REITs- Bane or Blessing?

Wall Street and savvy investors are always looking for the next big thing. This “thing”, however, has been around since the days of Dwight Eisenhower. As a kid, Eisenhower reminded me of the uncle I wish I had. Hard to imagine such a politician. Ike was a real war hero who would take on full responsibility for the D day invasion in Europe that led to the end of World War II. It was during Ike's administration that the real estate investment trust (REIT) was invented. When it first came into existence, these trusts were designed to be passive investment vehicles owning real estate and deriving most all of their income from those real estate holdings. REITs were granted tax exemption because as trusts they did not do any business other than owning the real estate. Fast forward to today. Wall Street has discovered the game. Now companies operating businesses which include prisons as well as casinos are making what is called an “aggressive move” to have IRS declare them REITs. The prison company called Corrections Corp. successfully argued that the money they collect from government for holding prisoners is essentially rent. So too are companies that operate cell phone towers who have claimed that the towers themselves are real estate. One Wall Street firm was quoted in the NY Times as saying that “it is not a far stretch to envision REITs concentrating in railroads, highways, mines, landfills, vineyards, farmland or any other immovable structure that generates revenue”. There are more than 1000 real estate investment trusts, 10% of them are traded publicly. Other than the obvious loss of tax revenue for a society whose tax resources are rapidly evaporating both the companies and their shareholders are winners as REIT conversion seems to result in higher stock price and legal avoidance of the corporate tax.

How IRS Collects Taxes

IRS TAX COLLECTION

Any tax system is only as good as its ability to collect taxes. The American system of voluntary compliance is the envy of the world. Nowhere on earth do more people voluntarily pay their taxes. The IRS Collection branch tries to collect the maximum amount of taxes with the absolute minimum effort. Commentators and critics alike have leveled a barrage of complaints about IRS Collection practice in recent years. Understanding that they are indeed in the business of collecting taxes with minimum effort explains some of the tactics used to compel, trick, or cajole taxpayers into paying their tax bills. The 1998 IRS Restructuring and Reform Act resulted in monumental changes to collection procedure and the appeals available to taxpayers dealing with Collection issues. Sections 6320 and 6330 now permit taxpayers to seek IRS Appeals branch and judicial review of collection actions.

        The primary work of Collection is twofold:

·        To solicit unfiled tax returns; and

·        To collect open tax liabilities.

         The chief powers of Collection personnel are the powers to seize through levy and sell the property of the taxpayer. A levy on wages has been the stranglehold the IRS has used to collect taxes from wage earners. All enforced collection activity is intrusive to the taxpayer. To perform their duties, agents file liens and do financial investigations. The practitioner, in dealing with Collection, must respect the powers that have been given Revenue Officers to upset the taxpayer’s financial and personal life.

        The IRS attempts collection in several distinct ways:

        Service Center Taxpayer Contact: whether it is a notice generated from a filed tax return showing a balance due or an adjustment made by the Examination Division, the taxpayer’s first contact with the IRS Collection Branch will be by a notice issued by the IRS Service Center. Generally issued by the Service Center where the return was filed, a series of notices will be sent, usually four in number, the last of which is the IRS Notice of Intent to Levy, sent certified mail return receipt requested. Each of these notices carries addresses and telephone contact numbers which the practitioner should use to explain the taxpayer’s financial situation. When the taxpayer has been a previous delinquent (i.e., a notice has been sent within the last 12 months), the taxpayer will not receive four notices, but only two: the initial CP:501 and CP:504, which is the Notice of Intent to Levy. If the client tells the practitioner he or she received only two notices, this should tip the practitioner off to the fact that the client has been a previous delinquent. The notices issued by the Service Center are computer generated and no individual Agent is assigned to the matter.

        IRS Automated Collection System (ACS): These are IRS computer-assisted personnel who use computer screen prompts to obtain levy information from taxpayers and initiate enforced collection activity. ACS is manned at various sites in the taxpayer’s district. ACS personnel are probably the least trained and least sophisticated in both tax law and collection procedures, but are able within limited parameters to resolve collection matters.

        District Offices: Each district is broken into field offices staffed by Revenue Officers who are IRS Collection specialists. The Revenue Officer will receive a file if it could not be resolved by the Service Center or ACS Branches. IRS Revenue Officers will obtain financial information and do financial investigation and the necessary legwork through personal contact with the taxpayer in an attempt to obtain payment. Revenue Officers are given the widest latitude to resolve collection disputes. In the reorganized IRS, most collection Agents are aligned with the small business/self-employed operating division.

Receipt of the "Notice of Intent to Levy and Your Right to a Hearing" is the final step before IRS, 30 days later, will be permitted to seize a taxpayer's assets and must be responded to if levy is to be avoided.