Congress is battling over how to manage the deficit. I have a suggestion. Enforce the current law. Readers’ Digest once ran an article, the gist of which was this – if you are not cheating on your taxes, then your neighbor is. Here are some examples.
Collection plate change artist. Each Sunday, the taxpayer wrote a check for the collection plate at church. He then pocketed an equal amount of cash from the same plate. He of course, deducted the amount of the checks. His pastor testified against him in a tax fraud case.
Too busy to file. Several years ago I received a call from a prospective bride. Her future groom had not filed tax returns for 10 years; his construction business just kept him too busy. If I were Dr. Phil, I would have told her that an irresponsible fiancé may not be a good mate; instead I told her that the IRS probably would slap a big penalty, as well as the tax and interest owed. Not a good beginning for her marriage.
Stingy tippers. Great food servers deserve good tips, probably in the 15 to 20% range. However, the IRS probably shouldn’t expect to have all the tips reported. As one of my students once observed, “How will they know?” Indeed, cash isn’t all that traceable.
Mobster pillow talk. An often-convicted numbers kingpin was convicted for income tax evasion. Since he filed a joint return with his wife, the IRS sued her for her share of the income tax based on her husband’s criminal receipts. The wife asserted that she knew nothing about her husband’s activities therefore she was not liable. The husband testified that no Italian male would ever tell his wife about his “business”. The court held in her favor.
Creative accounting. A client was interested in buying a tavern. Her attorney wanted to know exactly how much income the bar generated so he asked to see the books. “Do you want the books I keep for the IRS, the books for the Indiana Department of Revenue, or the real books?” was the response.
What is a church? The IRS is usually reluctant to challenge a church. But there are exceptions. Two airline pilots formed the Church of the Holy Angels and pilots were co-pastors (duly established by an online certificate). Each pastor’s house was purchased by the “church”; therefore, each family resided in their parsonage tax free. Donations to this church were deducted as charitable contributions. The congregation, consisting of the two pastors’ families, met on Sunday afternoons during the NFL season, but attendance dropped to zero during the off-season.
Towel count. A massage parlor was suspected by the IRS of underreporting income. A dutiful agent visited the establishment and determined that each patron used three towels per visit. Another agent went to the laundry, where the parlor had the towels cleaned and counted the total number of towels washed each month. The IRS sent a deficiency notice to the business computing its income as follows: total number of towels used during the year divided by three, times the price per massage. The Tax Court upheld this method of reconstructing income.
Here is my advice to the IRS. Increase your “finder’s fee.” Each time you catch a tax cheater and wring money out of him, her or it, give the person who reported the crook 25% of the tax collected. The bounty system worked in the old West.
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