4 Tax Lessons You Can Learn From the Bidens and Trumps

The wealthy and connected use many techniques to pay less in taxes. It's no wonder. The ultra-wealthy taxpayers have both the resources and the motivation to minimize their tax liability. After all, the country’s richest 1% pays 37% of all federal income taxes collected every year. So, they have an army of savvy tax professionals to help them navigate a complicated tax system.

There is a lot to learn from how the top 1% manages its wealth and files taxes. However, it doesn't mean the wealthy don't have tax problems. You only need to look at two of the most powerful families in the United States, the Trumps and the Bidens, to see that.

If you are going to imitate the tax mitigation strategies of the wealthy, it just as important to learn from their failures as from their successes. All taxpayers need to understand the power and limitations of tax enforcement methods. It is also useful to know about the tax resolutions available if you do get into trouble with the IRS or another tax revenue office. Few families have as much to teach about tax enforcement methods and tax resolution options as the Bidens and Trumps.

Tax enforcement and the Bidens

Hunter Biden was hit with a $450K tax lien in July 2020 over delinquent income taxes with the District of Columbia's Office of Tax and Revenue. Hunter was able to pay the tax debt within six days, which resolved the issue. The fast resolution surprised some pundits since he did not have a known source of income and last year he told a court judge in a paternity case that he was broke and unemployed.

This lien was the latest in the series of tax problems members of the Biden family have faced over the years. To mention a few, James Biden -- Joe Biden's brother -- had a six-figure tax debt in 2015. And Joe Biden's sister, Valerie, and her husband John Owens have been hit with at least five tax liens, including one for $229,749 in 1990, according to reporting by the Washington Free Beacon.

Lesson 1: Resolve your tax liens before they turn into levies

If taxes are not paid timely, and you don't make arrangements with the IRS, the law requires that enforcement action be taken. This can take several forms, such as issuing a lien on your property. If the debt is not resolved, the IRS may proceed to put a levy on your salary and other income, bank accounts or property. You don't have to pay your debt in full to stop a tax levy. There are three ways you can handle a tax lien:

• You can pay it in full either as a lump sum or an installment plan.
• Negotiate an offer in compromise with the government.
• Or prove the lien was filed in error.

What is the difference between a lien and a tax levy?

A tax levy is a seizure of your property to pay for tax debt. A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes the property to satisfy the tax debt.

Lesson 2: Consider the consequences before you default on tax debt

Tax liens are serious tax enforcement tools that can have serious financial and legal ramifications. Typically, tax revenue offices use tax liens as a last resort. You usually have to ignore them repeatedly to get hit with a tax lien. Tax liens can have serious consequences, so it is better to avoid them if possible. Here are three things you can expect.

• Your credit and reputation will be damaged. Tax liens no longer appear on credit reports, so they won't hurt your credit score. However, tax liens are still public records. So creditors who check them will know the government has a claim on your property, which could damage your chances of getting approved for a loan.
• You may struggle to sell or refinance your home. As you would expect, lenders and buyers check for tax liens when researching a home before a sale or a refinance.
• A lot of wasted time on phone calls and correspondence. The IRS often uses its automated collection system, or ACS, to pull taxpayers into a rabbit hole of letters and notices. If you do call the IRS to try and resolve the tax lien, expect hours on hold. Not everyone can resolve their tax lien in six days, even if they have the money to pay. In some cases, you will be assigned to a revenue officer, which may require face-to-face visits.

Tax resolution and the Trumps

Trump and his family have also had their fair share of experience with tax liens. President Trump's businesses have been hit with more than a hundred warrants over unpaid taxes. This includes tax liens on Trump Mortgage, Trump University, and Trump Tower. According to tax lien records from New York State and New York City, Trump companies have owed and paid approximately $300K in back taxes. Ivanka Trump received a personal tax lien in 2017 of $5K. And Ivanka Trump Fine Jewelry has been hit with multiple tax liens over the years. The last one for $183,904 in 2018.

President Trump has been very effective at fighting tax liens. According to reporting by USA Today, Trump businesses sued the New York City Tax Commission 55 times from the 1990s to 2011 over property assessment values. These legal battles have saved Trump millions in taxes. Just one ruling in 2006 over tax liens on Trump Tower in Midtown Manhattan, which reduced taxes by 10% over 10 years, saved Trump approximately $3 million.

Lesson 3: The IRS is usually willing to negotiate

It's natural to be intimidated when you get a notice from the IRS. But you may be able to negotiate a scheduled payment, an abatement of penalties, or even a reduction of your tax debt balance if you know what you are doing. The key is not to ignore the IRS. Uncle Sam offers multiple options, but you have to be proactive. Here are three options you can consider if you owe back taxes:

• Set up an installment agreement. It will allow you to pay your tax debt over time.
• Request an offer in compromise. This involves paying a lump sum of your tax debt in exchange for a reduction of your total amount owed.
• Ask for "currently not collectible" status (CNC). If you qualify, the IRS will temporarily delay collection until your financial situation improves.

The IRS, state and local tax revenue offices are usually quite amenable to at least one of the tax resolutions mentioned above. However, a lot depends on your financial situation. For example, you are unlikely to obtain much of a deduction on your tax balance if you have the money or assets to pay your tax bill.

“There is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible… as taxes are enforced extractions, not voluntary contributions.” -- Judge Learned Hand

Lesson 4: Consider hiring tax professionals

Wealthy individuals who are good at reducing their tax liability usually view taxes as a business expense, not a civic duty. Judge Learned Hand, the American judge and judicial philosopher expressed eloquently when he said, “There is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible… as taxes are enforced extractions, not voluntary contributions.”

As with any other business expense, they are happy to invest in consultants that can help them reduce their expenses. According to Internal Revenue Service statistics,  85% of people earning $500K to $1 million a year, and 92% of people that earned more than $1 million hire accountants and tax attorneys to prepare their taxes.

The aggressive attitude many have toward taxes is well characterized by Trump's words at a New York news conference when he announced his tax plan in May of 2016.

"I fight like hell to pay as little as possible. I fight like hell always, because it’s an expense. And you know, I feel ... and I fight. I have the best lawyers and the best accountants, and I fight, and I pay. But it’s an expense."

Article Sources

• Tax Foundation.
• Washington Free Beacon.
• Daily Mail.
• New York State Department.
• IRS Statistics.
• USA Today.