Life Lessons From Some Big-Name Tax Evaders
WHY YOU SHOULD CARE
Because in life, nothing is more certain to be ignored than death and taxes. Both at your peril.
Today is Tax Day in the U.S., which means that today is the day that many Americans will flirt, however briefly, with the idea of cheating on dear old money-grubbing Uncle Sam.
Sure, millions of Americans fail to file their taxes every year, and the odds of being caught or audited by the Internal Revenue Service (IRS) are rather low. But if you are caught, your life can change on a dime — or 20 million dimes, as the case may be.
So as you fantasize about not filing this year or ponder fudging some last-minute deductions, you might consider what some high-profile tax cases have to teach about going toe-to-toe with the Tax Man.
Lesson One: The IRS Is a Mighty Adversary
One motto often ascribed to the IRS: “We have what it takes to take what you have.” And it’s true. Even with recent cuts to its budget, the IRS collects around $6 in revenue for every $1 it spends on enforcement. And though relatively few Americans get audited, the agency is increasingly sophisticated in the high-tech analysis it applies in its auditing process. In short, the IRS is both highly incentivized and very capable.
Make sure you pay your taxes; otherwise you can get in a lot of trouble.
Just ask Richard Hatch: The first-season Survivor champion found out the hard way that you may have what it takes to spear fish on an island in the South China Sea, but if you derive income from that activity and don’t pay taxes, the IRS is going to take you down to Chinatown.
During his successful run on the hit reality show, the former corporate trainer earned a reputation as a win-at-all-costs competitor. But when Hatch failed to pay any tax on the $1 million he took home from the TV series, the IRS made sure that Hatch lost at all costs. He served three years in prison, and when he subsequently failed to amend his old returns, he was sent back to prison for another nine months.
Finally released in 2011, Hatch said that he planned to develop a new reality series about his relationship with the dozens of children he fathered as a sperm donor during college. No word yet on how many of them Hatch plans to claim as dependents.
Lesson Two: Nonpayment Is Not a Principle
“Make sure you pay your taxes; otherwise you can get in a lot of trouble,” Richard Nixon once remarked. And the former U.S. president knew a lot about getting into trouble.
So, too, does Wesley Snipes. Released last April, the star of Blade and White Men Can’t Jump has spent most of the past few years in prison for failing to pay taxes on almost $40 million in income earned between 1999 and 2004. And like Nixon, Snipes offered a litany of excuses for why he was not a crook, to wit: He was a nonresident alien; he could not get a fair trial in Ocala, Fla. (a “hotbed of KKK activity”); he received bad advice; and the IRS was an illegitimate agency that terrorizes its own citizens.
At his lengthy trial, Snipes and his fellow defendants claimed they did not have to pay taxes because of an obscure provision in the tax code — a recurring yet erroneous claim often levied by “principled” tax evaders. Federal authorities made an example of Snipes and his bogus philosophy, and he was sent to the big house in 2010.
Lesson Three: Paying Is Not Only for the Little People
The higher you are on the income ladder, the more taxes you are likely to owe — and the greater chance you have of being audited by the IRS. Of course, for many wealthy Americans, “likely to owe more” and “likely to pay more” are two entirely different things. Case in point: Leona Helmsley.
We don’t pay taxes; only the little people pay taxes.
The “Queen of Mean,” a billionaire New York hotel mogul, was in many ways the poster child for the “greed is good” decade of the 1980s. But thanks to tips provided by several disgruntled employees, and an ambitious prosecutor named Rudy Giuliani, Helmsley and her husband Harry were charged with 235 counts of tax evasion connected to skirting $4 million in income taxes over the years. The high point of her 1989 trial was the testimony of a housekeeper, who recalled that Leona once boasted, “We don’t pay taxes; only the little people pay taxes.”
Harvard law professor and famed criminal lawyer Alan Dershowitz took on Helmsley’s appeal, arguing, “The greatest incursions on freedom come when society goes after the S.O.B.’s. If you don’t defend the S.O.B.’s, then nobody’s there to defend you.”
Turns out that Helmsley was not an S.O.B. but a Queen B, in both the court’s and the public’s eyes. She was fined $8 million and spent 21 months in prison, and her fall from a Park Avenue penthouse to a prison cell proved a fitting denouement to the decade. Score one for the little people.
Lesson Four: There Are Many Ways to Skin a Tax Bill
Comedian Chris Rock once joked, “You don’t pay taxes — they take taxes.” But you might be surprised how accommodating the IRS can be in terms of what they are willing to take, or accept, as payment. In the case of Willie Nelson, it involved collaborating on the ultimate concept album.
When the country music legend got hit with a $16 million back-tax bill, thanks in large part to squirreling away millions during the early 1980s in an illegal offshore tax shelter, he simply couldn’t pay. And after federal agents stormed his home in November 1990 — taking everything but his favorite guitar, Trigger (salvaged by his daughter) — there was just one solution, which the IRS surprisingly agreed to: singing for his supper.
As part of a negotiated settlement, 15 cents from every $1 in sales from Nelson’s next album, Who’ll Buy My Memories? (The I.R.S. Tapes), was applied to pay down his tax bill. The album did not sell enough copies to cover the whole tab, but Nelson eventually paid off his debt a few years later.
Finally, if there’s one lesson underlying nearly all of these tales of woe, it’s that the long arm of the law is rarely swift. In general, the IRS has three years in which to conduct an audit, and while there is a six-year statute of limitations on most criminal tax charges, when it comes to civil tax fraud, you’re never truly in the clear. And should you be among the unlucky few to be audited and ultimately charged with tax fraud, there’s virtually no escape: the IRS’s conviction rate hovers around 93 percent.
Mamas, don’t let your babies grow up to be tax dodgers.