Why would you risk getting caught with dishonest, tax-fraudulent, cheating and underreporting tax preparers?
The penalties for tax fraud by the Internal Revenue Service are far, far greater than the savings you will get for dishonesty, by you or your tax preparer. There are many ways your tax preparer can dishonestly prepare your taxes, and you must know how to spot them. Sometimes the mistakes are not intentional, but sometimes they are clearly intentional and a blatant act of dishonesty.
We recently heard news reports that the winner of the first “Survivor” show won $1 million dollars and failed to report it when he filed his taxes. Then he also did not report another $321,000 in earnings for after the show appearances on a radio show. Could this be an oversight on his behalf? He failed to report this income on his 2000 and 2001 tax reports. I don’t think it was an error. If he was smart enough to survive a reality TV show, I think he knows that in the United States all wage earners are required to report earnings.
Perhaps he had accountants who choose to go along with his illegal tax evasion scheme and underreport his income. The media reports did not mention an accountant’s role, so it stands to reason, that it was his decision alone to underreport his income. In reference to taxes, a local television media report stated he originally owed $500,000 in taxes on $1 million in income from the “Survivor” show. An associated press report from Providence, Rhode Island, stated he owed between $200,000 and $400,000 on the $1 million. Because he did not report his original income, the IRS is penalizing him with interest and penalties that could amount to $1 million. The media report did not say if this included back taxes and penalties on the $321,000 he made after the show, but they did say he is eligible for 5 years in prison, but will plea-bargain to pay the taxes. It did not state how much the IRS is charging him with interest and penalties. The associated press article said the plea bargain is not binding, so he could still plead guilty and go to trial.
Read these helpful tips to avoid being a surviving loser:
Understand How The System Works and Declare All Income
The network news anchor who covered the story in our area, made the statement that, “The Survivor” winner should have known he would be caught due to widespread publicity of the show. She stated, “didn’t he know that at least one IRS agent would be amongst the millions of viewers who watched the show the night he won?” While that is true, there is an easier way for the IRS to find out he underestimated his reported income. When a business pays out income that is not taxed, they file a 1099 earnings statement, to the IRS. It may take a few years to catch up to the IRS’s “red flag” system. With earnings of $1 million plus, the survivors tax file was “red flagged” for inconsistency in 1099 reported earnings versus taxpayer reported earnings. Once his tax file was “red flagged” and the IRS found that he underreported income, he was charged interest and penalties for every year since the year he filed a false tax return. With the large volume of cheaters, it can take as long as 2 to 5 years for the IRS to assess a fraudulent tax return and penalize you. The interest and penalties are charged for every year after you file the false return up to the current year, and every year after that, until the taxes, interest, and penalties are paid.
Do Not State False Business and/or Personal Expenses
Your tax preparer can make it seem as though you have more business or personal expenses than is true. Even going to the trouble of presenting false receipts for equipment furniture, or supplies not purchased. Another area is tax credits; don’t take a credit you don’t deserve. Some tax preparers make false claims in reference to deductions you don’t deserve. Fake receipts can’t verify these deductions; the IRS has very simple technology that verifies the approximate date the receipt was written. Say for instance you write a phony receipt in the current year, but claim it is a year old, the IRS can actually date the “pen ink”, the receipts were written with.
Know Who Is Responsible For Tax Fraud
You are responsible for every item that goes on your tax return. You will be heavily fined and penalized for dishonesty in your tax return, in some cases you will end up in jail. Certified public accountants or enrolled agents are both licensed tax preparers. If either of these tax preparers are caught intentionally cheating, they could lose their license. Therefore the chances that either of these will cheat intentionally, is far less than an unlicensed tax preparer. Both certified public accounts and enrolled agents take classes to stay current with the tax laws.
Get An Estimate Of The Tax Preparation Charges
Understand how tax preparers charge. This is an area where your tax preparer can scam you. Tax preparers charge according to the difficulty and length of a tax return. This should be a flat fee, quoted to you before your taxes are prepared. If a tax preparer charges you according to the percentage of money you receive from your return, or if they claim they can get you a higher return than anyone else, run as fast as you can. These are signs of a dishonest tax preparer.
Avoid Being An Unintentional Victim
Check your tax return carefully. If there is something you don’t understand, ask your tax preparer to explain it. If you don’t understand his or her explanation, go to the IRS website (www.irs.gov), and do a search of the IRS publication that covers your particular area of interest. Be sure your preparer signs your return. After you and your accountant sign the return, copy it and save a copy in your tax file before mailing the original to the IRS.
Lois Center-Shabazz is the author of the 3-time award-
winning book, “Let’s Get Financial Savvy! and the editor
of the critically acclaimed website, www.MsFinancialSavvy.com
