“I kinda got that impression,” Matt said.
“As expected, the franchise tax board notified the IRS of the income discrepancy they uncovered, and the IRS immediately ordered an audit of your taxes from 1991 to 1995.”
“I know,” Matt said sourly. “You had me fax that form that released all my documentation to them and authorized you to be my mouthpiece.”
“That audit began two weeks ago,” Wesley said. “They haven’t even started working their way backwards yet. They’re still doing the preliminaries of 1995’s taxes and already you’re in very deep water.”
“What are we talking here? Jail time?”
“Oh no, they’re not going to pursue incarceration,” Wesley said. “If you’re in jail, you’re not making money. And they want their money. And they will do anything in their power to get it. To get all of it, plus interest and penalties.”
“And what is in their power?” Matt wanted to know.
“It would be easier to tell you what is not in their power. They have many avenues at their disposal, and they are already starting to implement them. Just based on the preliminary exam of 1995, they have already put liens on both of your California real estate holdings, have put a hold on your ability to transfer large amounts of money out of your bank accounts, have frozen your certificates of deposit and bond holdings, and set a tracker on any sale of stock certificates in your name.”
“Assholes,” Matt spat.
“They’re doing the job they are paid to do,” Wesley said. “And they do it extremely well in situations like this.”
“What happens next?”
“When the audit is complete, they will issue their findings and tell us what the amount of back taxes plus interest and penalties you owe. They will demand payment of the full amount within ninety days.”
“They won’t let me negotiate a payment plan or some shit like that?”
“They will negotiate with me on that manner, but it is they who get to decide what is fair and equitable. They are not going to simply tell you to pay a couple thousand a month until it is paid off. They will expect at least half of each of your royalty checks for starters.”
“Half?”
“Half,” he confirmed. “In addition, they will move to seize and auction off your nonessential property to pay down the debt. Your helicopter and your yacht will be the first things they go after. They will likely make a move on one of your domiciles as well.”
“My domiciles? What the fuck does that mean?”
“Your real estate holdings,” Wesley explained. “You own a condo and a house in California. They will argue that you do not need two residences. My guess is that they will go after the San Juan Capistrano home because it is worth more.”
“They can’t take my fuckin’ house!” Matt yelled.
“They can’t take both of them,” Wesley corrected. “They can take one. And since the San Juan Capistrano house is worth more, that’s the one they will go after. Now, a judge may disagree, especially when I argue that that domicile is your primary residence, but they’ll have the LA condo at the very least. And they’ll keep the lien on the other house no matter what. You will not be able to sell it without their say-so.”
“This shit’s like Nazi-fucking-Germany!”
“No, it’s like the United States Internal Revenue Service when you owe them a lot of money,” he said. “And things don’t end there. They know about all of your possessions, Matt. They subpoenaed the records from your insurance company, including the appraisals of value. Everything deemed unessential is up for grabs. Your guitar collection, for instance. It is valued at three hundred and twenty-six thousand dollars. They will go after that.”
“My guitars?! What the fuck, dude?” And then something even darker occurred to him. “My Strat! They can’t take my Strat from me, can they? I’ll never give it to those motherfuckers! I’ll burn it first!”
“The Stratocaster you play is insured separately and listed as a unique asset,” Wesley said. “By itself, it is currently valued at ninety-five thousand dollars, though I personally think it would sell for much more at auction. And yes, they may try to go after it, but I am reasonably sure I could convince a judge that that particular guitar is essential to your income stream and reputation as a musician.”
“Reasonably sure? What the fuck does that mean?”
“It means that I can’t promise you that some judge will not order it turned over, but it is unlikely.”
“Oh ... okay,” Matt said, feeling a little better, but not much.
“My strong suggestion to you,” Wesley went on, “is that we ask for permission for you to start selling off some of these assets yourself.”
“How does that help anything?” he asked, pondering the loss of his yacht and his helicopter and one of his pads. He hadn’t even ridden in the helicopter yet! Had never even met the pilot he’d hired to fly it! And now he was going to have to fire him along with all the other crew of the yacht. It had been a long time since he had felt like crying—probably more than thirty years—but he felt like that now.
“You’ll get more money for them that way and pay down the debt faster. If the IRS seizes your yacht and your helicopter, for instance, they’ll just auction them off with little to no effort and take whatever they get. But if you sell it, you have a vested interest and can work to get a better price. Same for your LA condo. In addition, if you sell the condo yourself, then the argument about them seizing the San Juan Capistrano domicile becomes null and void.”
Matt nodded miserably. “I guess I understand that shit,” he said. “What about my pad down in Cabo? Will they try to take that too?”
Wesley shook his head. “That possession is out of their reach,” he said. “It is in Mexico, not the United States, and they have no ability or jurisdiction to seize it. However, I would strongly suggest that you consider selling it as well.”
“Sell my Cabo house?” he asked, outraged. “Why the fuck would I do that if I don’t have to?”
“For money to pay them off,” the lawyer explained. “My understanding is that you own the house in Cabo San Lucas free and clear, correct?”
“Well ... I own the house itself,” he said. “Paid cash for that motherfucker when I bought it. Two hundred fuckin’ Gs. But I don’t own the land it sits on. Those fuckin’ beaners won’t let Americans actually buy the land from them. I have a ninety-nine-year lease on the property—well, ninety-five years at this point.”
“That doesn’t really matter,” Wesley said. “You have de facto ownership of the property.”
“De facto?”
“That means that for all intents and purposes, the property is yours to do with as you please,” he explained. “That ninety-five-year lease would transfer to any potential buyer, so the land retains the same value it would have if you did legally own it. And real estate in Cabo San Lucas—particularly two acres of actual waterfront real estate—is extremely valuable right now. I checked with our real estate department on this. Even without the house on it, that land would be worth well over a million dollars American now. With the house, it’s worth maybe one point four million.”
“Damn,” Matt said slowly. “That’s a pretty good investment I made, isn’t it?”
“It was,” Wesley agreed. “You bought at exactly the right time, just a year or so before Cabo San Lucas was discovered and became a major tourist destination. You could unload that property today, by the close of business hours, for one point three million minimum. That would be a pretty decent chunk of what you will end up owing to California and the IRS.”
Matt was shaking his head. “No fuckin’ way,” he said. “I ain’t selling my house in Cabo. I’ll keep it until I die.”
“Are you sure that is a wise decision, Matt?” Wesley asked. “My understanding is that you only spend a few weeks there a year.”