It could happen to you too | Hacker News Reader

It could happen to you too

digbysblog.blogspot.com

188 pointsdrunkpotato77 comments

Sigh. I understand the angst, tax organizations are the worst. However, a piece of advice.

If you file a tax return in a state, and then you leave. Make sure you file a tax return the next year as well but put down zero taxable income.

What I have seen states do, is take the last year you filed a return "presume" you made that much in the next year but just "forgot" to file, and then charge you for back taxes. You counter this behavior by filing a $0 tax return so that the last year on the books you made $0 and when they use the last year you filed to compute your 'expected' return for the current year they will start with $0. A CPA friend suggested that you continue this for three years as that was the 'average' over which they might make a computation.

Either way, its a pain. But filing a state return with $0 on it is pretty straight forward thing these days with efiling.

That's excellent advice, thank you!

If however this is a commonly expected thing to do, shouldn't a CPA (such as the one the author hired) be expected to advise you of that?

Yes, I would expect a CPA who handled your taxes the previous year, knew you weren't filing in some state you filed in before this year, would suggest you file a $0 income return in that other state.

But filing a state return with $0 on it is pretty straight forward thing these days with efiling.

It's stupid to have to do that. They shouldn't be estimating your income, they know exactly how much you make from your W-2s, 1099s, etc. This is all to be reported to the state by an employer.

As for the guy in the article, there isn't something quite right. The state could be completely wrong here but there is something fishy with his ownership of part of a business in MA. If everything is as he says is true and the MA tax lawyer isn't getting this settled, he needs to get a different lawyer.

Two part response:

"It's stupid to have to do that." - yes it is. However, as the author points out, states are broke, so they do everything they can to maximize revenues. (California is horrible at this, they twiddled two of the digits in my social security number and the first I heard about it was a tax lien filed against my house, really sad.) For a long time not filing a tax return effectively deferred your tax liability until you did. They aren't willing to wait that long any more.

"As for the guy in the article, there isn't something quite right." - Of course not, tax stories like this are always more nuanced than the 'victim's point of view. Combined with the common practice of "interpreting" the statutes to mean one thing or another, its what keeps tax attorneys gainfully employed.

Of the latter my favorite is the "home business" or "hobby" interpretation. Your home business of shipping coal to New Castle may be losing money year after year, but the IRS doesn't technically get to call it a hobby, even if there is no evidence to believe it will ever make any money. People abuse that "loop hole" all the time, it is an opinion of whether or not its a "business" and the IRS isn't technically allowed to make judgements along whether it is or isn't. That doesn't stop them from trying to intimidate people though.

It is bad behavior by the states, high income earners explicitly avoid ever residing in certain areas that are notorious for long term harassment -- even when they have zero problem with the tax rate itself.

Several states are playing the all in card on their expenses, because they know when there is a real financial crises its much easier, politically, to purge excess expenses (The Federal government is doing this too I think.) The more they spend today the quicker that day arrives.

I moved to Austin in 2011 and have worked here since 2012. I'm going to make sure to do this at the same time I file my tax return here. I don't want to give California the chance to retroactively change what I owe. Thanks for the advice!

Good move.

In MA at least you should file a Form 1-NR/PY Nonresident or Part-Year Resident. http://www.mass.gov/dor/forms/personal-income/2011/form-1-nr...

You write on it when you leave the state and then they know you are no longer a resident. I suspect there is something similar in most states.

That is really good advice. This is nothing new. The author seems to attribute it to the times but I had something very similar happen in California about twenty years ago when the state was quite flush.

Whoever didn't warn you that this could happen once there was a lien was giving you bad advice.

I like the suggestion of filing a $0 return because once you get on the radar of the state tax agencies it gets very expensive to get them off your back. As a kid I failed to file because I owed like $20 (but I did file a federal return, which alerted the state). They eventually froze my account and it cost about $1k to settle the matter. At the time that was real money to me.

Jeez I thought our tax system was broken. This must happen all the time.

Thankfully Australia's taxation is handled federally.

We have federal income taxes too. The US IRS will play the same sort of tricks for delinquent taxes (imagined and real).

I've found the IRS to be incredibly reasonable. I had a high tax bill due to non-realized gains (sigh...), but was able to get them to do a payment plan at low interest for a couple years. They were nothing but polite and accommodating.

I also spoke with IRS CID on another matter (someone was making death threats to IRS agents, and they had mail through my anon remailer). Way saner than FBI or even USSS. (I had no information, by design, but being able to tell someone that and explain how remailers worked without them threatening to seize servers was refreshing.)

I had a high tax bill due to non-realized gains...

Do you mind elaborating? I was under the impression that capital gains aren't taxed until they're realized, would love to hear when that's not the case.

AMT

It probably has to do with Alternative Minimum Tax (AMT), which is calculated under different rules. It hit some of the Silicon Valley millionaires hard when they exercised their options before the dot-com bust, then held onto the shares for a year to get the lower capital-gains rate, and then the bottom dropped out of the market. Under AMT, those stocks represent millions in income even if they're now worthless.

Well, a member of my own family has not had such a wonderful experience with them. Nor have I found my own interactions with them ideal. I expect they are like anything else, some good and some bad. It's a fact though, that IRS agents have a tremendous amount of power to wield over a person's life. Taxes being such a contentious issue, it's not surprising that people are sensitive about having their assets seized.

A similar thing happened to me about 4 years ago in California. At the time I was running a small business and we had several thousand dollars withdrawn from our Wells Fargo Checking account along with a $200 Well Fargo legal fee. After some investigation we discovered that California had sent a notice to Wells Fargo to seize our assets for unpaid taxes. The Wells Fargo legal team was fairly helpful and they told us that 'this happens all the time', meaning the state doesn't really care who they take the money from as long as they get money from somebody. It took us nearly 2 years to prove to the state that they had the wrong business and we we able to recover the money from California. They paid us something like 0.25% interest. We never did get the $200 back from Well Fargo. All of this happened without a single notice or letter from either California or Wells Fargo.

Austin-based developer evangelist here..

If your wife needs a hand, don't hesitate to drop me a note. I'm happy to do a grocery run, make introductions, or whatever.

"And I'm one of the lucky ones. We use a foreign bank for the vast majority of our assets, and keep only a small amount in Chase for bills and such."

Section 319 of the USA PATRIOT Act specifically allow for the seizure of any money in Interbank Accounts held in the U.S... You may not be safe.

18 USC § 981(k) is the specific part of the U.S. Code that deals with this.

I knew that spending two years reading about the Patriot Act and writing it up on Wikipedia would be useful one day...

This happened to my dad recently. All accounts frozen. For $22 in unpaid taxes due to a discrepancy.

The funny part is that you can't write them a check for $22 when all of your accounts are frozen. #recursion

To everyone who is alarmed by this it actually happens a lot and is not necessarily Chase's fault. A lot of banks do this. Blame the IRS, our large government, and their incessant need to take everything from everyone in order to pay for all the social programs we don't need. Okay I didn't really need to add that last bit .. don't want to start a big war on HN with my political viewpoint.

I'm not sure the fact that a lot of banks do it should get Chase off the hook, unless they were legally mandated to do it. I would expect a bank to protect their customers' assets to the extent allowed by law. That said, it's unclear from the post whether the Chase policy is legally required, and I'm not familiar enough with this area of the law to speculate.

More specifically: #deadlock

Actually; #livelock

The world doesn't stop because you can't pay your taxes (the fines don't stop either unfortunately!).

Yeah, been there and done that.

Me: "I didn't live in your state or earn a dime in your state the year you're claiming I owe you thousands of dollars in tax. Shouldn't you have a shred of evidence that I owe you money before you send out a bill? Why should I have to waste my time proving that I don't owe you money, instead of the other way around?"

Minion at the California Franchise Tax Board: "That's just not how it works, sir."

Happened again when I moved from New York to New Jersey, and I fully expect it'll happen again this year, since I moved from New Jersey to Texas.

And people wonder why I moved to Texas.

My personal and business banking is done at Chase. I've found them to be fantastic and managed to avoid pretty much any fees by following the guidance of very helpful employees. I know everyone loves to bag on big banks, but Chase has been great. Bank of America is another story - their website barely works.

That said, I highly recommend anyone with significant assets open a bank account in a foreign country where seizing assets is much more difficult. Keep a reasonable sum there and know how to transfer the rest quickly if you fear legal action.

> and managed to avoid pretty much any fees by following the guidance of very helpful employees

shouldn't they not have useless fees to begin with?

I'm not sure the fees are _necessarily_ useless. Banking is a service, and services cost money to provide. I suppose an argument can be made that the fees are higher than they need to be, but then, banks aren't non-profit entities either.

As for me, I've been a Chase customer since 2004 when they merged with Bank One, and a Bank One customer since 1990. I've tried a few local and regional banks, and brief stint with BOA as Bank One didn't have any branches in San Jose circa 2002. I've been quite happy with my Bank One/Chase experience to date. Far more than any other bank if tried.

an uncle that worked too long on banks used to tell that when he started, he would be writing mainframes applications to calculate the 'cost' of a client for the bank. Basically, the bank would give the service as an investment to get the client money, and make money investing that money.

At some point banks started to charge for services and nobody could live without banks anymore, so he was writing cliper86(?) scripts to discover the 'profit' of a new client.

They are not useless fees. They are how the bank generates revenue so it can at least break even on tiny accounts.

Just the regulatory burden of an empty bank account is $100-$200/year, so they need a way to recover that. In general, if you do enough business, there is a way the bank can do that without charging fees, but you need to set your accounts up right.

Any recommended foreign banks?

If you do this, PLEASE make sure that you are aware of current IRS regulations regarding foreign bank accounts.

When I moved to Canada a few years ago this all got rather hairy and ensnarled. They keep introducing new requirements as well - my Canadian retirement savings account was re-classified as a foreign trust which necessitated additional filings.

Good advice, but mind the details.

Rather than repeat myself, I'll just link to the comment I made about the rules that relate to civil forfeiture and Interbank Accounts for non-U.S. financial institutions.

https://news.ycombinator.com/item?id=5215598

Beware!

I think he was talking about keeping assets in a foreign location, not opening a domestic account in a foreign headquartered bank. Of course, you still have to report any foreign assets to the IRS if the total is greater than $10,000.

Yeah,

It sounds like the "problem entity" is the state government of Massachusetts. Given the power the US government, as a whole, has arrogated to itself lately, one just shouldn't expect that having the letter of the law on your side will protect you in any meaningful way once the state decides it wants your stuff. Just staying out of its way may be the best policy if this is at all practical.

I had a similarly insane bill from another state tax board and I count my lucky stars it never came to a full dispute. Fortunately all I had to do was call them and explain the situation. I wouldn't expect that would work for everyone.

  managed to avoid pretty much any fees by following the guidance of very helpful employees

If their fee structure is so complex you need help from employees to get around it, they aren't "great".

Not so complex, but I prefer a helpful employee to reading through account brochures and figuring things out myself.

Basically I just needed certain types of accounts that reflected the level of transactions I was doing, and to make sure my personal and business accounts were linked.

> My personal and business banking is done at Chase. I've found them to be fantastic and managed to avoid pretty much any fees by following the guidance of very helpful employees. I know everyone loves to bag on big banks, but Chase has been great. Bank of America is another story - their website barely works.

Nice try, Jamie Dimon.

Apparently this is written by the co-founder of Ars Technica.

It's a common thing to not exactly give notice of proceedings despite the legal requirement. http://www.nytimes.com/2009/12/31/nyregion/31debt.html?_r=0 Would like to think that Massachusetts is more scrupulous, but maybe it's one of those "we'll keep our hands clean by demanding more of process servers than is humanly possible and pretend to be shocked when the inevitable happens" kind of things.

What is the statute of limitations for tax issues in Massachusetts? I looked it up, and it appears that there is an unlimited amount of time that MA can come after you: http://www.mass.gov/dor/individuals/filing-and-payment-infor...

However, using the technique that ChuckMcM described, that limitation would be 6 years. Sounds like we should start filing $0 returns for states we don't reside in anymore..

Well, there's yet another good reason to stick with local credit unions whenever possible. If they have no presence in another jurisdiction, they're unlikely to comply with any of that nonsense.

I use a credit union, and I have been the victim of a similar problem as the author, and the credit union folded in exactly the same way. Notably, the credit union is local to a state different from the one that tried to shake me down. I don't especially blame the credit union, though: they were upfront and communicative with me, and told me that their hands were tied.

The advice I was given (not by the CU): either withdraw all my money from the account and put it in a safe deposit box, or wire it to a (very) close relative ASAP -- before the lien is officially issued.

"withdraw all my money from the account and put it in a safe deposit box, or wire it to a (very) close relative ASAP -- before the lien is officially issued."

IT is generally too late. Both are problematic and can be clawed back relatively quickly (the timing looks suspicious, etc). Yes, they would have to take you to court, but the defense costs usually exceed the asset value (and the author notes this).

The state actually gave a fair amount of advance notice. I was given an exact date for when the lien would go in effect, with over a month of lead time, as I recall.

I'm a little too paranoid to say exactly what I did, but I will say that I'm glad I was given that advice. (I was younger, and had much less money saved at the time; obviously that amount would affect any similar decision now.)

You should always have assets at multiple banks and have lots of cash stored outside of the banking system (in a safety deposit box, at home, in car, etc).

*note: be careful about how you accumulate said cash. CTRs are generated if you withdraw too quickly.

I agree. Far too many people I know keep less than $20 in cash on them, with nothing at all in their houses/apartments.

I wonder if a weekly withdraw/deposit of 10k in cash would provide some identity protection, if the feds are constantly watching all of your financial activity.

For anyone else who didn't know what CTR stood for here: http://en.wikipedia.org/wiki/Currency_transaction_report

Had a similar episode back in the nineties with the state of California franchise tax board. Before they froze my Wells Fargo account, I transferred my balance to a new ETrade account . They never did anything with that new account because I suspect they didn't have the account info. They had the wells fargo account info because I had previously paid taxes via bank draft. Moral of the story, avoid giving up your account info if possible when paying taxes. Use a credit card.

note: be careful about how you accumulate said cash. CTRs are generated if you withdraw too quickly.

This is very bad advice, as it's illegal in the US to intentionally evade CTRs by aggregating smaller transactions. It's known as structuring:

http://www.irs.gov/irm/part4/irm_04-026-013.html

Also, CTRs aren't inherently a bad thing, and they aren't generated behind your back. If you hit the $10k reporting limit, it's a simple one-page form, and you're on your way. Legitimate businesses are required to complete them all the time.

Suspicious Activity Reports (SARs) are filed at the discretion of the institution, are secret, and are independent of the transaction amount. Withdraw $9,990 and you'll probably have a SAR under your name instead of a CTR. Ditto if your deposit smells like drugs, or if you're dealing in large amounts of currency as an individual, and the bank staff can't determine why.

If you are interested in taking out 100K this year, nothing is illegal about withdrawing 2K per week as opposed to taking out 100K at once.

Unless you're doing it evade reporting requirements.

Taking out 100k in currency within a year will look very suspicious -- financial institutions run regular look-back reports designed to find this kind of thing.

Were a bank officer to ask, I don't think there's any problem with telling the truth, "I'm stockpiling currency, and am contributing to this stockpile on a regular basis to coincide with income."

Interesting; I finished A Handmaid's Tale last week, and the same thing had happened to the main character's family. Everybody had stopped keeping cash, and without their bank card working they were powerless.

Similar thing happened to me, but with a much happier outcome. I lived in Iowa, moved to Colorado for a few years, and now I'm back in Iowa. I received a letter that I owed estimated taxes plus interest and penalties and... Ignored it. Then, 6 months later, I got a bill with the email address of the Iowa IRS agent.

One friendly email and four days later, her response was:

Thank you for your response to the Department’s billing notice you received for no record of an Iowa individual income tax return on file for tax year ending 12-31-2005. Per review of your 2006 Iowa return I have verified you claimed a part-year Iowa credit therefore please consider this matter resolved. I am in the process of revising your billing to zero. You may continue to receive notices until our Accounts Receivable as officially cleared the billing.

If you have any other questions please feel free to contact me directly. Thank you for your attention to this important matter.

Yes both Missouri and Hawaii have handled my moves in this fashion. At first they assume you owe them money, but if you provide documentation for where you were living and when then they cancel proceedings with no fuss.

I'm not sure how I was able to escape California without dealing with this, but that was some years ago...

I had a somewhat similar experience last year.

The IRS sent me a letter saying that they found I had mis-stated income from one of my freelance gigs. They said their records show that I was paid $800,000 for the job but I only claimed $800. I now owe ~$450k in back taxes along with daily accrued interest and penalties, we have enclosed a envelope for you to mail a check, etc.

I checked my records and I was indeed only paid $800 for the job. I checked with the company to make sure they didn't make an error when they filed their takes, nope, $800 the whole way.

Within days I had IRS agents calling both mine and my wife phones, calling previous employers, showing up at my house looking to put me on a payment program.

Our state and federal tax returns were held up and applied toward the "debt".

I'm sure that if I had a bank account tied to my SSN that those would be locked out as well.

It took 6 months and $3500 for a tax attorney to go back and forth with them over every single dollar on every 1099. They would literally go down the list and say "Thank you for bringing '$1099' into compliance, but we have found a discrepancy with '$1099 + 1', please submit a payment of $payment along with daily accrued interest and penalties".

You may be able to sue the state of MA in CA court. At least one person did this to California after moving to Nevada:

http://www.hgexperts.com/article.asp?id=5410

Granted, it was the state of Nevada, and Nevadans hate taxes and probably loved sticking it to California more than anything. (which is one reason I moved there from CA).

Fucking IRS.

I must say I always paid taxes and never had problems with them. 2008 I made some nice stock trading profits. Paid taxes for them all to the last penny. Actually, I taxes more than I had to, since the bank statement reported higher profits that actually occurred (must be a real gypsy bank). What the bank statement did not report, was the buy and sale of an ETF. I held it for 3 months, made maximal 1% profit of it. The IRS became aware that I sold this ETF, but they could not figure out when and for how much I bought it. Hence, they assume, the sales price is 100% profit. Not they want: * back taxes for a profit that never occurred * Fine me since I did not pay taxes for this profit that never occurred. * on top of that, want interest for this whole cluster-fuck.

I did not receive some letters from them since I was abroad because I was totally broke. I have no idea how I can pay this. It makes me also think that I might have to go offshore. I have to save urgently for retirement and just can not afford that the IRS pulls some random gypsy charges out of nothing.

You don't have to go offshore. The same thing happened to me. What you need to do is get an accountant or get a copy of Turbotax for that year. Then you enter in all your info and make sure you fill out Schedule D. They'll give you the person's (examiner) name on their letter. I filled out a new tax form, and sent the letter below to the IRS. A few weeks later, they said "Thanks for the info, and we'll contact you if we need anything else." That was a few years ago. Haven't heard anything since.

-------------------------------------------

Dear Examiner:

I have attached a Schedule D form, which I did not include in my 2009 tax return. According to the CP 2000 letter, the securities income reported to the IRS was $xx,xxx. But this was using a zero cost basis for stocks sold. The schedule D form I have included provides the cost basis for all stocks sold. The final total for the Schedule D shows a net loss of $xx.

Sincerely,

xxxxx

The title suggested to me that Chase had handed over the writer's assets to the writer... reading the article, it's exactly the opposite of a happy ending.

Not surprising, but alarming. More alarming, I think, is that it's not surprising.

Do not use these companies:

Chase bank or American Express

They will turn there back on you when you need them most. I had a horrible experience with both back in 2008 when the economy was collapsing. And no, I don't have crappy credit.

I never had that scale of problem with Chase, but had enough smaller interactions over the years that I jumped last year. I started as a Washington Mutual customer years ago. Putting aside the massive mismanagement going on at the top, their customer service was impeccable. I couldn't have been happier until they went under and got bought my Chase.

I've been a Charles Scwab customer for the last 2 years. Great bank. Excellent customer service, ATM fee refunds each month, direct tie-in to investment accounts if you do that. Highly recommend them if you are looking to switch.

Why does the author keep hounding on "Again, I have not lived in MA or earned income in that state since 2003"? It sounds like MA isn't after anything to do with residency or wage income.

In fact, that's almost certainly what it is.

They see in 2003 they had a return that owed some money, and no return in 2004, so they assume that the same taxes are due from 2003. Then they do it again in 2005...

This is what happens when your state doesn't have official move-out procedures, etc. They don't know, and they don't mail you until 15 months after you move, so your mail is no longer forwarded, and they make no attempt to contact you a lot of the time.

"Again, I hadn't lived there or worked there since 2003, but I did own part of a business that was headquartered in MA, and the state was using this fact to harass me for income tax money."

If you own a business headquarted in MA, aren't you earning income (through the business) in MA?

If you work in a different state (even if you don't live in the state), you still owe income tax for income earned in that state. This is non-resident state income tax.

Pretty sure MA has a reasonable claim here based at least on what the author states.

Wells Fargo has a similar give-your-money-away-to-any-semi-legit-looking-official-who-comes-knocking policy.

I have a nice small town bank. The VP knows me by name, goes to my wife's church (whisky-pagan). I know where he lives. ATM fees? None, the bank doesn't own an ATM, and refunds any fees I pay for using ATMs at any other location. Makes it a lot harder for things like that to happen, or at least I hope it will, if it ever comes to that.

These are some of the times I feel lucky to be in a developing country. Our government is still behind in developing laws where they freeze all your bank accounts on income tax evasion counts (obviously unless you are a high profile case).

But this is plain ridiculous. Its must be some kind of breach of basic rights. Govt should not be able to freeze accounts unless proven guilty in court.

It helps to distribute accounts between one major bank and one or two local credit unions.

The only problem is that you need a fair amount of money in each to get 'perks' and reduced fees.

Bitcoin.

I don't underestimate the difficulty of Bitcoin becoming a viable tool to transact daily life, but this is something that could not happen with Bitcoin. If nothing else, the fact that Bitcoin provides a fundamentally different way to transfer value, independent from state or corporate interference shows that there are potential alternatives.

Credit Union, you will be better off.

The title seems ambiguous (and, oddly, does not match the blog post title).

Did Chase bank hand over all Massachusetts assets (all assets in a MA account) to the state, or did they hand over non-Massachusetts assets to the state of Massachusetts? The opening of the article implies the latter, since the account was opened in Illinois, though it's possible that the account qualified as an MA account.

Even if the address on the account is listed as a California address, the account may still be a Massachusetts account (use an MA routing number, etc.).

I'd be very interested to know if Chase handed over assets from an Illinois account to the state of Massachusetts.

I suspect that there's no such thing as an Illinois or Massachusetts account to Chase. They are all just accounts held by clients who are US citizens.

Bank of America in NYC is a different entity from B of A in California. Same with Wells Fargo. The accounts are geographically tied to the state in which they were opened. Chase is probably set up the same way.

Without more details the whole story sounds iffy. Since he did not give us more details but still shared his story I will speculate that he took advantage of what he thought were some clever tax loopholes in MA. Remember that hid did state very passingly that he has a presence in MA. Specifically this:

>>Again, I hadn't lived there or worked there since 2003, but I did own part of a business that was headquartered in MA, and the state was using this fact to harass me for income tax money<<

So in essence, he probably took advantage of some iffy tax loop hole which the state now probably disagrees with and is asking for whatever it thinks it is owed.

As with all these stories, need to be taken with a nice handful of salt. Owning a business in MA would make it seem like you would qualify for state taxation (on that part at least).

The US taxes its citizens even outside of their own jurisdiction. It wouldn't surprise me if MA taxed people that still made money in MA.

All states (that have an income tax) do. I own property, which I rent, in multiple states including MA. I need to file tax returns for the income I make in each of them. Nothing unusual there.

Reply on news.ycombinator.com