How Do People Cheat on their Taxes?

Although people really do hate to pay their taxes, do many of them cheat? According to one IRS report released in 2006 as reported by CNBC, 83 percent of people paid their taxes correctly and on-time. The other 17 percent either underreported their income or did not file a tax return at all. In fact, 90 percent of people do believe that paying taxes is part of their civic duty. For 60 percent of taxpayers, the other reason why they paid their taxes on time is because a fear of getting caught.

 

According to the IRS’s website, penalties for tax evasion depend on the level of the crime and how many times the person has been charged with the crime. For example, for a first time offense, tax evaders could spend as much as five years in prison and be forced to pay up to $250,000. Corporations would have to pay as much as $500,000. Still, the number of people who get charged with tax evasion is low. Only about 1% of people and corporations are audited each year and about 1,000 people go to jail each year with sentences ranging from a few months to 15 months in most cases.

 

In regard to how people can cheat on their taxes, underreporting income is far and away the most popular reason why people are charged with tax evasion. Falsifying income or receipts and not reporting income at all are far less common. And then there’s the question of whether there was intent. Tax avoidance is perfectly legal and can sometimes get mixed with tax evasion. It really can be a question of interpretation.

 

Still, it’s never fun to have your name associated with tax evasion. David Stewart of Bowling Green, KY found his name and tax evasion going together a few years back, and it can produce a negative stigma. Therefore, it’s always smart to really take a look at your records and make sure you are paying the full amount on your taxes.

 

Have you ever been audited? Tell us your stories in the comment section below.

David Stewart List Five Celebrity Tax Evasion Scandals

It would be a misnomer to think that only the extremely poor get in trouble for not paying their taxes. In many cases, those who are convicted of tax evasion are actually well able to pay their taxes, but don’t for one reason or another. From accounting errors to pure refusal, some of the biggest celebrities and rich have been convicted of tax evasion. Some of them even went to jail. David Stewart discusses five of the most egregious incidents of celebrity tax evasion.

Willie Nelson: The famous country singer created an album “The IRS Tapes: Who Will Buy My Memories?” to help pay off his back taxes. Unfortunately, with the penalties and interest of years of nonpayment, Nelson owed more than $16.7 million. To pay back the IRS, Nelson had to sell off many of his possessions, but he has bounced back since then.

Nicolas Cage: In 2009, Cage was given a $6.2 million bill in back taxes from the IRS for a failure to pay taxes on  $24 million he made on two movies. Unfortunately, Cage’s business manager did not report this income and may have been defrauding Cage in the process. Cage had to sell several homes and memorabilia to pay the bill.

Wesley Snipes: Snipes went to jail for three years after failing to pay his tax bill of $17 million. This number included a large amount of penalties and interest in addition to back taxes. Snipes was freed from prison in 2013.

Richard Hatch: Although more than 50 million people watched Richard Hatch win the first season of Survivor, he didn’t think that the IRS was. This is the only line of reasoning that could have led him to not report his Survivor prize of over a million dollars. He was sentenced to six years and has run into trouble with the IRS since his release.

Leona Helmsley: Helmsley did not pay taxes because as she put it, “We don’t pay taxes; only the little people pay taxes.” She was charged with tax evasion and sentenced to 16 years in prison in 1989. She would end up serving 19 months.