Sponsor's Message

Firstly - which was the government department that effectively screwed up the rather significant deal I'd negotiated?

It was, of course, the IRD.

The IRD and myself have a long and somewhat tempestuous relationship which really got exciting when they hauled my arse into court about six or seven years ago.

Yes, I admit - I was rather tardy in filing my GST returns so I can find no fault with them taking the action they did. However, what followed may shock you - but will probably not surprise you.

When I appeared in court to explain why I'd failed to file the returns, I pointed out to the judge that although it was true the returns had not been filed, I had paid some $16,000 "on account" and in response to their "assessment notices".

At this stage let me make the point that I'm most certainly not a tax-dodger. I don't have a complex network of family trusts and companies designed to reduce my tax liabilities or allow me to shirk my obligations. I'm just really bad at paper work and ill-disciplined when it comes to filling out forms. As a result, and as you'll see, I've actually ended up paying an effective tax rate of some 67% on my taxable income during the past three or four years - that's hardly tax-avoidance.

One also only has to look at my lifestyle to realise that I am not, and never have been "rich". I don't drink, smoke or gamble. I drive a cheap 10-year-old Jap import Honda, my house cost $184,000 (probably a lot less than you paid for yours) and still had a $100K mortgage on it when I sold it after 10 years. What's more, I haven't had a holiday in 15 years and I only own one suit (seldom worn). I tend to reinvest what little money I earn in R&D on new ideas and products -- something that in many other countries would earn me a big fat tax credit!

Anyway, this all happened when I was starting to get 7am.com off the ground. I was paying out lots of money (much of it borrowed) and, like all good dot-com enterprises, I was earning very little. What's more, what little revenue I did have came mainly from the USA so wasn't GST-rated anyway. As a result, my actual GST liability was nowhere near the $16,000 I'd paid "on account".

At the time, I was working 18 hours a day, 7 days a week, in order to single-handedly grow 7am.com from a "good idea" into what it ultimately became (before the idiotic new managemnt screwed it up): the world's most widely syndicated web-based news service and NZ's most highly trafficked website by a country mile.

It was never my intention to avoid my tax obligations - but time was the resource I simply had the least of - so I just paid the assessments and figured I'd file the returns later and end up with a credit for the difference..

Anyway - when I fronted up to the court, I pointed out that the IRD had actually gotten my name wrong - referring to me as Bruce Robert Simpson when, in fact, I have no middle name. What's more, the IRD denied all knowledge of the $16,000 payment I'd made "on account", even after I produced evidence to prove they'd cashed my cheque quite some time earlier.

I also pointed out that whenever I tried to talk with someone at the IRD on the phone, all I ever got was voice mail or an interactive voice response system that kept dropping the call. Others in the court that day also reported having the same problems.

Suffice to say that the Judge was not impressed with the IRD's appalling record-keeping (wrong name, failure to credit monies paid) and propensity to hide behind a crappy phone system. He tore a strip off the department and berated the department's lawyer - who was already very flustered to start with.

The judge told me to go away and file the returns and told the IRD to get their act sorted out before bothering the court again.

As I turned to leave the court, one of the IRD staff present, a Glenys Reid (spelling?) I believe, turned to me and in a somewhat muted voice whispered "we'll get you". I kid you not, those were her exact words - and there was clearly a lot of hate in her eyes. Obviously the IRD did not like being made to look like fools and idiots in front of the court and I was going to be made to pay - even though it was their own incompetence that earned them a ticking off.

If I'd had the presence of mind I would have asked, in a loud voice, for her to repeat her threat so that the judge could hear it - but I was tired and in a hurry to get back to my office - I'd already lost about six hours of time and would not be getting to bed that night.

Skip forward a few years and I was still working 18/7 at 7am.com. Although I'd filed the outstanding GST returns, I'd then missed a few more. Once again the IRD sent me an "assessment" for income-tax and GST. This time the total they claimed I owed was much closer to $100K -- but since this demand came with all manner of legal menaces and I was still far too busy to argue the point I again simply paid what they claimed I owed.

I hope you're beginning to notice that I've never declined to pay money to the IRD or tried to avoid my tax obligations -- I'm just really bad with forms :-)

I'd just sold a controlling interest in 7am.com for $200,000 (and yes, that's all I got -- it worked out to an hourly rate of just $12.48 but that's a whole other story) so, even after paying back many loans and debt incurred during the previous three years of hard work, I could write out the cheque and still have a few grand left over. When I visited the IRD at that time and they saw the receipt for my payment I could sense their intense disappointment that they would not be able to bankrupt me for non-payment of the assessed amount. Once again they were clearly pissed off that I'd dodged their bullet -- despite its huge size and awesome power. I think this really added fat to an already smoldering fire of frustration and simply strengthend their desire to "get me" even more.

Then, about 18 months ago, they hauled me back into court because, although I'd paid the assessed tax, I'd still failed to file some returns.

Well let me correct that - they once again hauled Bruce Robert Simpson back into court. You see, despite being ticked off by a judge, and despite being ordered to correct their records - they still couldn't even get my name right!

After I once again pointed out the error, the judge again ordered them to correct their records.

Yes, as I've already stated -- I'm definitely lousy at keeping records and filing forms. But hey, like the dozens of other hard-working Kiwis I saw in court that day facing similar actions for unfiled returns, I never claimed to be an accountant and never asked for the job of filing tax returns did I? Maybe, as I suggested many years ago, the best help government could offer small business is to provide them with free or heavily subsidised assistance in filing their tax-returns. That'd be a whole lot more useful than a grant that costs more in paperwork and form-filling than it pays. It would also free up the courts an awful lot.

I'm an "ideas guy" and, because I don't have a lot of money, the only currency I have with which to turn my ideas into real products or services is sweat equity. That means, as those who know me will testify, I work 18 hours a day, 7 days a week when I'm trying to get something done. Filling out damned IRD forms is the last thing on my mind at such times.

Also, my cashflows thend to be decidedly negative as I live mainly off savings -- so there aren't a whole lot of tax liabilities being incurred anyway.

However, I do not shirk my responsibilities as a taxpayer. For instance, in order to keep the IRD off my back, in the period from 1999 through 2003, I paid the them over $135,000 out of a taxable income of around $200,000. That's an effective tax rate of over 67 percent!

What happened to all that extra money I paid? Well, as if by way of a miracle, the IRD manged every time to come up with just enough interest and penalties to ensure that I remained in debt to them. Funny that.

Right now you're probably asking: "why didn't you just file the returns and pay only what you owed?"

Well the answer is that, as I said before, my record keeping is abysmal, my commitment to 7am.com and other projects represented 100% of my waking hours.

However, a little over 12 months ago I did engage the services of an accountant who charged me over $10,000 to bring all my accounting records totally up to date (yes they were that bad) and file all outstanding returns. I figured it was time to do the job properly and the IRD made it clear that if I didn't, they would get even snottier.

After doing all the sums and filing all the returns, it works out that I still owed the taxman some money - as you can imagine, much of the money I'd already paid had been eaten up in highly punitive penalties and interest. I had indeed paid more than my fair share of tax and now was faced with paying for my tardiness in terms of filing those returns. Not a problem though, the amount was not huge and I had some very good prospects in respect to the X-Jet technology.

So, I offered the IRD a rather goodly wad of cash (most of what I had left) which effectively obliterated a quarter of the debt, and told them that I was happy to pay off the balance by way of a four-figure monthly sum - with the entire balance being settled around the end of this year - so as to coincide with the X-Jet deal.

The department gladly accepted my payment and I figured everything was sweet. After all, the amount left outstanding was barely more than the amount I'd been offered as a technology grant just a year or so earlier. In fact, if I'd taken that grant I'd probably have been all square - so much for my unselfish attitude towards accepting government grants!

So let's be clear about this. All the outstanding returns were filed and, for the first time in many years, my paperwork and filing obligations were 100% up to date. I'd also paid a huge amount of money on a modest amount of income over the previous 3 years and was now prepared to continue repaying the debt with full settlement within just 9 short months.

I was a reformed man and, apart from a small debt that was due to be cleared pretty quicly, a model taxpayer once again.

The taxman was going to get his money, I was going to be able to continue with the X-Jet deal and everyone would be happy.

But clearly that would derail the department's stated intention to "get me" wouldn't it?

Oh come on -- they must have forgotten about that by now I thought.

However, the woman who had sorted my accounting records and filed my returns said that during her conversations with the IRD, she had gotten the strong feeling that my case was being treated as far more than just a desire to enforce the tax laws - there was clearly another agenda and a desire to settle some old scores.

It was about this time that I received an opinion from an Ernst & Young tax accountant who suggested, based on his limited knowledge of the case, this was perhaps instance where the extraordinary penalties and interest which had been levied should be waived or reduced in accordance with recent changes to tax laws. This would have freed me from the debt burden to the department that still hung around my neck and made my job of securing a deal for the X-Jet much less difficult.

The accountant offering this opinion contacted the woman managing my case, one Kathleen Gavin and formally requested a meeting to discuss the matter. This request was declined outright. Clearly even the consideration of such an option was not on the IRD's agenda.

Why was that request declined? What did the IRD fear from such a meeting?

Suddnely the IRD completely ignored the payment proposal I'd presented them with (and paid some $20,000 towards) -- and moved swiftly to try and bankrupt me.

Or let me clarify that - they moved to bankrupt Bruce Robert Simpson. Yes, despite being told on two separate occasions by the court (and countless times by me) to correct their records - they had still failed to do so. My goodness, I wish I could ignore the directions of a judge with such impunity. Doesn't the department have at least some obligation to ensure it gets its "client's" name right after seven years and repeated directives from the court?

It should also be pointed out at this time that I'd already sold virtually all of my realisable assests - and the IRD knew that. They also knew therefore that bankrupting me would not gain them a cent - in fact, they'd effectively be violating their legal obligation to collect all taxes due wherever possible and practical.

Now ask yourself - why would the IRD take such a seemingly irrational step?

I've admitted that I was once a bit of an arsehole in respect to filing my tax returns (although I still paid my share) -- but was I not now a reformed character -- up to date with my returns, having paid huge amount of the tax and penalties it was alleged that I owed, and having put in place and honoured a serious repayment plan that would clear the remaining debt in less than a year.

Why choose now, only after I've sorted everything out, to try and bankrupt me?

Would it not appear that I was now doing everything humanly possible to comply with the law and fulfil my obligations, both financially and clerically?

What on earth would be gained by bankrupting me at this late stage when I was just months from bringing my tax-account into balance?

It's not as if I was sitting on hundreds of thousands of dollars worth of assets that they could seize and sell to cover the debt -- I was on the bones of my arse but still capable of earning enough to repay the debt -- and most importantly of all I was on the verge of signing that X-Jet deal.

Clearly any move to bankrupt me could not possibly be done on grounds of fiscal prudence.

Then the words whispered in that courtroom all those years ago still ring loud and clear in my mind: "we'll get you".

I'd dodged every bullet the IRD had fired at me so far -- and this had clearly frustrated the hell out of them. Now that they could see that soon they'd no longer have any grounds for making my life a misery, perhaps they decided that they'd play their trump card while they still could.

Who cares if the taxpayer is deprived of thousands of dollars in penalties and interest owed and the benefits of a significant international deal? After all, it appears that once a threat is made, it must be honoured.

Maybe the thought that, within a year, I'd have paid off my debt and be earning a very pretty penny while continuing to keep my nose clean was just too much for Glenis Reid and her pals to contemplate.

So, faced with this seemingly ridiculous situation where the IRD was about to cut off the taxpayer's nose to spite its face, I contacted both Dr Michael Cullen (as Minister for Revenue), and Jim Anderton (as Minister for Economic Development).

Surely they would see that this move on the part of the IRD was fiscally incomprehensible. Surely they -- might even see that there were grounds for relief in respect to the penatlies that the IRD had levied in light of the fact that I was effectively broke. Surely they would see the sense in allowing me a few months to repay the outstanding amount and close a deal on the X-Jet technology.

Maybe they'd even be interested that IRD staff would threaten a taxpayer within the confines of a court room and seemingly cary through on that threat. Maybe they'd be interested in finding out why, after so many years and repeated directions from the court, the IRD still couldn't get something as basic as my name right.

Tomorrow I'll tell you what Cullen and Anderton did, or should I say didn't do to help.

The Next Instalment: Do as we say, not as we do

If any Aardvark readers want to share an opinion on today's column or add something, you're invited to chip in and have your say in The Aardvark Forums or, if you prefer, you can contact me directly.

Contacting Aardvark
I'm always happy to hear from readers, whether they're delivering brickbats, bouquets or news tip-offs. If you'd like to contact me directly, please this form. If you're happy for me to republish your comments then please be sure and select For Publication.

Other media organisations seeking more information or republication rights are also invited to contact me.

Just add a couple of lines of JavaScript to your pages and you can get a free summary of Aardvark's daily commentary -- automatically updated each and every week-day.

Aardvark also makes a summary of this daily column available via XML using the RSS format. More details can be found here.

Contact me if you decide to use either of these feeds and have any problems.

Linking Policy
Want to link to this site? Check out Aardvark's Linking Policy.

Did you tell someone else about Aardvark today? If not then do it now!