For the St. Louis American
The overview of small- and medium-sized business-government interaction within our community is sadly lacking. As an enrolled agent licensed to practice before the Internal Revenue Service – representing taxpayers who owe and cannot pay, or business people called to an Internal Revenue audit – I find the crux of the problem is not in the ability to make money. We very well know how to do that. The problem is centered in how to manage the money that we make.
As African Americans, we are accustomed to working hard to make money to make ends meet. There is currently a class of “gifted and black” entrepreneurs who have come into the middle class economically and socially, but do not quite know how to handle their finances.
The lack of knowledge is costly, especially when considering the sanctions set forth in the Internal Revenue Code. This code of laws, rules and regulations is not concerned with the “color of the skin,” but the content of the purse.
During my 30 years employed by the IRS, I found some rather startling facts. Heavily ingrained in my mind is the way the IRS monitored ZIP codes. In the early years of my employment (1975, 1976), there were ZIP codes that we as revenue officers or collectors simply did not service. These ZIP codes, for instance, were 63112, 63113, 63115 and 63116, and the reason we did not service such ZIP codes was because “there was nothing to gain by doing so.”
In plain English: These areas were heavily or entirely populated by African Americans and had no real “collection potential.” It was mandatory that we make a field call in these areas; however, it was “winked at” if we just did a drive by without really talking to the client/taxpayer.
This was the day when you were considered to be doing extremely well if you made $30,000 to $45,000 per annum. Most African Americans were strictly wage earners. If you were self-employed, seldom would you be issued a 1099, and there was no fear of reprisal if you failed to make estimated tax payments as required by law, nor did you really have to report any self-employment income.
The self-employed carpenters, plumbers, nurses and daycare workers simply kept the money they made and commenced to the next year. The Alternative Minimum Tax was not an issue in Black America as it is today. Rental income was not reported, just kept, because it was just enough to take care of the house and nothing more reported. No thought was given to depreciation and the corresponding expenses.
Business structures were not selected because it was not our concern as to how a business should be structured. We did not structure, we just earned money and did not report it because we lived under the illusion that such style of living was okay. And we were not generally questioned about such practices.
It mattered not that the family carpentry business, landscaping business, tutoring or tailoring business had no structure. We did not know that we should or could choose to be a corporation, partnership or a sole proprietorship. We did not know what an LLC was (many still do not).
The black middle class is spreading, even in the present financial climate. We still reach unexpected income levels, and we still live in the same ZIP codes. But now the IRS has followed the purse right into ZIP codes 63112, 63115, 63113 and 63101. Agents no longer “wink their eye” at the lack of full compliance. They call on the taxpayer’s home office or business without regard to ZIP codes.
This economy no longer allows for the former disparity.
The answer to the “new class of blacks” – who are being caught in the Alternative Minimum Tax, who do not quite understand the Trust Fund Recovery Penalty, who have employees they believe are sub-contractors and issue neither 1099s or W2s, who cannot understand why they are consistently penalized, who do not do bookkeeping because of a lack of time or expertise – is EDUCATION.
We will constantly make money, but we will not have the ability to keep it, if we do not understand what is happening. We will be subjected to sanctions and penalties on every side; we will earn much, and have little; we will not be able to have a viable net worth unless we get EDUCATED.
Let’s break out of this cyclic condition by checking out workshops, seminars, conferences and conventions – which, by the way, are often tax-deductible.
Should you have tax problems, do NOT rely on late-night television where the commercials assure you that they can get you “pennies on the dollar” by a simple Offer in Compromise. Offer in Compromises are not for all who owe. I taught the Offer in Compromise procedure while I was on the Instructor Cadre at the IRS, and I say: Do not believe the hype.