After I finish writing the stories (and editing the contributions) each Sunday evening, I send them to a group of volunteer editors so they can check them that evening, or Monday morning (well before the newsletter comes out). They catch a lot of the typos, poor construction, and other goobers. (They only read the stories, not the Comments section or Honorary Unsubscribe, since there isn’t time to send that text to them before publication.)
The group includes my wife, my brother, and a couple of people who have done editing as a profession, just to get several different sets of eyes on the text: what one might miss, another will probably catch.
This week, there was one story that caught one editor’s eye, about a tax fraud case, which I’ll include here to give you a starting point:
When he filed his 2016 federal tax return, the Internal Revenue Service says, Ramon Christopher Blanchett, 29, of Tampa, Fla., reported he had earned $1,399 from one job, from which no federal tax was withheld, and $17,098 in wages from another job, from which $1,000,000 of federal tax was withheld. The IRS dutifully sent him a refund of exactly $980,000. Blanchett kept the money in the bank and, when he didn’t hear anything by late 2018, bought himself a Lexus sport coupe. By the time the IRS caught up with him, it impounded the Lexus, and $919,251 left in his bank accounts. So far, Blanchett has not been charged with any crime. (RC/Tampa Bay Times) …Wait: the tax on $18,497 is exactly $20,000? No wonder it’s so hard to stay above the poverty line.
The editor replied with a bunch of cases from first-hand knowledge as a court reporter. I replied, asking if I could publish the line-up as a guest blog post. The editor agreed, and at my request wrote a brief introduction, but wants to remain anonymous. “It’s not that any of this is confidential; it’s all public information.” But then, who wants to have their name attached when making fun of criminals? Unless (cough) it’s their profession, and have been doing it weekly for decades….
Crazy Tax Court Cases
For a number of years, I worked as a court reporter in U.S. Tax Court, primarily in the 1980s and ’90s. The judges are based out of Washington DC, and periodically collect a week or two’s worth of small cases to hear in a city somewhere around the country. Most of the people who bring their cases to Tax Court don’t have an attorney, but most of the judges, at least in my day, were kind and helpful to them, and when a taxpayer had a legitimate case, they could frequently win. What I found interesting was that a surprising number of people just want to be heard — even though they know they’ll lose.
It was actually a fascinating court because of the massive varieties of ways people complain about their taxes. But because of a small group of people who want to avoid paying any taxes, the tax protesters are always represented. They come in every size and shape, and I understand that today many types of tax protest never make it to the courtroom to waste the judge’s time. But when I was covering court sessions throughout the Midwest, the tax protest movement was in full bloom. Here is just a small collection of types of protest I personally ran across.
My favorite witness was the drug dealer who was charged with millions in taxes on unreported income from drug sales; he couldn’t come to court because he was in prison in the Dominican Republic. But another drug dealer, a current inmate in a U.S. prison, was brought in to testify against him — and testified chained to the witness chair.
The judge asked this witness, just for amusement, I think, whether he had filed his taxes for the years he was dealing. His response? He not only filed, but he paid his taxes on the drugs he dealt! The judge wondered how in the world he’d done that, and he responded that he declared the income as “selling fruit”! He was obviously more afraid of the IRS than the cops. Which about brought the house down, as you can imagine!
So to this day I think about the guy “selling fruit” to pay taxes on his illegal income. I only wish the people who shelter income by moving it to a tax haven could meet that honest drug dealer!
- For a while, tons of people were creating fake churches and claiming all their bills and expenses as tax-exempt. That one backfired magnificently and painfully on some people — for example, a young couple who only owed $3,000 in taxes for the year their “church” existed. By the time they chose to litigate it in Tax Court — where you can litigate your case without paying the alleged taxes due first; you can also go to U.S. District Court, but have to prepay the taxes — and several years passed, by the time their case was heard and IRS penalties and assorted fees were added, they ended up owing $40,000. And they lost their case, of course.
- There was the crazy who refused to give the IRS his address, which was his legal right. In order to prevent them from finding his home and descending on him to collect missing years of taxes on undisclosed income, he had to drop out of the system. No phone, utility bills, credit cards, anything to identify his location. He did come to court with a bunch of his supporters; the U.S. Marshals said they took a frightening collection of weapons off them. I identified the most solid place in the courtroom to hide behind if someone still snuck something in!
- There was a man who said the judge was hearing the case under admiralty law because the flag (like all permanent courtroom flags) had a gold fringe. Sure.
- There were tons of people who said the IRS paperwork didn’t apply to them because it addressed them using capital letters, which meant something complicated I’ve forgotten, it was so stupid. Except that all-caps person “wasn’t them.”
- My favorite attempted intricate tax shelter in which people invested in series of biotech companies, claiming the full amount invested in the first year even though they only invested a few thousand, and the rest would be due when the note matured in a few years — but payable in Brazilian currency, which because of hyperinflation meant their $250K investment would end up being a couple thousand at most. Yet they had claimed the full $250K and gotten whopping refunds and whatnot in the first year. The judge admitted it was the most creative way to cheat on taxes, but they still lost.
If you want to learn more, just look up tax protesters online. There is a simply ridiculous number of ways people dream up to get around their taxes. It’s pretty crazy! And most are obviously stupid and obviously illegal, but people try them anyway. I never understood it!
But I did learn (1) to always file on time even if you can’t pay, (2) save your records for 7 years, the statute of limitations for fraud, even if you’re totally honest, (3) document, document, document, and (4) it’s just not worth it to cheat because if you get caught, you will really regret it!
Randy here again. I’ll add 1a) to the list just above: if for some reason you can’t file, at least pay! If the fools in #1 had done that, they would have owed $3,000 when they came out the other end, rather than $40,000.
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