If You Don’t Pay Income Taxes, You Lose the Farm!
Frankie Sanders is a self-employed farmer in Illinois and a “tax defier”. As far as the IRS can tell, Mr. Sanders has never filed an income tax return or paid any taxes. The IRS audited his income for 1991-1997 and Mr. Sanders never cooperated with the IRS. The IRS assessed income tax using an estimate of his net farm income based upon the acres farmed and average revenue and costs for ground similar to his. Also, the IRS assumed that no rents were ever paid to his mother for ground that she owned (likely this was in error, but when you don’t cooperate the IRS assumes the worst for you not them).
The audit indicated that Mr. Sanders owed about $441,845.75 in taxes and penalties for these years (1998 to 2015 are not part of this case) plus related interest. Mr. Sanders has appealed this audit several times and the United States District Court (S.D. Illinois) has finally ruled that Mr. Sanders owes the money; the federal lien filed by the IRS is valid; and the IRS can proceed to auction off two farms owned by Mr. Sanders.
About the time of the audit, Mr. Sanders elected to transfer his farms into “trusts” that would protect him from the IRS. As the District Court ruled, these trusts were essentially shams and therefore, Mr. Sanders is the beneficial owner of the farms and the IRS can sell them.
Too many times I see farmers and other taxpayers try to avoid paying taxes when due. It is almost always best to pay your taxes when they are due; otherwise you may end up losing the farm, just like Mr. Sanders.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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