Date: June 1, 2019
Attendee and Guest: Kelly Coughlin, CEO, EveryDay CPA – William McConnaughy – PART 1
Good morning, this is Kelly Coughlin, CEO of Bank Bosun, hope everybody is doing well. You know, dealing with the IRS for a business or a personal tax resolution can be a challenging endeavor. Today we are going to talk about Business Tax Resolution. As we head into the end of the year I thought it would be helpful for community and regional bankers to hear from an expert in dealing with the IRS and various state taxing authorities. We are not going to focus on tax planning, rather, we are going to focus on tax liability resolution. That is, resolution of a business tax liability, that’s today’s topic, after the IRS has notified you of an amount due. With that, I have on the line, I hope, William D. McConnaughy, a CPA, he has got 28 years of professional tax experience and he is the twin brother of Matthew McConaughey. No, that’s not true, that’s a big lie.
William: That’s not true.
That is not true, but it sounds better. He is successfully, that is Bill McConnaughy, successfully resolved over 4,000 cases. He is a former IRS Revenue Agent, beware, and has a Masters in taxation and is a CPA. He has got two children. His son is in the air force, bravo for that, and his daughter works in the cinema industry. So, he has got insider knowledge about how the IRS personnel think, or don’t think, what pressures they are under and how to work with them successfully. Bill enjoys automotive racing and collecting, we’ll find out what he likes to collect – money I suppose – mixed martial arts and college football. So, I think, Bill, you are on the line.
William: Hi Kelly, good morning.
Kelly: How are you doing?
William: Good, how are you?
Kelly: Great, thank you for joining us on It’s Saturday Morning. Bill, you are out in Sacramento, I believe, correct?
William: Correct, yes, Sacramento, California.
Kelly: Great. Well, other than the fact that you are not related to Matthew McConaughey, did I get everything else right?
William: Everything else is correct.
Kelly: Great. Anything else you want to add about your personal situation there so the audience gets a better feel for that?
William: Oh no, the personal bio is pretty good, right on.
Kelly: Okay, great. Well, let’s dig right into it then. I am going to start with a question here that, it might be fairly obvious to you, but is it fair to say, we are talking about business tax situations here, is it fair to say that a routine business audit is normally the event that would trigger an unplanned business tax liability?
William: No, I wouldn’t say that that is usually the reason why there is an unplanned business tax liability. It can be, I mean, it certainly can be but usually, based on my experience, when there is an unplanned business tax liability it’s usually a result of unforeseeable, either business problems that come up with running the business, managing the business, or it could be where there is an unplanned or unexpected personal financial bad worth…the owner of the business needs money to take care of personal matters. And in both cases, what happens is that the business or the business owner will take money that should be set aside for the IRS and use it for other purposes. That’s usually why people come up short or businesses come up short, owing the IRS money. It’s because things come up that nobody can foresee and they take Uncle Sam’s money and put it to other purposes. But yes, an audit can certainly cause an unplanned tax liability. But based on my experience it’s usually the other things that come up that nobody can see and they take Uncle Sam’s money, like I said, and put it to other purposes.
Kelly: Oh, so it isn’t the IRS kind of initiating the finding, it’s a tax liability creating event that creates a tax liability and then they have to resolve it. And this is before the IRS is even involved, I suppose?
William: Yeah, that can happen, and like I said, things just come up or people take Uncle Sam’s money and apply it to other purposes that need to be taken care of to either stay in business or to keep personal matters in hand. So, based on my experience that’s what I have seen.
Kelly: Okay. So, you are in the business of helping businesses, and I know you do with individuals too but today we are going to talk about businesses. You help businesses resolve their tax liability, correct?
Kelly: Okay, now, what do you call that space, is it accounting, what space is that in?
William: The catchphrases are Tax Relief Services, Tax Resolution Services, Back Tax Help, there’s a number of different tags that people put on the industry.
Kelly: Okay. Now, let’s talk about the industry then, there are ads and promotions constantly on TV, radio, print media, talking about how to get your tax burden, tax debt, reduced, and this is the space you are in. Now, I know that you have got an excellent reputation of doing good things for your individual business clients. I know that separately from those and from what you say, but not all your, say, competitors have such illustrious reputation. Now, why is that, is it fair to say that your industry is kind of fraught with overpromising, under-delivery or in some case, kind of, incompetence or is it mainly, taxpayers are unhappy with the outcomes that they get, you know, say challenging set of facts and circumstances and they end up blaming the tax resolution professional or is it a combination of those things?
William: It’s a combination of both but I would say it is a problem with the providers themselves. This industry is full of practitioners that really have no business being in the industry. There is a lot of hot air, you know, sales puffery, I think you call it, where they do overpromise and under-deliver, and that is a fact. And the reason why that happens is that the IRS does not adequately regulate the industry.
Kelly: Do you think they should? Should the IRS get more involved in regulating the industry?
William: Absolutely! Yeah, they are actually required to by law but like a lot of other things with the federal government, what they are supposed to do and what they really do are two different things. They are required by law to regulate people that engage in this practice, but in reality, there is very light regulation. There have been high profile cases of very incompetent and dishonest companies that have been shut down but it has always been state attorney generals that have done it. I can name a couple of real high profile cases. Tax Masters, which was running TV ads all the time out of Texas, they were shut down by the state attorney general. JK Harris out of South Carolina was shut down by the state attorney general. Roni Deutch in California, Sacramento actually, right up the street from my office, shut down by the state of California Attorney General’s office. So, it is the result of a lot of fraud, overpromising, sales puffery, hot air, that’s what I call it, hot air.
Kelly: Yeah. How do you distinguish or separate yourself from that? I mean, I know the industry kind of probably gets tainted and that brings the industry down somewhat but, you know, that can be true with financial services, any industry I suppose, but how do you combat that?
William: Oh, the way I try to combat it is by having on my website a list of everything that provides credible proof that I am not like these other companies that have been engaging in overpromising or outright fraud. I have on my website proven actual case closure letters from the IRS that shows in black and white, on IRS letterhead, exactly what I did for people. So, there is no possibility of flipping about because it’s right there in black and white – Here’s the letter from the IRS that shows what I did for somebody. I post those for the most positive proof anybody could see that I do what I say I can do for people. And then I also have my license up there and you can see that I am a licensed tax practitioner by the State of California and the Board of Accountancy, Certified Public Accountant, and I am held to some high standard of practice and ethical behavior as well. You can also look to how long somebody has been in business. That’s a pretty good indication of how successful they are going to be working for you. If they have been around forever that’s probably a pretty good sign that they’ll continue to be there for you as well. And then you can look at a person’s complaint record whether or not there is a long history of complaints, they are either none or very few. And then you can also look at the fees that the most outrageous companies, the most fraudulent companies, they also typically charge outrageous fees. It’s a pretty good indication from what they are charging that these people are trying to gouge the public as much as possible and give as little as possible in turn for it.
Kelly: Great. So, you went through a litany of things here and you kind of jumped the gun on me but I want to be clear and specific, I like lists of things. I am a CPA, we like things simple and itemized. So, what are the top five things a taxpayer should look for when selecting an advisor? Now, this podcast isn’t intended to be an infomercial for you but we can stipulate that listeners should contact your office. You can give that contact information here or later on in the podcast and I’ll allow you to make a plug for you and your team. So, if we stipulated that and someone doesn’t decide to work with you, what are the five things that they should look for? A list of that for us.
William: Yes, that comes up once in a while where people that are around in the area will ask me, what kind of recommendations I would make if they were going to try to get somebody local. And the very first thing I would tell them is to look for a proven track record. I mean, make the practitioner prove to you that they are able to do what they say they can do. Get the case closure letters, make them prove that they have accomplished the work that you want them to accomplish for you. And then also look to their licensing. I mean, the licensing requires either (a) they have got be an attorney or (b) a Certified Public Accountant or an enrolled agent. Those are the three professional licenses that are qualified to represent people before the IRS – an attorney, a Certified Public Accountant or CPA or an enrolled agent which is called an EA. The person should be professionally licensed. And then the third thing I would say, once again, is how long have they been in business. If the person you are trying to have represent you have only been professionally licensed for, a year or two, I would say even five years or less, that’s not long enough, you don’t have a long experience record to really be adequately qualified to represent people in these matters. They should have at least five years and up experience, at least five years minimum. And then once again, as I mentioned, check the background, the reputation, do they have a litany of complaints? If they do that’s a pretty good warning sign. Check the fee schedule. I mean, if they are going to charge an arm and a leg that’s another warning sign as well, they are charging too much.
Kelly: Right, on the complaints and reviews of every provider in just about any industry has negative reviews, and I suspect that in your profession you are always going to get, even if you are a top-quality provider, the nature of the business is such that a taxpayer that is unhappy with the outcome and with bad facts and circumstances that just weren’t going to produce a good outcome are going to blame the provider even if they had given them a reasonable assessment of the likelihood of success. So, you are always going to sustain potentially some negative views of people that are going to blame the provider. Is that an accurate statement you think?
William: That’s somewhat an accurate statement, I would say. Yeah, that’s human nature but the way I avoid that is when we have cases where the client is not really happy about it I explain to him in detail why it is what it is, you know, this is the law, these are the facts and you are just stuck with it, you know. That is the situation, this is how much money you have to pay the IRS and also they have to be paid ahead of other creditors. And when you explain it to people, even the ones that are very unhappy about it, my experience, once again, they come to grips with it and say, okay, well the guy did the best he could do and it’s just a situation where, yeah, I am going to have to pay this. I’m not happy about it but I can’t blame him for it, it is what it is. The law says this and the fact says that and this is what I have got to do.
Kelly: Yeah, in your own practice do you have a pretty high success rate in reductions? I guess that’s the outcome, right, that you are looking for they could reduce it.
William: Yeah, that’s always the goal, the goal is always to see if I can get my clients off with paying as little as possible and reduction is always the number one goal. It doesn’t always turn out that way sometimes because of the facts, circumstances and the law. They are going to have to pay what they have to pay, but I would say, most of the time, a high percentage most of the time, two thirds, three-quarters of the time my clients end up getting a reduction where they don’t have to pay the whole thing.
Kelly: Yeah, well I will say your credentials, you have got experience with the IRS and you are a CPA and a Masters in tax at Golden State, that’s a pretty good tax program I knew a couple people that went through that program. That’s a good tax program, isn’t it?
William: Oh, it’s one of the top in the country. Yeah, it is well recommended.
Kelly: Yeah, I am curious, did you start your career with the IRS and then get into tax or what was the chronology here?
William: I started my profession fresh out of college with the IRS. This was during the early 1980s and the country was just coming out of recession and the IRS was the only job I could find. I had actually wanted to go into financial auditing with a large CPA firm but those jobs were hard to find so I got on with the IRS and the rest is history. Actually, it turned out I had a knack for it so I stuck with it.
Kelly: Yeah, where did you go to undergraduate school, and did you studied accounting there?
William: Yeah, I graduated from Francisco State University with a bachelor’s degree in accounting.
Kelly: Alright, that’s quite a good accounting program.
William: Yeah, that’s actually a good business school as well.
Kelly: Yeah. Okay, so then you spent some time with the IRS as a revenue agent and, where would they start you there normally? They would start you in a kind of individual tax side and then you keep moving up until you are on the small business, medium business and then big corporate stop and then international or…is that kind of the progression?
William: That is, yeah, they start you out with small individual cases and then work you up to larger more complex individuals and then move you over to corporations and partnerships.
Kelly: Okay, and how far did you get into that hierarchy or progression? From there you went out on your own, set up your own practice?
William: Yes, I stuck with the IRS for four years and I move my way all the way up until the large public companies. I never worked on those, but everything below that. If I had stayed with the IRS I could have moved into the large public companies but I wanted to go out on my own. I didn’t really care for the, how should I say it, the way things were being run at the IRS at that time. I would rather be on my own and do work the way I see that I would like to do it.
Kelly: Yeah. Let’s talk briefly about your thoughts on what’s going on in the IRS today and let’s say the last three or four years. They have been some pretty interesting scandals that have come out and if you don’t want to talk about this that’s fine because I know they are not a client of yours but they are certainly one you don’t want to be crashing, I would imagine, but if you are comfortable, well, I am curious about what your thoughts are about what’s going on with them. I will say, as kind of an outsider, seeing that the IRS has been kind of called on the carpet on things, destroying documents and not able to locate emails, it’s been kind of a thrill seeing these guys get a taste of their own medicine a bit.
William: That’s always been an ongoing problem at the IRS, actually. When I first got there one of my senior agents there told me that working in this organization it’s so political and there is always something going on where people are always trying to cover up things, and that’s one of the reasons why I couldn’t stay there. I just didn’t care for the way it was been run, the management, what you call the culture there. So, that’s one of the reasons why I left. It was too political and it has always had a long history of mismanagement. I don’t know if you can remember this but back not so long ago there was the so-called Barrack hearings in Congress where for almost a year they hammered the IRS on the way they did collections, and totally wrote a whole bunch of new laws because the collections were out of hand, so, this is a long-running story with the IRS.
Kelly: Do you think that it’s really a valid statement that they target certain types of tax-exempt organizations because of their contrary political perspectives, I mean, I just can’t believe that that would happen.
William: They took The Fifth Amendment honor so I guess it must have happened. Yeah, yeah, that can happen, that’s what I was saying about the political aspect of the people there and the culture, political. It’s something that shouldn’t be, but it is, and they got exposed last year. What was her name? That Louise Warner woman.
Kelly: Yeah, shocking. Do you think that comes from the top? I mean, we don’t have to go too political on this but do you think it comes down from, you know, the head guy, you know, Obama saying, you know what, I don’t like this type of group let’s go after them? Think it goes to that level? Is it that pervasive?
William: We are speculating but in my personal opinion, yeah, I think it actually came straight down from the White House, but that’s one man’s opinion.
Kelly: Yeah, interesting. Well, that’s surprising.