Everyone wants to save money, especially when it comes to taxes. And there are many exemptions and deductions available under state and federal tax codes to help you minimize your taxes.
However, when you use deceptive methods to save money on taxes, you risk facing significant penalties and perhaps jail time.
This article rounds up the most famous tax court cases—from Al Capone to Walter Anderson’s tax evasion—to show the high price you might pay for trying to pull a fast one on Uncle Sam.
The differences between avoiding taxes and evading taxes
There is a line between minimizing taxes through legal deductibles and evading taxes illegally.
Tax avoidance is a way to reduce your income tax bill. Some people and businesses can reduce their tax bills by using different tax avoidance strategies. For example, tax deductions, tax credits, and income exclusion help you reduce your taxable income, which can help reduce your tax payments. And tax loopholes are ways to reduce your tax liability without using these tax breaks.
On the other hand, tax evasion happens when individuals and organizations employ illegal techniques to bypass tax payments. Some common examples of famous tax evasion cases include withholding the amount of taxes you must pay from the IRS, not documenting your business in your account books by doing transactions with cash without any invoices, or using a hidden bank account to shield your assets and stocks from the IRS.
Most famous tax court cases in IRS history
Al Capone’s tax case is one of the most famous cases the IRS has ever dealt with. This high-profile gangster was involved in various outlawed activities, including murder, prostitution, and bootlegging. However, only the income tax evasion got him arrested.
Joe Francis is a talented American entrepreneur, film producer, founder, and creator of Girls Gone Wild’s entertainment brand. He was accused of criminal tax evasion in 2007 for allegedly filing fake business tax returns in one of the most famous tax fraud cases in recent history. Francis is accused of submitting fake company expenses totaling more than $20 million to avoid paying taxes. He was able to avoid the felony accusation by accepting a guilty plea.
However, he didn’t seem to have completely avoided his tax problems. In November 2009, the IRS issued Francis a $33.8 million tax lien.
Walter Anderson, a former telecommunications executive, was accused of using aliases, offshore bank accounts, and shell businesses to conceal his earnings. Anderson pleaded guilty in 2006, admitting to concealing nearly $365 million in earnings. He was condemned to nine years in prison and paid $200 million in compensation.
Anderson avoided the majority of the taxes owed due to a typo mistake in the amount of the federal government’s judgment. The IRS agreed to pay taxes and penalties for three years in this case. Anderson is, however, still liable for $23 million owed to the District of Columbia’s government.
Wesley Snipes, the famous American actor, film producer, and martial artist, has been charged with numerous offenses by federal prosecutors. He is accused of hiding money in overseas accounts and failing to file federal tax returns on his income for many years. The prosecutors estimated his tax debt to be $12 million.
He was convicted of a misdemeanor in 2008 after being acquitted of felony tax evasion and conspiracy charges. Snipes got to do three years in prison. Meanwhile, Douglas P. Rosile (Snipe’s accountant) and Eddie Ray Kahn (tax protester) had to serve prison time as co-defendants in Snipe’s tax evasion case. The court gave Rosile a 4.5-year sentence and Kahn a 10-year sentence.
Leona Roberts Helmsley
Nicknamed “The Queen of Meanness,” this hotel operator is said to have told a former housekeeper that she didn’t pay taxes. Helmsley and her spouse have amassed a fortune in real estate. In spite of their vast wealth, they are accused of charging their businesses millions of dollars in personal expenses to evade taxes.
In 1989, Helmsley was sentenced to three tax evasion cases. She did 18 months for her sentence.
Frequently asked questions on famous tax court cases
According to NBC News, billionaire Robert Brockman’s tax evasion case is the most serious in U.S. tax court case history because he was charged $2 billion worth in tax evasion. However, when he died at 81, he insisted on being innocent of the Justice Department’s indictment. He received charges involving 39 invasion cases in money laundering, wire fraud, and capital gains.
a. Faking accounting-related data—People can fake records by lying to their accountants. Generally, your CPA will send you a questionnaire to answer. Your answers and financial data help the accountant to calculate taxes for payment and tax returns.
b. Intentionally not paying enough taxes—Usually, your accountant’s reports identify how much you need to pay. Yet, some individuals will evade taxes by not paying the correct amount of what is owed on their tax return.
c. Using overseas accounts and concealing interest—Utilizing overseas accounts to avoid paying taxes is one way some individuals attempt to evade a large tax bill. Especially when they accumulate their assets in international banks where interest increases fast. To curb this type of tax evasion, the IRS imposes the Foreign Account Tax Compliance Act (FATCA), which “requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments.”
d. Illegally designating income on family members—Claiming that the income belongs to someone else, such as family members or friends, is an illegal tax evasion technique. You’re committing a federal offense if you try to cheat the government by stating your income is someone else’s to avoid paying taxes.
1. You accumulate tax interests and fines. If you don’t pay your taxes on time, the IRS will charge you interest on the amount you owe. The interest rate on your loan is usually around 5% or 6%. You may face penalties and interest if you don’t pay your taxes on time. The IRS can also tack on a late payment fee of 0.5% per month, which can add up to a penalty of 25%.
2. You receive a letter of notice from the IRS after 1 to 3 months.
3. You may get tax liens and a collections visit from the IRS after 2 to 6 months.
Bonus infographics: Four examples of tax evasion methods
Final thoughts on famous tax court cases
If you don’t pay the required taxes, you can get in trouble with the government. This could lead to severe penalties, like having to pay more taxes or having your citizenship revoked. If you use legal tax avoidance methods, you may be okay. But if you try to avoid paying taxes, you will face a heavy penalty.
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