Current Shamrock Missive

From the Publisher's Desk
April 2005

"To announce that there must be no criticism of the President, or that we are to stand by the President right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public."

- President Theodore Roosevelt

Tax Freedom Day

(US) Tax Freedom Day 2005 falls on 31 May. Other western countries tax freedom day is even worse!

The March 2005 Budget moved Tax Freedom Day later by 3 days, from 27 May (revised figure) in 2004, to 31 May in 2005. This is actually an increase of three days because 2004 was a leap year. So you Yankees get three days more of the year that you have to work for the government, rather than for yourselves.

This is, of course, why so many people, especially Americans cheat on their taxes. But it doesn't have to be that way.

Fraud and Tax Crimes A look at who cheats, and how -- and a discussion of what happens if an auditor suspects you of trying to dodge the IRS.

It shouldn't come as a shock to hear that it's a crime to cheat on your taxes. In a recent year, however, only 2,472 Americans were convicted of tax crimes -- .0022 percent of all taxpayers. This number is astonishingly small, taking into account that the IRS estimates that 17 percent of all taxpayers are not complying with the tax laws in some way or another. And the number of convictions for tax crimes has decreased over the past decade.

According to the IRS, individual taxpayers do 75 percent of the cheating -- mostly middle-income earners. Corporations do most of the rest. Cash-intensive businesses and service industry workers, from handy people to doctors, are the worst offenders. For example, the IRS
claims that waiters and waitresses underreport their cash tips by an average of 84 percent.

How People Cheat on Their Taxes
Most people cheat by deliberately underreporting income. A government study found the bulk of the underreporting of income was done by self-employed restaurateurs, clothing store owners and -- you'll no doubt be shocked -- car dealers. Telemarketers and salespeople came in next, followed by doctors, lawyers (heavens!), accountants (heavens, again!) and hairdressers. Self-employed taxpayers who over-deduct business-related expenses -- such as car expenses -- came in a far distant second on the cheaters hit parade. Surprisingly, the IRS has concluded that only 6.8 percent of deductions are overstated or just plain phony.

If you are caught cheating by an auditor, she can either slap you with civil fines and penalties or worse, refer your case to the IRS' criminal investigation division.

The Auditor Suspects You of Fraud
Auditors are trained to look for tax fraud -- a willful act done with the intent to defraud the IRS -- that dark area beyond honest mistakes. Using a false Social Security number, keeping two sets of financial books or claiming a blind spouse as a dependent when you are single are all examples of tax fraud. While auditors are trained to look for fraud, however, they do not routinely suspect it. They know the tax law is complex and expect to find a few errors in every tax return. They will give you the benefit of the doubt most of the time and not go after you for tax fraud.

Fraud or Negligence?
A careless mistake on your tax return might tack on a 20 percent penalty to your tax bill. While not good, this sure beats the cost of tax fraud -- a 75 percent civil penalty. The line between negligence and fraud is not always clear, however, even to the IRS and the courts. While auditors aren't detectives, they are trained to spot common types of wrongdoing, called badges of fraud. Examples include a business with two sets of books or without any records at all, freshly made false receipts and checks altered to increase deductions. Altered checks are easy to spot by comparing written numbers with computer coding on the check or bank statements.

While the statistical likelihood of your being convicted of a tax crime is almost nil, it does happen to some folks. If you are in the unlucky minority, hire the best tax and/or criminal lawyer you can find.

Alternatively if you structure yourself properly, like many giant corporations and motion picture companies do, you can drastically reduce and even legally eliminate your tax liability. For more information on structures click here.

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PT Shamrock!

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