
Originally Posted by
Melonie
I can tell you about two specific cases involving fellow NY dancers. While these incidents happened at different times, they unfolded in a very similar manner.
Both dancers wound up drawing IRS attention because their registration of new cars was reported by the state dep't of motor vehicles. Both received an IRS 'deficiency notice' for about $30,000 worth of additional taxes, based on an IRS 'estimate' that their actual earnings level for each of the past 3 years must have been ~$25,000 per year higher than they reported on their tax returns. This 'estimate' was arguably the result of an IRS assessment that the apparent costs of maintaining their 'lifestyle' ... from the purchase of a 'nice' car, to purchases at upscale retailers shown on credit card statements, to renting a decent apartment, to the comparatively high costs of groceries, utilities, local taxes etc. in the NY area ... could not have been possible without the existence of additional unreported income.
While these dancers were still contemplating what to do about the 'deficiency notice', they discovered that they could no longer access their bank account balances thanks to an IRS 'freeze'. They also discovered that any 'new' funds transferred into their bank accounts were also subject to the IRS 'freezing' the new money before they could withdraw it. With insufficient 'cash' available to pay a tax attorney / accountant on top of paying their rent and other costs of living, they had little choice but to accept a 'settlement' offer from the IRS which resulted in them paying something like $20,000 in additional taxes via a monthly payment plan ... as opposed to the IRS leaving the 'freeze' in place while they underwent a full blown audit plus a potential trip to tax court. Given the cost of the monthly 'settlement' payments, as well as an IRS mandate that they make quarterly estimated tax payments based on their current / future income, neither could afford to hang onto their new cars.
Granted I can't cite an example which specifically involves camgirls. Since camgirls generally work solo, there is no opportunity for dressing room / after work discussions of such matters as is the case among fellow dancers. However, there is zero question that the IRS does conduct 'lifestyle' audits, does 'estimate' income levels which are above the amount of income the self-employed person officially reported when it appears that the person's spending patterns are more upscale than their reported income would typically provide for, and does attempt to collect additional taxes based on that higher 'estimated' income amount.
My accountant tells me that the IRS prefers to 'leverage' people into accepting 'settlement' agreements ( which allows the IRS to side-step the associated costs of performing a full blown audit and a potential tax court proceeding ), with primary 'leverage' stemming from IRS ability to effectively deny people access to their bank accounts until the matter is resolved. Secondary 'leverage' stems from the fact that refusing a 'settlement' agreement triggers a need for the person to spend additional money on a tax attorney / accountant, as well as a calculated risk that ... if they are unable to 'prove their innocence' ... the amount of additional tax money owed could be higher than the amount involved under a 'settlement' agreement.
I would also add that, besides doing something which attracted IRS attention in the first place, the two dancers described above arguably 'screwed themselves' because they did not establish and maintain a separate business with a separate bank account. By co-mingling funds in a personal bank account, the IRS was able to 'freeze' both their personal funds and their business funds based on a single accusation of personal tax 'deficiency'. If there was any 'bright' side it was that, as dancers, their present earnings mostly came in the form of direct customer cash which wasn't subject to the IRS 'freeze' ... thus still allowing the dancers to pay for their rent, utilities, groceries, etc. via that cash while they explored their options, made their decision, and waited for the 'settlement' to be accepted and the 'freeze' lifted. Under similar circumstances, camgirls who receive the vast majority of their present earnings in the form of checks or bank account transfers, and who co-mingle funds in a personal bank account, could potentially be 'cut off' from their present / future earnings altogether if an IRS 'freeze' were to be imposed. That's a LOT of 'leverage'. !!!
Also, I never claimed that this happens 'frequently'. In point of fact, only the IRS knows how frequently they pursue 'lifestyle' audits ... and they don't publish such statistics. All I claimed was that 'lifestyle' audits DO happen ... and aren't just 'crazy talk'.
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