The IRS Audited Me and Fined me Over $500,000.

Oscar, buddy, we gotta move back to the warehouse. We got audited by the Internal Revenue Service. You think it's funny, don't you? Well, today's video is gonna be a little bit different, a little bit of a story time on when I got audited by the IRS, the Internal Revenue Service. Now, if you've been audited, you already know, this is the worst thing that could ever happen to you or your business, and I can confirm, it was dreadful. It was absolutely terrible, but we did live, we did survive. I'm not a criminal, I'm not going to jail, none of that nonsense. Ladies and gentlemen, welcome back to the channel, and welcome back to the vlog. Now, the IRS is effectively the tax man, and when you get audited, they're basically making sure that they've gotten their money. Now, here in the United States, you file your tax return once a year. You can prepare yourself, maybe you have a CPA like me, maybe you got a tax attorney, but effectively, you have to have a good understanding of the tax law. Now, every single year, the tax law changes. From 21 to 22 to 23 to 24 is vastly different, and you have to understand the different nuances between each year. Then you gotta do all the calculations, you have to have a good understanding of what can you write off, what can you not write off, what is income, what is capital gains, self-employment tax. I mean, there's so many different things that you gotta understand. Maybe you owe the government money, maybe you're getting a refund. You submit your tax return off into the abyss, and then you never hear anything back. You get no feedback, you have no idea. Did I pay the government $200,000 more than I was supposed to? Did I not pay them enough? Am I going to jail? And then maybe two, three, four, five years down the line, you get audited, but 98 to 99% of tax returns are never audited. Now, the 1 to 2% that do find out, that's me. That's when you get audited. I would rather not know, to be honest. Meeting the tax man, very overrated. Now, before we dive into the deep details of my personal tax audit, I want to read the definition of a tax audit from IRS.gov. Also, by the way, it's probably going to be the most boring video of my entire life. An IRS audit is a review examination of an organization's or individual's books, accounts, and financial records to ensure information reported on their tax return is reported correctly according to the tax laws and to verify the reported amount of tax is correct. Now, to all the young guys watching today's video, listen on up right on now. If you want to be an entrepreneur, you want to own a bunch of supercars, understand the tax law. The one thing I learned through this audit, there's business efficiency and then there's tax efficiency. And the way you want to run your business is towards tax efficiency. If you do ultimate business efficiency, you might make more money, but you're going to pay more in taxes and your take-home pay is actually going to be less. Now, if you run it towards tax efficiency, you don't have to work as hard and your take-home pay is actually higher. A lot of people give me a hard time for leasing my Koenigsegg and those are the same people that would be working harder and paying more taxes than me. Whatever business you run, learn the tax laws accordingly. There's a lot of businesses that are more tax favorable than other businesses. If you're an aviation, if you're an aviation YouTuber, if you're a truck YouTuber, forget about it. If you're a car YouTuber and all your cars weigh under 6,000 pounds, you're done for. I've hesitated to film this video for quite a while because I know my haters are going to be like, that's it? I knew something was wrong. He's not paying his taxes. That's how he buys the cars and the house. He's a tax evader. Throw him in jail, lock him up, throw away the key. Audit does not equal criminality. Just because you get audited doesn't make you a criminal. The chances of being audited go up with income. If you make a billion dollars a year, IRS is going to audit you because more than likely they can find something they can get you on. Almost every single audit goes in the favor of the IRS. They find something almost every single time, whether it's big or small. When I was making eight bucks an hour, why would they audit me? When I was in high school, why would they audit me? Even if they found something, it's not going to be that much. It's not going to be worth their time. Auditors get paid a lot of money. So as your income goes up, the likelihood of an audit goes up. So I got audited for 2019, 2020, and 2021, but I got my letter from the IRS saying I was going to be audited in 2022, 2023. Now we're going to backtrack to the year 2022, March, April 2022. I'm in Africa. I climb Mount Kilimanjaro. I get home. The house is mid-construction. I'm getting closer and closer to finish line. I'm living in the rental house, and that's when I get the letter from the Internal Revenue Service that I am being audited. I have a phone call with the auditors. It goes fairly well. It kind of feels like an interrogation though. They're asking me all these questions. I got my CP on the phone as well, and I'm like, should I have a lawyer present? I don't know exactly. I don't want to say the wrong thing, but obviously I'm not planning on lying, but I don't. It's just very, very, very nerve-wracking. They want bank statements. They want financial records. They want Venmo. They want PayPal statements. They need bill of sales. They need operating agreements, purchase agreements. I mean every single thing that I have done in 2019, 2020, and 2021. Now bear in mind though, it's already March of 2022, and now all of a sudden I got to go back three, four years, and I got to pull financial records and have an explanation for everything in accordance with this audit. And the one thing I learned during the audit, you are guilty until you prove innocence. And what I mean by that, if you don't have the financial records to back up what you're saying, forget it. And that's probably the one thing I learned the most from the audit. Have good records. It'll save you a lot of money. Now, I want to say it's June of 2022. I've submitted all the financial documentation off to the auditors, and now I have to explain to them this automotive YouTuber. They have never audited an automotive YouTuber. These auditors in Salt Lake City, at least, maybe somebody else has been audited in the automotive game, but I got to try to explain to them automotive YouTube, which is a very, very unique ecosystem. I buy supercars to generate revenue. I don't use my Lamborghinis as a standard passenger vehicle. I'm not using my Lamborghini to get from point A to point B. The revenue I generate is a direct function of owning that car. When I buy a car, I film a video buying said car. I immediately generate revenue because I bought that car. The video cannot exist without buying the car. I'm not using the car just to move people. My entire business is the car. Without the car, there's no business, and I'm trying to explain this to them, and it's not making sense. And then there's the modifications, the twin turbo kits, the Gladiator 6x6 conversion. There's the FI exhaust on the Aventador shooting fireballs from here in North Carolina, and I'm trying to explain to them, no, these are business expenses. There's no way somebody could own six Lamborghinis and not have them for personal use. It doesn't add up. So it's quite the uphill battle. And then, of course, the auditors start asking me questions about all my travel expenses because I've been able to travel all around the world doing YouTube videos, and the auditors are like, ah, you're telling me these are business expenses? It looks like that's a personal trip. So I got to sit down every single trip from 2019, 2020, 2021. I got to explain to them what I filmed, the revenue generated, the problem with YouTube and what you guys don't see. Lots of times, it doesn't work out. I might go somewhere, car doesn't show up, car breaks down, and I don't end up filming a video. But the purpose of that trip was to film for YouTube, but sometimes it just doesn't work out. That's just like the nature of the business. So I got to explain to them on some of these trips why there's no content attached to it. But then also, I have Instagram, I have TikTok, I have Snapchat. So even if I didn't film a YouTube video, I have other things that I'm generating revenue from. So these trips, yes, they are business expenses, but like I said, you're guilty unless you have the records to back it up. So we have the cars, we have the modifications, we have the travel. We also have equipment. We have cameras, we got tripods, we got laptops, we have food. Now, over 2019, 2020, and 2021, I ate a lot of food. Now, obviously, a lot of that food was for my personal consumption. All that food was for my personal consumption. But there were certain moments in time in which some of those meals were considered business meals. And I want to say the grand total from 2019, 2020, and 2021 was about $2,500 in business meals, which is not a lot of money. But there was a lot of times where I would go out for business purposes and we would eat food. Maybe another YouTuber visited me from the other side of the world. We'd go to Texas Roadhouse. We'd talk YouTube the entire time. That was a business meal. However, the problem with all my business meals, I had no records to back it up. I didn't say who the meal was with. I didn't say what the topic of conversation was. And so the IRS told me that all of my meals were illegal write-offs. Now, because they were illegal and they totaled about $2,500, they tacked on a 20% penalty as well as interest from 2019 to 2020 to 2021, which turned out to be a lot of money, even though they were. They were legit business meals, but I didn't have the records to back them up. The IRS was like, nope. Now, every single meal was crossed off the list. They were not accepted whatsoever. However, all my travel was accepted. So travel was good. Meals were bad. Now, we have the cars and we have the modifications. So we have the full carbon-fiber Aventador and we have the Gladiator 6x6. Now, from a channel standpoint, both these cars have been on the channel for a long time. They're also very important. From a revenue standpoint, I would argue I probably made more money off the carbon-fiber Aventador than the Gladiator, but from a tax standpoint, these cars are treated very differently. I make the joke all the time about a vehicle weighing greater than 6,000 pounds and here on the Gladiator, we got the door sticker. We have the gross vehicle weight rating, the GVWR, and you'll see the Gladiator 6,250 pounds. But of course, here on the Aventador, the gross vehicle weight rating, 4,630 pounds. Now, I want to give you guys a little bit of context on some of the revenue that I've generated from the Gladiator and the Aventador. So I bought the Aventador, the video went live, November 6, 2018. I bought this car for $240,000. Now, that one video, a video I could not have filmed unless I bought the car because the title is buying the cheapest Lamborghini Aventador in the world. That video alone, one video, $22,405.76. Another video on the Aventador was unboxing the $12,000 FI exhaust. That video has 4.6 million views and that generated over $13,000. Once again, that video could not exist unless I owned this car. And then, of course, the next video was installing that FI exhaust. That did 3.1 million views and I generated over $11,000 in revenue. So three videos, I generated over $40,000. $40,000 I could not have generated if I did not own this car. And another video on the Aventador was putting the tank tracks on it. That has 2.1 million views and I've generated over $11,000. Once again, I couldn't have generated that revenue without this car, without putting tank tracks on it. It couldn't have happened. Now, on the Gladiator, I have the video when I just got the Hellcat engine and I broke the axle immediately. That has 1.9 million views and that has generated over $10,000. And then, of course, I have all sorts of update videos on the 6x6 conversion. This one has 1.4 million views. I generated $10,000. And we have another one that did 1.3 million views. It generated $8,400. And then another one at 1.2 million views. It generated $11,000. I mean, the list just goes on and on and on. We have another one at 1.2 million views. It generated another $11,000. Effectively, what I'm getting at, none of these videos exist without the cars. The cars are everything. Now, you're probably thinking to yourself, so what? I generated a lot of money from the Gladiator. I generated a lot of money from the Aventador. And that's just a small fraction of the videos. This Aventador, I have generated so many videos, so much revenue year after year after year after year. But from a tax standpoint, the vehicles are treated very differently. The Gladiator weighs over 6,000 pounds. The Aventador weighs under 6,000 pounds. And in IRS land, that is everything. That changes everything. Now, this is where the tax jargon is getting very, very complicated. Also, I want to point out, I'm not a financial advisor. Anything that I say, do not take my financial advice. Call your CPA. Call your tax attorney before you do anything. Don't do anything based off of what I have said. Also, tax laws have changed dramatically from 2019 to 2020 to 2021. Tax laws are constantly changing. When I bought this truck in 2019, I bought it for $63,000. And because it weighs over 6,000 pounds, it was Section 179 eligible, which means the first year I owned this truck, I was able to write it off 100%. I put about $150,000 of modifications into this truck. I was able to capitalize those modifications. But once again, because it weighs over 6,000 pounds, Section 179, I was able to write off the entire truck. My basis, my book value in this truck, on my accounting records, is $0 for one simple fact. Not because it generates a lot of revenue, which it does, but that's not why. Because it weighs over 6,000 pounds, I can write off 100%. Now, my Lamborghini Aventador, which I think anybody could argue is way more important to the channel. It generates way more revenue than the Gladiator. It has one key significant difference. It weighs under 6,000 pounds, which means it is not eligible for Section 179. Although in my situation, my channel, the vehicle, the revenue generated is a direct function of owning the vehicle. It's not a passenger vehicle. I'm not using it to move people from point A to point B. I'm using it to film content, which is the main point of my business. But because it is under 6,000 pounds, it is only exempt to the standard luxury vehicle auto expense, which every year kind of sort of varies. On average, I want to say it's around $20,000. So the first year I owned this vehicle, I was able to write it off $20,000. The second year, $18,000. The third year, $16,000. And these numbers are not exact, but you get what I'm saying. I had to depreciate the Aventador but the Gladiator, I could write off in the first year, 100%. I'm going to repeat something I already said. Section 179 is constantly changing. So what I did in 2019, 2020, 2021, it is different. Section 179 has changed a lot for 2023, 2024, 2025, et cetera, et cetera. So we're going back in time. Like I said, tax laws are ever constantly changing. Now, here's where the audit comes in. I'm going to try to dumb this down, not because you guys are dumb, but I don't want to overcomplicate. I'm going to leave out a couple different details, but the end result is exactly the same. So it doesn't really matter. With the audit, the IRS, they allow for certain exceptions. There are certain industries in which maybe you're a chauffeur or maybe you're an ambulance driver or maybe you drive a hearse and these vehicles are under £6,000 but the revenue you generate is a direct function of said vehicle. And in those industries, the IRS says you can use Section 179 just like you would on the Gladiator, even though those vehicles are under £6,000. So I saw that, I talked to a lot of different CPAs and I determined that my industry was the same because, once again, the revenue is a direct function of owning the vehicles. If I don't have the vehicles, I don't generate the revenue. Just like a chauffeur, just like a hearse driver, just like an ambulance driver. And so, I took Section 179 on not just my Gladiator, I took it on all the cars. And unfortunately, the IRS disagreed. So in summary, I wrote off the Aventador, I matched the cash flows, the first year I think I wrote off $153,000, I should have written off like $20,000 give or take, the IRS saw that, I explained the industry to them, they disagreed with me and they said, nope. So basically, I have all these vehicles and their basis is zero. They're fully written off and the IRS is like, no, you're not allowed to do that. So we had to reverse all those transactions, we had to take the luxury vehicle auto expense limit, which is very, very small and then I had to pay a bunch of back taxes. Now, the IRS did agree with me on some level. They did not impose the 20% penalty because they understood the method, the stance that I was taking. Although they disagreed, they didn't feel as though I was doing anything malicious. They understood, but they disagreed. This is so complicated and it sounds so much worse than it actually is. I can already see you guys typing away. There's something called recapture though and I was recapturing. So let's use my Ford GT for example. I bought that vehicle in 2019. I paid $220,000 for it. I wrote it off down to zero. So my basis in that car in 2019 was zero. Well, fast forward to 2020. I sold it for $230,000. So my basis was zero. I sold it for $230,000. All of a sudden, I had a gain of $230,000 and I paid said tax on that gain of $230,000 but the IRS said, no, no, no, no, no. We had to revert back. So in 2019, I bought the Ford GT for $220,000. They told me I could only write off $20,000 of it. So then my basis is $200,000. Then the next year when I sold it for $230,000, I only had a gain of $30,000. So that's why it sounds so much worse than it actually is because when you reverse it all back, but then you have all these recaptures, all these gains I had paid taxes on, then I didn't have to pay tax on, and all these write-offs that I had written off that weren't allowed, I then had to pay taxes on. There are so many different moving pieces and it's so incredibly hard to explain effectively when it was all said and done, I had to pay around half a million dollars in back tax, which was not fun. But once again, because of the recapture, I was going to pay those taxes eventually. So although I had to pay them, it's not like I was evading them. I was going to pay them. I was just pushing it out a couple years. Now, I realize this is one of the most confusing videos I've ever filmed in my life, but that's literally the tax code. That's a tax law. Every single year it changes. It gets more and more confusing, harder to understand. One of the points I want to drive home though, the auditors, they understood the stance that I was taking and they did not impose a 20% penalty. They also said the tax law, it takes a while to catch up to times. Social media, automotive YouTube, is a very, very unique ecosystem that the tax law doesn't really account for. Now, I could have appealed it. I talked to my tax attorney. I talked to my CPA. They said we could do that. It would cost a lot of money. Maybe I'd win. Maybe I wouldn't. Especially because the tax that I had to pay, it was just a timing thing. It was either pay the tax now or pay it over the course of the next couple years. I paid the tax back in 2023. Like I said, about $500,000 in back taxes. There was also a bunch of interest implied. Probably the big kicker is the audit took over a year. From start to finish, it was a year of my life. It was absolutely dreadful and I had to pay interest over the course of that year and the audit took forever. Now, this of course brings me to my final point. El Koenigsegg. I leased the Koenigsegg and there is one reason and one reason for that. The Koenigsegg, as you can imagine, weighs under 6,000 pounds. If I bought the Agera for $3 million, the first year, I would get, drum roll, a tax deduction of like $20,000 for a $3 million car that I had to drop $3 million in cash on. But because I leased the car and it's $35,000 a month, I can write off nearly the entire lease payment over the course of a year. That's like $480,000 that I can write off. $20,000, $480,000. Do the math. That's why I leased the Koenigsegg. So to all the people that are making fun of me, joke's on you, baby. So in summary, always have good records. It'll save you so much time, energy, and money because remember, with the IRS, you are guilty unless your records prove innocence. You'll probably see me leasing a lot more cars. It just doesn't make sense to buy a car outright in cash. You get no tax benefits. Now, if it's over 6,000 pounds, sure. A Gladiator, an LM002, a G-Wagon, a Hummer EV, trucks, etc., etc. You get a massive tax write-off. Airplanes, helicopters. But cars, for my business, it just doesn't make sense. I'm working so much harder than if I was a truck automotive YouTuber. Ladies and gentlemen, the Internal Revenue Service. I got audited. I don't want you guys to get audited. But today's video is over.