Episode Summary
In this episode of The Flywheel Effect, hosts Brent Sonnek-Schmelz and Matt Bernath talk with Carlos Samaniego, a tax expert and founder of Tax Debt Consultants, LLC. They discuss the realities of unfiled taxes and the consequences business owners face when they ignore the IRS. Carlos shares his personal story of not filing for eight years and the fear that comes with it.
The conversation explores common mistakes that trigger audits and collections. For contractors, the IRS can levy 100% of their income. For S-Corp owners, failing to pay a reasonable salary is a major red flag. Carlos also explains how co-mingling personal and business funds can “pierce the corporate veil,” which removes the liability protections that business structures provide.
Ultimately, Carlos shows there is light at the end of the tunnel. He explains the IRS’s 6-year lookback rule for those who come forward voluntarily and offers practical steps to get compliant. This episode provides a clear, direct look at why you should face tax problems head-on.
Featured Guest
Guest: Carlos Samaniego
What he does: Founder
Company: Tax Debt Consultants, LLC
Noteworthy: A tax expert who learned the hard way by not filing for eight years.
Where to find him: LinkedIn
Key Insights
S-Corp Owners: Pay Yourself a Salary or Face a Guaranteed Audit
S-Corps must pay owners a reasonable salary to remain compliant. This business structure offers a tax advantage by allowing owners to take distributions that are not subject to self-employment tax. However, the IRS requires owners who work in the business to take a “reasonable salary” first, which is subject to regular payroll taxes. This prevents owners from avoiding taxes by classifying all their compensation as a distribution. Failing to do this is a major red flag that will trigger an audit. The IRS considers this its number two priority for business audits and is now holding tax professionals accountable for filing returns for non-compliant S-Corps. For any S-Corp owner, establishing and paying a reasonable salary is not a suggestion. It is a mandatory step for compliance.
Co-mingling Funds Risks More Than Just an Audit
Using a business account for personal expenses puts your personal assets at risk. This practice, known as co-mingling, does more than just complicate bookkeeping. It threatens the legal shield that separates you from your business. If you fail to treat your business as a distinct entity, a court can rule to “pierce the corporate veil.” This means your liability protection is gone. If your business faces a lawsuit, creditors can legally pursue your personal assets, including your home, car, and savings. This negates the primary reason for forming an LLC or S-Corp. Keeping business and personal finances strictly separate is a fundamental requirement for any business owner. It is the only way to ensure your personal assets remain protected from business liabilities.
The IRS Rewards Proactive Taxpayers With Leniency
The IRS offers significant advantages to taxpayers who voluntarily address unfiled returns. If you come forward before the IRS initiates contact, an internal rule often requires you to file only the last six years of returns to become compliant. This can effectively forgive years of non-filing. In contrast, waiting for the IRS to find you makes the situation far more severe. A revenue officer can be assigned to your case with the authority to demand as many past-due returns as they see fit. They also conduct much deeper investigations into your life and assets. Acting first keeps you in a simpler, automated collections process. It gives you more control over the outcome and prevents a small issue from escalating into a major investigation.
Your Tax Debt Fear Might Be Worse Than the Reality
The anxiety of unfiled taxes can be more damaging than the tax problem itself. Many people avoid filing because they assume a massive tax bill is waiting. However, a filing problem is not always a tax debt problem. Often, once legitimate business expenses and deductions are accounted for, the tax liability is much smaller than anticipated, or even eliminated. The IRS files “substitute for returns” for non-filers with no deductions, creating an artificially high tax bill. When you file an accurate return, you replace that inflated estimate. Facing the issue head-on is the only way to find out what you truly owe. In many cases, the reality is far less daunting than the unknown, and resolving it lifts a significant emotional burden.
Episode Highlights
Contractor Alert: The IRS Can Levy 100% of Your Income
Timestamp: [00:20:57]
Contractors face a unique and severe risk when they have outstanding tax debt. Unlike W2 employees, whose wages are only garnished up to a certain percentage, independent contractors can have 100% of their income seized. The IRS can send a levy notice directly to the companies that pay you. This means a client who owes you money for a job would be legally required to send that entire payment directly to the IRS. This can instantly cripple a business, as most contractors rely on their accounts receivable to cover operating costs. This aggressive collection method makes it critical for contractors to address tax issues before they escalate.
“Many business owners don’t realize that business income can be levied 100%. If you’re a real estate agent with a $20,000 commission and you owe the IRS, they will take 100% of that commission. One of my first clients was a pool contractor; he didn’t know the IRS had sent levies to all the people that owed him money.”
The IRS Knows More Than You Think
Timestamp: [00:43:03]
Business owners who underreport income operate on a dangerous assumption. With modern AI, the IRS has become sophisticated at identifying discrepancies. They analyze vast amounts of data to establish averages for cash flow and merchant sales for specific industries. When your reported income falls below these averages, it raises a red flag. The IRS also receives electronic copies of every 1099 and W2. If you forget to include income from a form sent to your spam folder, their system will automatically detect the mismatch. The days of documents getting lost in the mail are over; the IRS’s data-matching is nearly instantaneous.
“This AI system knows the average cash flow coming in. You might be cheating on your taxes, but not everybody else is, so they have averages for cash and merchant accounts. With electronic delivery, many companies don’t mail documents anymore. They send an email to go download your documents online.”
The Hidden Tax Risks of Using Cash Apps
Timestamp: [00:46:41]
The convenience of cash apps comes with misunderstood tax implications. The IRS is increasing its scrutiny of these platforms, with reporting thresholds that can trigger audits. A problem arises when personal and business transactions are mixed. Simply sending money to a spouse for household expenses can be misinterpreted. If the IRS sees a report that your spouse received thousands of dollars via a cash app, they may assume it is unreported income. This leads to a stressful audit to prove the funds were personal transfers, not business revenue. To avoid this, it is crucial to use these apps carefully and keep personal transfers separate from business activity.
“I had a client being audited because they said he didn’t report all his income. We found out the cash app he was using was to send money to his wife constantly, like her monthly allowance. The IRS got a report that she received $15,000 throughout the year, so they thought it was $15,000 of extra, unreported income.”
Your First Three Steps to Tax Resolution
Timestamp: [00:53:02]
Taking the first step toward resolving tax debt can feel overwhelming, but a clear path exists. The first step is recognition: accept that the problem will not disappear. The IRS has a long memory. The second step is to understand there is light at the end of the tunnel, no matter how large the debt. The IRS is designed to work with taxpayers and cannot “get blood from a rock.” They have programs to help people get back on track. The third step is to engage. They want to know your situation. If you haven’t filed, they just want the returns filed so they know what you truly owe.
“The first step is recognizing and being honest with yourself that you have this issue you haven’t dealt with. Understand that it’s not going to go away. Step two, I don’t care how bad your problem is, there is light at the end of the tunnel. The IRS can’t get blood from a rock, period, and they know that.”
