An ongoing tax audit story of concern to musicians

This is a little frightening and crazy sounding. 

http://www.minnpost.com/minnpost-asks/2013/04/talking-taxman-about-poetry-and-deductions

What.. the... F*CK...

Seriously, who the hell are they to tell this person where they should be in their career?

"They say I tour way too much and that really, my name is already out there enough, after all this time in the business, there is now no need to do any promotional touring."

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Ticket and merch sales give WAY more income directly to an artist than record sales. It won't be hard to slap that argument down in court.

"The tax guy said that by this point in my career I needed to be signed by a major label, that I should have been signed to a major label by now, that I needed to be signed to a major label to establish myself. [He said that] there was no evidence that I was actively sending my records to major record labels, so therefore I must not be interested in profit, and not running a for-profit business. I told him that as an independent artist I get 100 percent of all records sold, and that I intend to run my own label, and stay independent."

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That's also a load of bullsh*t. Ever heard of a guy named Macklemore??? His latest hits are being blasted across the nation's radio waves and he's not signed onto a major label. He received an offer for a 100K cash advance and told the record exec to go f*ck himself. He's a shining example of what the new music industry is starting to be.

I hope we hear about how this all got dropped after all said and done.

That's just bonkers, they are chasing "soft" targets more and more as the big players will just
tie them up in legal knots for years.

Easier to chase 10,000 x 50 K than to chase 10 x 1,000,000 .... right ?

I hope that does not start a precedent for more of this bullshit.

I have made a living from music since I was 19, should I be worth 10,000,000 now or do they think
I should have given up then ??

Marty.

Is this one of those cases when you become politically too active or start saying uncomfortable things they grind you to pieces with tax fraud etc faux charges.

It's the De facto way of dealing with loud voices of opposition in Russia for example. Nice and anonymous too, best choice for leaders really, as long as you can bribe the bureaucracy.

There is always a story behind the story.  If they were filing a Schedule C (itemized business deductions) with a loss for a few tax years that is a TOTAL flag.  They need a better lawyer who would tell them to shut their traps while going after the state apparatchik giving them career advice.
It is a shame that the gubment will always go after the taxpayers first rather than audit their own books to look for freeloaders.  I am sure that there are thousands of people housed, fed and medicaided by the great state of Minnesota that could do just fine on their own.  Add to that the public employees and their feathered beds.  That auditor is protecting his own bloated pension hopes going after "tax cheats".
Mike

This state is full of freeloaders and its only getting worse.  Our Governor is one of them.  He and his family believe in high taxes yet they shelter all of their billions in South Dakota.  Classic politician, good enough for everyone but them.

I'm not sure about these artist although, I do know of them.  They use to be kind of a big band locally.  Probably close to 10 years ago now.  A few things I am curious about is how much grant money they have received over the last few years and how much they make from being teachers. They could have earned very little or they could have earned a lot.  Then if they wrote off more then they should have starting this witch hunt?  I know the government gives businesses 7 years to show a profit.  That probably needs to be 15 for artist and that may not be enough!  But as we know most artist throw in the towel by then.

I think if this goes to court the auditor could be pretty easily discredited.  He makes no sense at all but again it really comes down to seeing the numbers.  If the numbers are normal indie band numbers including their salaries form day jobs then the auditor has nothing at all in his corner.  However if they have large amounts of grant money, large salaries from teaching (some teachers specially at colleges are paid very well) and still show loses then they could have problems.  Either way dealing with an audit and tax problems is no fun at all.  My parents got audited when we where younger.  I still remember the hell they went through just to be proven all clear. 

I will be following this story more.

My parents (RIP) used to run a tax service and the way they explained it to me, if you don't make a taxable profit, for several years in a row, it's a hobby not a business. Artists are one of those activities where one could easily go a long time without making a profit, and many people don't consider it real work. Many would love to deduct hobbies as business expenses. 

The IRS goes after small business people because they are notorious tax cheats, and that is where the money is. All this class warfare about the wealthy not being taxed enough is just a distraction. The government could take all their money and it would be a drop in the bucket. They must get the money from those who have it (Insert Willie Sutton quote).

I find the expansion of spending unsustainable. Not a philosophical difference but practical. After several more years of borrowing like this we will find it harder to borrow more. (I predict in the $20T-30T range which we will reach if we follow this trajectory in less than a decade, borrowing will get a lot more difficult.)

JR

PS: The IRS is one area of government that is rapidly expanding as they are the front line to raise funds for Obamacare

JohnRoberts said:

The IRS goes after small business people because they are notorious tax cheats, and that is where the money is. All this class warfare about the wealthy not being taxed enough is just a distraction. The government could take all their money and it would be a drop in the bucket. They must get the money from those who have it (Insert Willie Sutton quote).

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Citation needed.

kato said:

JohnRoberts said:

The IRS goes after small business people because they are notorious tax cheats, and that is where the money is. All this class warfare about the wealthy not being taxed enough is just a distraction. The government could take all their money and it would be a drop in the bucket. They must get the money from those who have it (Insert Willie Sutton quote).

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Citation needed.

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For what exactly?
http://smallbiztrends.com/2013/01/small-business-tax-cheats.html  Here is a link to an article about small business cheating. I wouldn't make this up I am a small business who doesn't cheat. But it's just human nature that they have more opportunity when self reporting revenue. BTW the link inside that link to the IRS was broken, and I couldn't easily find it at the new improved IRS website. 
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Not to change the subject but I think one alternate solution for the proposed federal involvement in state sales tax collection might be to put the burden of collecting sales taxes on electronic funds processors, like credit/debit card services. They could even deal with out of state purchases at bricks and mortar retailers, since the CC company knows where we live.

[edit] I saw another interesting suggestion, that small out of state businesses not literally collect the sales tax, but just report the transactions to the states, so they can figure out what and how much to collect themselves. That seems fair. [/edit]
   
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OK back on topic, I may have conflated two different themes causing confusion. The largest revenue opportunity from improved tax compliance is with the category of small schedule C businesses. While "where the money is" for increased tax revenue is from we the people, all of us. The wealthy just don't have enough alone to support unlimited government spending.

While there is a great deal of arm waving saying the sequester will slow the the economy it is impossible to ignore the ending of the tax holiday (tax increase?) in Jan 2013, that was broad and felt by all workers in their pocket directly affecting discretionary spending. Ironically perhaps the increase was more 1.7% for a $30k worker, than the 1.3% for a $500k taxpayer. While this tax "rate" focus is another bit of misdirection (lies, damn lies, and statistics), since 1.3% on a $500k tax bill is a lot more dollars than 1.7% on a $30k tax nut. 

Please be more specific about what I said that you want me to back up with citations? I touched on multiple different aspects of taxation.

JR

  [edit- Speaking of the IRS it seems odd they would volunteer an apology, on a friday, for political targeting. Looks and smells like an attempt to change the public discussion away from something else.  just sayin.. [/edit]