How Tax Evasion Can Be Avoided

April showers bring May flowers–and traditionally, on April 15 you will see cars lined up outside of the post office with people panicked to get their taxes in on time.

And if by any chance a citizen were to inadvertently understate income, or overstate deductions, the IRS may flag the file, assign it to a revenue agent, and the investigation may well lead to the taxpayer having to write a check for whatever amount it is determined he or she owes, plus appropriate civil penalties, interest, etc.

The real nightmare of most taxpayers is the point at which the investigation goes from civil to criminal, and the possibility of incarceration arises.

In a typical year in Nebraska, there will be a half dozen prosecutions for the felony charges of filing a false return (three year maximum incarceration), tax evasion (five year maximum term incarceration), or the misdemeanor of failure to file a tax return. The thought of incarceration is frightening, especially when we consider the fact that there is no longer a federal parole.

Most citizens honestly and accurately state their income, turn over their possible deductions to an accountant, and do their best to get their tax returns right.

But what of the other people? Why does the IRS occasionally submit an investigation to the Department of Justice, who may then send the file to a United States Attorney, who may in turn take the matter before a Grand Jury, who may then return a True Bill, which then results in an Indictment, followed by a guilty plea or a trial?

Usually such extreme measures are reserved for people who “get creative,” sometimes a tax evader will set up bogus loans to himself, showing them as an expense to cut down on income, and then write them off as noncollectible. Or set up an off-shore account in Granada or elsewhere, hide assets, set up sham trusts, non-existent loans, or fake investments.

It is hard to imagine why people would place themselves in such situations.

Citizens who set up a decent system of keeping track of income and expenses, and who make them available to a reputable accountant, may occasionally groan under the weight of an economy that is overburdened in many ways, and by many taxes- -but you can sleep well at night, knowing that you are not trying to outsmart the agents of the IRS.

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