Individuals engage in numerous attempts to avoid paying taxes, from filing false returns to hiding money overseas. Business owners may attempt tax fraud through such methods as dealing with unreliable third party payroll services, paying employees in cash and neglecting to file proper returns. Regardless of the method (or the fame of the individual involved), the government can force those guilty of tax fraud to pay back taxes and penalties, and serve time in confinement.
Types of Individual Income Tax Evasion
In the article "Tax Evasion: An Overview," Cornell University Law School explains that individuals who engage in tax fraud use "illegal means to avoid paying taxes." These individuals may file false returns by:
- reporting less than their actual income
- reporting more than their actual legal deductions
- hiding money in accounts outside the country
Cornell University also says that individuals who earn income through illegal means often evade taxes, since properly reporting the income would result in criminal charges. Misrepresenting the means of acquiring that income could also lead to criminal "money laundering" charges.
Types of Employment Tax Fraud
The IRS describes several means of tax evasion by employers in the article, "Employment Tax Evasion Schemes." According to the IRS, employers may attempt to evade taxes by:
- pyramiding - Collecting taxes from employees and failing to pay them to the IRS
- employment Leasing - An unreliable third party payer (which companies may use for payroll, filing tax returns and paying taxes) may neglect to pay the IRS
- paying employees in cash (without withholding taxes)
- purposely filing false returns
- failing to file employment returns
IRS Penalty for Tax Evasion
According to the IRS code 7201 (as posted by Cornell University), tax fraud is a felony. Upon conviction, individuals may be sentenced to:
- pay back taxes owed to the IRS (with interest)
- pay additional monetary penalties and fines
- spend time in confinement
Famous Fraud Cases
In 1990, Willie Nelson was involved in one of the most famous tax fraud cases. According to Leslie Geary's article for CNN/Money, "Tax Troubles of the Rich and Famous," Nelson had to pay over $16 million in back taxes and fines for his involvement with a bogus tax shelter.
Martha Stewart was also involved in tax fraud charges in 2002. Geary states that Stewart was forced to pay over $220,000 in back taxes and penalties to New York state, which she had claimed she should not have to pay.
Wesley Snipes was involved in a more recent tax evasion scandal. In a 2008 CNN article, "Snipes Gets the Max - 3 Years - in Tax Case, " Rich Phillips reports that Snipes was found guilty of owing the IRS over $15 million in back taxes, which he avoided paying by sending money to overseas accounts. Snipes argued that he was misled by his tax advisers.
Tim Geithner, Treasury Secretary for the Obama Cabinet, has been involved in a heated tax scandal, as well. According to Fox, he was forced to pay back $34,000 in back taxes, which he avoided paying to Medicare and Social Security when he was a self-employed staffer.
Tax fraud can inflict heavy losses on the government. Cornell University cites that the IRS estimated a loss of $345 billion in revenues in 2007 alone, due to cases of tax evasion. Thus, the IRS attempts to audit and investigate any suspicious tax returns and offers rewards to individuals who aid them in cracking down on tax evasion.
Sources
- "Tax Evasion: An Overview." Cornell University Law School . Website accessed February 2010.
- "Employment Tax Evasion Schemes." Internal Revenue Services. Website accessed February 2010.
- Geary, Leslie. "Tax Troubles of the Rich and Famous." CNN/Money. Website accessed February 2010.
- Phillips, Rich. "Snipes Gets the Max - 3 Years - in Tax Case." CNN/Crime. Website accessed February 2010.
- "Geithner Touts Tackling Tax Evaders After Failing to Pay Own Taxes." Fox News. Website accessed February 2010.
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Kristen O'Hara - I graduated from college with a B.S. in elementary education. After teaching third grade for two years, I chose to stay home with my ...
