Tax Cheats and How to Stay Out of Trouble

April 1, 2011

Money-Guy 04-01-2011

The income tax law is a lot of bunk.  The government can’t collect legal taxes from illegal money.”
These are the famous words and unsound tax advice of notorious gangster, Al Capone.

As tax season is coming to a close, we focus today’s show on providing more sensible advice than Capone’s and how to avoid joining the ranks of he and other famous tax cheats.

We start out the show with a bit of a “name that tax cheat” game.  I play some clips featuring well-known individuals who tried (and failed) to beat the tax system.  Richard Hatch, the first winner of Survivor, failed to pay tax on his $1 million dollar prize,  Richard Pryor served 10 days in jail for failing to pay taxes, claiming he “forgot”,  Wesley Snipes famously argued that his income wasn’t taxable, and last, but certainly not least, Willie Nelson had assets auctioned off to cover his outstanding bill.

Earlier this year, the IRS issued a press release addressing common frivolous arguments made by those who demonstrate resistance to following federal tax laws.  You can read more about general tax arguments, arguments in collection due process cases, and penalties for pursuing frivolous tax arguments in the press release, The Truth About Frivolous Tax Arguments.

Another great resource comes from Forbes blogger Robert W. Wood.  In his article, To Avoid Fate of Wesley Snipes, Skip Tax Protester Arguments, Wood cautions readers against even attempting to use arguments against the IRS.  Whatever rewards tax protesters chase are simply nothing compared to the risk and penalties involved.  Common arguments to avoid include:

  • Our Federal Income Tax System is Voluntary.
  • Definitional Arguments Based on the Meaning of “Taxable Income” and “Gross Income.”
  • Definitional Arguments About Terms in the Internal Revenue Code.
  • Steer Clear of Constitutional Amendment Claims.
  • Other “Fictional” Legal Theories.

So far we’ve focused on things you should obviously not do if you hope to avoid trouble with the IRS.  Now, I want to warn those of you who think you are doing all the right things about some hidden risks involved with hiring a tax preparer. While you may think you are safe from the IRS because you hired a professional, you have to make sure that your preparer is actually good at what they do.  ABC News put out an article, Five Signs You Might Have a Bad Tax Preparer, informing readers of surefire clues that their relationship with their preparer may become damaging.  The signs include:

  • Your tax preparer does not have a Preparer Tax Identification Number.
  • A tax preparer makes blanket claims or guarantees a specific refund amount without knowing about your financial situation.
  • Your tax preparer has a questionable history.
  • Your tax preparer asks you to sign a blank tax form.
  • Your tax preparer does not ask you to review the completed return before filing it.

My advice when it comes to hiring a professional is to do your homework.  Make sure your preparer is asking a lot of questions in order to maximize your deductions.  While tax evasion is illegal, tax avoidance is highly encouraged.  You should seek a preparer who creates the most benefit for you while also adhering to the law.  Keep in mind that not all preparers are created equally and hiring a professional does not protect you from the IRS if a mistake is made.

The moral of the story is, don’t cheat the government.  As history has shown, those who play with fire usually get burned.  Do everything you can to be accurate and keep yourself out of trouble.

FILED UNDER: Featured, Podcasts
TAGGED WITH: economic policy, risk, taxes



Most Recent Episodes

How to Recover From 4 HORRIBLE Financial Mistakes!

In our nearly four decades of combined experience managing money, we’ve seen some horrible financial mistakes - here are the four worst we’ve seen first-hand and what you can do to avoid making a similar mistake. In this episode, you’ll learn: The worst financial...

Why Americans Are Actually Broke! (2023 Edition)

Americans might be bad with money, but you don’t have to be. In this episode, we discuss the underlying reason why Americans are so bad with money and how you can do it better. In this episode, you’ll learn: Common financial pitfalls you should avoid Practical steps...

Build Wealth With the 3 Bucket Strategy! (By Age) 2023 Edition

We believe there are three distinct taxable buckets you have the option of investing in for retirement. We’ll talk about how to balance those buckets by age and show a case study by age that shows what your buckets may look like! In this episode, you’ll learn: The...

Debt Ceiling Crisis: World’s Financial System at Risk?

Should you be worried about the debt ceiling crisis? Although political leaders have so far been unable to come to an agreement, we'll tell you what history says will happen and what it means for your finances. For more information, check out our free resources...

Financial Advisors React to INSANE Money Advice on TikTok!

Is financial advice on TikTok all bad or is there some good advice out there? Check out our brand new TikTok react show where Brian and Bo give their honest reactions to trending financial advice. Enjoy the Show? Sign up for the Financial Order of Operation (FOO)...

How to Save Thousands of Dollars in Taxes in 2024

Tax season is over for most of us, but that doesn’t mean it’s time to stop thinking about your taxes! Planning out your tax strategy in advance can save you time and money on your taxes. In this Q&A, we’ll discuss the line items on your return to pay attention to...

Average 401(k) Balance by Age (2023 Edition)

Are you doing better than the average American at saving in your 401(k)? We'll talk about basics of a 401(k), including new limits, employer matches, and vesting schedules, how many millionaires are created by 401(k)s, and of course the average 401(k) balance by age....

TikTok Products That Are Actually Worth the Money!

TikTok has become not only a popular social media platform, but a popular place to find trending new products. Are any of them actually worth it? Let’s find out!   For more information on how to make the most out of your financial life, check out our free...

The Dark Side of Being an American Millionaire! (2023 Edition)

Being a millionaire isn't always sunshine and rainbows in 2023. In this episode, we'll discuss some common pitfalls and traps millionaires fall into, shock-and-awe stats, and how you can handle your money even better than a millionaire. In this episode, you’ll learn:...