My objective in this editorial is to keep you from being victimized by the anti-tax movement. This movement is not new. It was around before I became a special agent in 1986 and it will probably be around long after I’m gone. The results of getting involved in it are always the same - financial disaster. Participants eventually get caught and must pay back the evaded taxes, plus interest and penalties. The amounts can be staggering. Many participants are prosecuted and go to prison.
Here is a quote worth repeating from the Seventh District Court of Appeals: “Like moths to a flame, some people find themselves irresistibly drawn to the anti-tax movement’s illusory claim that there is no legal requirement to pay federal income tax. And, like moths, those people sometimes get burned.” The following was written in a recent press release issued by the United States Attorney’s Office: “Former Wasilla (Alaska) resident Dr. Alan S. Bills, 38, was sentenced today to serve one year in confinement for failing to file his 2003 income tax return. Dr. Bills pled guilty on April 29 admitting that he failed to file his individual income tax return for 2003, despite earning over $300,000 in gross income from his dental practice ... Judge Roberts described Dr. Bills’ previous claim that federal income taxes are voluntary as ‘patently ridiculous.’”
IRS Criminal Investigation Division initiated 417 cases last year on individuals who are non-filers. The total number of criminal tax investigations initiated last year was 2,163. Many of these individuals bought into the anti-tax rhetoric. These folks have something in common - a willingness to go along with the fraudulent and illegal teachings of the anti-tax movement. In books or at seminars you may hear teachings that sound harmless at first, such as “asset protection,” for example. However, the underlying premise may be little more than tax evasion, which is a felony.
We urge you to avoid the following common tax scams:
Frivolous Arguments -Promoters claim that the Sixteenth Amendment con-cerning congressional power to lay and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file a Form 1040 violates certain Constitutional rights. Such arguments are false and have been thrown out of court.
Trust Misuse - Unscrupulous promoters sometimes urge taxpayers to transfer assets into trusts. They promise reduction of income subject to taxation, deductions for personal expenses, and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits. Seek the advice of a trusted professional before entering into a trust.
“Claim of Right” Doctrine - Taxpayers attempt to claim the entire amount of their wages as a deduction. The promoter advises the taxpayer to label the deduction as “a necessary expense for the production of income” or “compensation for personal services actually rendered.”
“No Gain” Deduction - In this, tax filers try to eliminate their entire adjusted gross income by deducting it on Schedule A. The filer lists his AGI under the Schedule A section labeled “Other Miscellaneous Deductions” and attaches a statement to the return, referring to court documents and including the words “No Gain Realized.”
Offshore Transactions - Individuals may try to evade U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or by using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities, or life insurance to do so. The IRS aggressively pursues those involved in such abusive transactions.
Zero Return - Promoters instruct taxpayers to enter all zeros on their federal income tax returns.
Employment Tax Evasion - Some illegal schemes instruct employers not to withhold federal income taxes or other employment taxes from wages paid to their employees. However, employers can be held responsible for back payments of employment taxes, plus penalties and interest. The effected employees are still responsible for payment of their personal taxes.
Resources on IRS.gov to help taxpayers avoid tax scams
Fraud alerts - There is a Web page with case summaries on individuals who have been prosecuted for promoting and using various tax evasion scams: www.irs.gov/compliance/enforcement/article/0,,id=121259,00.html.
Trusts - Publication 2193 is for taxpayers who think a trust might be too good to be true: www.irs.gov/pub/irs -pdf/p2193.pdf.
Frivolous arguments - “The Truth About Frivolous Tax Arguments” outlines court cases in which frivolous arguments have been rejected. See www.irs.gov/pub/irs-utl/friv_tax.pdf. Publication 2105 tells, “Why Do I Have to Pay Taxes?” See www.irs.gov/pub/irs-pdf/p2105.pdf.
Thank you for reading this, and enjoy your career.
Daniel Wardlaw is a special agent for the IRS Criminal Investigation Division in Vancouver, Wash. He graduated from the University of Oregon in 1986 with a B.S. in Business Administration, and became a special agent after training at the Federal Law Enforcement Training Center in Georgia. Wardlaw has conducted criminal investigations into violations of the U.S. income tax laws, and conducted money laundering investigations relative to narcotics trafficking. He also is a public information officer covering Alaska, Washington, Oregon, Idaho, Hawaii, Guam, and Saipan.