technical, you know, it's IRS Code Section 7203. That allows for criminal penalties to be, you know, applied to people who have willful non-compliance. So if you're, you know, required to pay taxes, to file returns, or to keep records, and you willfully— you know, keyword willfully— refuse to comply, that's when these criminal charges can be can be implemented. In Hunter's case, I guess he owed over $100,000 for each year and for whatever reason chose not to pay it. You know, now willfully is such a, such a difficult— I mean, we know what it means, you know, in common parlance, but what does it mean legally? Unfortunately, we don't have an actual statute that spells out what willfully means. But we do have a few court cases that seem to shed some light on it. There was this Supreme Court case. It was the US versus Pomponio. And this was a situation where, where taxes were not being paid. And the Supreme Court upheld that a willful act is one that is done voluntarily and intentionally with the specific intent to do something which the law forbids, and that your motive is not a defense, uh, for a willful act. So if you, if you choose not to do something that the law requires you to do, uh, they don't, they don't seem to care too much about what your motive or your reasoning is. Uh, that is, that is a willful act that, that they can go after.

Yeah, and It reminds me of another thing that happened in the news recently that might hit a little bit closer to home, that a Connecticut painting contractor was just recently sentenced to 6 months in prison after pleading guilty to tax evasion. So basically, he was getting paid, you know, from his jobs And instead of putting the cash in his business bank account, he would just take the check and cash the check and use the cash for personal reasons, you know. So he wasn't reporting any of the income that he was receiving, over $2 million over the course of a few years. Oh wow. He did not report. And so pretty willful, I would say. I think that meets the definition of willful. Willfully not depositing and then willfully not reporting the income. And then he got hit pretty hard by the IRS and the DA, and now unfortunately he is in prison. That is a pretty serious situation to be in, and he was obviously making some money. Underreported by $2 million. So and this was over a few year period. And he was, you know, HomeAdvisor approved, accredited by the Better Business Bureau. He received Best House Service Award in 2017. So he was, you know, established in his business, but he was just not, you know, not compliant with what the IRS wants, which is basically report your income and pay taxes on it. So that was another thing in the news that hit pretty close to home.

Yeah, that's a shame because it sounds like he had a really good business and he was very good at what he did. You know, his situation is a little bit different than Hunter's because he was actually evading taxes. What's that famous line? Avoidance is legal, evasion is not.

Yes, exactly.

So, you know, Yeah, right. Yeah. So we focus on avoidance, right, where you legally avoid having to pay taxes. But if, if you are required to pay them, you don't want to get caught for evasion.

Right. And there's so many ways to avoid taxes, so many ways to— because I am not a fan of paying taxes. I do not like paying taxes. I know it's necessary to— for government to function. I'll, I'll do it for sure when I'm required to, but if I can avoid it, I, I will. And, um, there's so many legal ways to do it that there's no reason why you shouldn't just do the, the legal ways instead of, you know, putting yourself at such huge risk your whole life, really, on the line to do something illegal and evade taxes. It's just not a good idea.

Yeah, yeah, absolutely. So much better to do it the right way and, you know, and build that business for the future and avoid any problems down the line. Now, it is, it is pretty uncommon for the IRS to do criminal prosecutions for people who are un— I don't want to say unable, but who choose not to pay their taxes. It is, it is definitely a tool they have at their disposal, but it's usually kind of the last resort. Usually when someone owes but does not pay, the IRS starts off with demand letters. If they are going to take it up a notch, they might do a lien against your home so that if you sell your home, the IRS gets paid before you do. They might take it up further by levying bank accounts, which is where you wake up one morning and poof, your balance is zero because the IRS took what was in there. That is, that is something that can happen. They might garnish wages, or if you're a business owner, they have the ability to garnish your accounts receivable, which is where they contact your customer and say, hey, I know you owe so-and-so money, but before you pay him, you're going to pay us because he's, he's you know, in arrears with his taxes. And then there's other things, too, like, you know, taking your passport so that you can't travel or garnishing, you know, pension or Social Security payments. So, I mean, none of this is fun. This is— this is all bad stuff. And it doesn't— it doesn't have to happen to you. These are things that happen when the IRS feels that they are not getting a response from the taxpayer. The worst thing you can do with the IRS is to ignore them. They're kind of like a child, like, like, no, no, no. I know better to ignore my son.

No. But why?

So, so why did, why did they go so far out on Hunter Biden? Right? Why criminal prosecution for Hunter? Well, You know, Hunter is a unique situation, and there's a few factors involved. It really is up to the discretion of the IRS and the Department of Justice who they prosecute. But in this case, Hunter being a very well-known target was certainly a factor in that. This is a very well-publicized prosecution that sends a message to people that people are going to hear about. And it's kind of an incentive to get people to voluntarily pay their taxes. You know, another factor might be, are they investigating the person for other potential crimes? And, you know, these tax— maybe they're tax-related or non-tax-related crimes. Now, I don't know about Hunter, but I know, like, famously, Al Capone, the government had a very hard time getting Al Capone on his crimes and they eventually got him for tax. I don't know if it was tax evasion or tax fraud, but that's what took him down.

Yeah. Yeah, it's common for how they catch drug dealers, basically just any criminal that— because they're usually not paying their taxes. So it's easy to get them for that. And then, yeah, so and it also sounds like we're doing the IRS's work right now is what you're saying. So we're helping them publicize that you need to pay your taxes.

So, but yeah, I'm not, I'm not getting any kind of payment from the IRS. None of that $80 billion is coming our way. I can tell you that. And I'm— yeah, my goal isn't to help the IRS, but it's, it's, it's to help our listeners avoid these situations because, you know, we're talking all this doom and gloom, but it's actually pretty easy to avoid these situations. Even if you can't pay. So if I have a client or, or even me myself, I've, I've been in this situation before where I have a balance due and I just don't have the money to pay it. The first thing I'm gonna do is I'm gonna try and stop any kind of collection activity. And the best way to do that is to apply for a short-term installment agreement. You've probably heard of payment plans with the IRS. They can actually be quite reasonable if you communicate with them, if you don't ignore them. And there are payment plans available. They vary in length. They can be as short as 6 months or as long as 6 years or possibly even longer under special circumstances. But if you find yourself in a situation where you can't pay, the very first thing I would do is I would go to the IRS website and apply online for a 6-month short-term installment plan. And basically it is 6 months of time for you to figure out what you're going to do. It costs— if you apply online, there is no charge to set this up or to apply. And anyone who has any individual who has $50,000 or less of balance owed can apply, and they're pretty much automatically approved. You know, during that time you can make payments. The payments are up to you, but it buys you time to figure out what you're going to do.

One of the things you should also definitely keep in mind is those notices that come from the IRS are usually just automatic notices. and they might say like, hey, you owe us X amount of dollars, but they might be wrong. And oftentimes they are wrong. Mm-hmm. It actually happened to me when I came back from deployment. I was gone for a year and a half on a military deployment overseas, came back, and a few weeks later I received, uh, an IRS notice saying that I owed them $100,000. In tax. And I at the time was an enrolled agent. I knew the tax law pretty well, and so I knew that it was wrong. Uh, so I wasn't— I knew I needed to take care of it quickly because I didn't want to get into things you're talking about, like levying and all that stuff. So I immediately contacted them and resolved it over a several-month period. It took a while for them to finally realized that it was their mistake. However, and that was me knowing the system and, you know, knowing that they were— they had made a mistake. So I say that to say, like, one, you know, dealing with the IRS can be complicated. It took me several months to resolve this, and I again know the system. It's very hard to get a hold of the IRS, uh, notorious for being on hold for a long time. Sending them letters in the mail, then waiting for the response back. They're often busy and they, you know, can't respond back very quickly while the interest on your payment is, you know, racking up interest. So it's definitely not something you should try to do on your own, especially if you don't know the, the system or, or, uh, you know, the tax law very well. So Um, just because— so the, the takeaway from my perspective is don't always believe what the IRS is telling you, that they, they— that you owe— that you owe them money, because they might be wrong and oftentimes can be wrong because it's just automatic notices that come out. Uh, so, you know, get in touch with a professional that knows what they're doing so they can help you through that process, because it's, it's a pain, especially if you don't know what to do or what the next steps are.

Yeah, absolutely. One of the cool things I do with my tax planning clients is we will pull their transcripts so that we know what the IRS knows, and then we can compare what information the IRS has with what their tax return says and see if there's going to be some kind of discrepancy or, you know, letter that's coming their way before it's even sent. So we have actually caught a few mistakes. You know, just recently we had a client who was issued a 1099-G for unemployment compensation. So when you collect unemployment from the state, they issue you a form so that you can pay taxes on it. Well, it was issued to a man with his same name, but different address and different Social Security number. So these things do happen and it's really awesome. We can kind of catch it before the IRS even sends that, that CP-2000 or that, that letter, you know, wanting to make changes to your return. But yeah, if you, if you get— if the IRS wants to make changes, you know, you don't have to agree. In fact, I'll say right on the letter, if you disagree, you have 30 days to dispute it. So definitely verify, make sure it's something that you agree with. And if it's not, by all means you can and should, you know, dispute it in writing and, you know, perhaps enlist the help of a tax professional to help you do that.

Yeah, absolutely. Don't, don't try to do it. Don't ignore because we know from Hunter Biden you do not want to ignore things. And, you know, if you're not sure what to do, just, just reach out for help. And there's, there's many options, many ways to get these things solved. The worst thing you can do is bury your head in the sand on these things.

Absolutely. Because it's always easier to get those things fixed before. Because if you ignore it, it will— the IRS will assume after 30, usually 30 days, that, that it's right and they will assess the tax. And once they've assessed the tax, it goes on your account and that's when these collection actions can start to take place. So it's always easier to get these things fixed before the tax is assessed. I mean, you can still fix problems after the assessment, but it's easier and usually better to do it beforehand. So yeah, kind of, kind of an interesting story. You know, Hunter did plead guilty to two misdemeanors. So the maximum penalty on that, I believe, is a fine of $25,000 and no more than one year in jail. It is very unlikely that Hunter Biden will do any time in jail for this, but he does have, you know, these— he did plead guilty to these crimes. So that is something that will follow him around, probably not the worst thing that he has to deal with. But, but yeah, it's kind of an interesting case that the IRS chose to, to, you know, pull this lever and use this tool at their disposal.

Yeah, definitely.

So go ahead, Daniel. I'm good.

All right. Well, hopefully this wasn't too, too depressing of a podcast for folks. Bottom line, this stuff is solvable. Just don't, don't ignore it. Get help. Uh, and we'd love to hear from you, um, if you have any questions or specific things that you've gone through that you want to share on this topic. Love to hear it. You can head over to the Grow Your Painting Business Facebook group and ask to join. We'll, we'll let you in and join the community, ask the questions. And love to hear from you.

Yeah, absolutely. Let us know what your questions, what your thoughts are. And Daniel, I completely agree that the takeaway from this is that this, this isn't doom and gloom. There are ways of dealing with this. And if you can't afford to pay, you definitely have options. Just don't ignore it. That would be the worst thing you can do. So let us know if you have tax matters that you would like some help with. Otherwise, thank you very much for listening, and I hope you have a great rest of your day.