Most Famous Tax Court Cases In IRS History That You Might Want to Know

Everyone wants to save money, especially when it comes to taxes. It is not illegal to reduce or minimize business or personal income taxes by legitimate accounting methods. There are, in fact, many exemptions and deductions available under state and federal tax codes to help you minimize your taxes. 

However, when you use deceptive or dishonest methods to save money on taxes, you risk facing significant penalties and perhaps jail time. Even if only a tiny fraction of returns are audited each year, the fines are not worth the risk. 

This article will introduce you to the most famous tax court cases to show how high a price you can pay for this crime.

The differences between avoiding taxes and evading taxes

There is always a clear line between the creativity in minimizing your taxes and breaking the law. Avoiding taxes is legal and understandable, but evading taxes comes with tough consequences. 

Tax avoidance means using legal accounting methods to lower the amount of taxes owed. For example, you can deposit your money into an Individual Savings Account (ISA) to avoid paying income tax on the interest you earn on your cash savings. You can also invest money into a pension scheme or claim capital allowances on things used for business purposes.

On the other hand, tax evasion occurs when a person or business uses illegal means to escape paying taxes. Some common examples of tax evasion include withholding from the IRS the tax you owe, keeping your business off the books by doing transactions in cash with no receipts, or using an offshore bank account to hide money, stocks, or other assets. 

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Most famous tax court cases in IRS history

Al Capone

Al Capone’s case is possibly the most famous one in IRS history. Though this notorious gangster had committed various illegal acts, including bootlegging, prostitution, and murder, only one landed him in prison––income tax evasion.

Under Capone’s leadership at the Chicago Outfit, the organization generated an estimated $100 million annual income. He was convicted on five counts of tax evasion from 1925 to 1927 and willful failure to file for 1928-1929. He was sentenced to 11 years in Federal Prison (including the notorious Alcatraz) and paid $80,000 in fines and outstanding tax bills.

Joe Francis

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. 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. The IRS issued Francis a $33.8 million tax lien in November 2009.

Walter Anderson

Anderson’s case was probably one of the most famous tax court cases in IRS history. Walter Anderson, a former telecommunications executive, was accused of using aliases, offshore bank accounts, and shell businesses to conceal his earnings. Anderson pleaded a guilty plea in 2006, admitting to concealing nearly $365 million in earnings. He was condemned to nine years in prison and ordered to pay $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. In this case, the IRS agreed to pay taxes and penalties for three years. Anderson is, however, still liable for $23 million owing to the District of Columbia government. 

Wesley Snipes

Wesley Snipes, the famous American actor, film producer, and martial artist, has been charged with numerous offenses by federal prosecutors. 

The “Blade” star is accused of hiding money in overseas accounts and failing to file federal tax returns for years. Snipes’ federal tax debt is reported to be approximately $12 million.

He was only convicted of misdemeanor charges in 2008 after being acquitted on felony tax fraud and conspiracy charges. 

Douglas P. Rosile, his accountant, and tax protester Eddie Ray Kahn were also accused as co-defendants. Rosile received a four-and-a-half-year sentence, and Kahn was given a ten-year sentence. 

Leona Roberts Helmsley

Leona Roberts Helmsley, an American businesswoman has accumulated a multi-billion dollar real estate portfolio. The “Queen of Mean” and her husband, Harry, were charged with invoicing millions of dollars in personal expenses as their business in order to evade taxes. Helmsley was convicted of three counts of tax evasion in 1989. She was sentenced to 18 months in federal prison. A fun fact was that she was sentenced to prison on the income tax deadline day for that year, April 15, 1992.

The bottom line

Evading taxes can lead to serious consequences. As you can see from the US’ top tax court cases listed above, it’s critical to understand what happens if you cross the line between legal tax avoidance techniques and unlawful tax evasion. If you have tax questions or have received a notice from the IRS, it’s a good idea to consult with a tax professional to discuss your situation and your choices moving forward.

About Shoeboxed

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

What to Do if You Duplicate Filing Tax Returns?

Tax forms and submission can be time-consuming and confusing for many taxpayers in the US. At some point, you might wonder what happens if you duplicate filing tax returns unintentionally or you need to change an error on your original returns. 

This article will help you answer what to do if you duplicate tax returns and how to correct if you made a mistake on your original tax forms. 

What happens if I duplicate filing tax returns?

The most common concern for most people who discover they have duplicated their tax returns is whether they will be fined.

If you find yourself in this situation, you’ll be happy to hear that you won’t have to pay taxes again in the same year. Individuals who unintentionally file two tax returns won’t also get fined. You wouldn’t face any consequences if you filed your taxes correctly and didn’t under-report your income, even if you completed them twice.

Only people who submit their taxes late or avoid paying their taxes are subject to financial tax penalties.

However, the IRS does not accept filing two federal tax returns. Since your Social Security Number (SSN) has been used to file only one return, the IRS will only accept the first one and automatically reject any additional return filed with that SSN. 

They will also review the highlighted form to determine if the double filing was an error, a sign of fraudulent activity, or an effort at financial crimes. After that, you will probably receive an error code about the second one explaining why it got rejected. 

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What to do if you accidentally duplicate filing tax returns? 

If you accidentally submitted your taxes multiple times, but it does include the same data on both applications, you usually don’t need to do anything else.

When the IRS receives your subsequent tax return, it will review the double filing and will most probably conclude that it was found to be false. In this case, the IRS will immediately dismiss the second form, and you will most likely receive a warning message informing you of this.

On the other hand, if you submit a subsequent tax return to fix a problem on the first, you must file a tax return update using a different form to change errors or oversights in the original return. You need to file and submit Form 1040-X on paper because this form isn’t available online. 

Typically, you will not need to do anything additional at this point. If you previously duplicated your tax returns by email, it may take weeks or months for the IRS to review the two different forms and alert you of the denial. At this point, they should have received your Form 1040-X. After the review, you should ask for confirmation that the data on the initial update has been amended.

If you haven’t heard back from the IRS regarding your updated tax return after three weeks, you should call the IRS’s hotline for customer support. It’s a good idea to track your Form 1040-X‘s progress to be aware of the next steps.

The bottom line

If you don’t want to find yourself wondering what happens if you duplicate filing tax returns, you should consider asking a tax professional to prepare and check your return. A tax professional can help you avoid mistakes in tax filing and even make the best out of your deductions. 

Don’t forget to subscribe to the Shoeboxed blog for more engaging tax-related knowledge and useful tax tips for freelancers! 

About Shoeboxed

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

What Is Tax Credit? A Basic Guide To Tax Credits 

Many people know that tax credits can help lower the amount of tax money you owe to the IRS. 

But what exactly are tax credits? How do they work? 

Let’s scroll down to find out!

What is a tax credit? 

A tax credit is a dollar-for-dollar reduction in a taxpayer’s final tax bill.

Generally, a tax credit is created to promote or reward certain kinds of conduct that the government deems advantageous to the economy, the environment, or any other essential goal. For instance, you can claim a tax credit if you install solar panels for home use to save energy and protect the environment. 

How does a tax credit work? 

As previously mentioned, a tax credit lowers the income tax you owe dollar-for-dollar. What does that really mean? Well, take a look at this example: 

Suppose that you have to pay $2000 taxes and have a $2000 tax credit—that means your tax will be subtracted to zero, and you will be totally tax-free!

This is also what makes a tax credit different from a tax deduction. A $2000 tax deduction only lowers your taxable income (the amount of income on which you owe taxes), not your final tax bill, by $2,000. So, if you fall into the 22% tax bracket, a $2,000 deduction would save you $440.

What are the different types of tax credits? 

There are three types of tax credits: nonrefundable, refundable, and partially refundable. Below are brief explanations of each tax credit category:

1. Refundable tax credits

As the name suggests, you may get a refund from the IRS with refundable tax credits. For instance, if you have $2000 tax due and a $3000 refundable tax credit, you would receive a $1000 refund. 

The most popular refundable tax credit is probably the earned income tax credit (EITC). The EITC is a tax credit for low- to moderate-income workers who meet specific requirements regarding family size, filing status, and income.

2. Nonrefundable tax credits

A nonrefundable credit refers to a credit that can only be used to reduce your taxes maximum to $0. It can’t go any lower than that to create a negative tax liability, in which case you’ll get a refund. So, if you’re eligible for a $1000 nonrefundable tax credit, and the tax you owe is only $600—the $400 excess is nonrefundable. Some frequently claimed nonrefundable tax credits are lifetime learning credit (LLC), foreign tax credit (FTC), general business credit (GBC), etc. 

3. Partially refundable tax credits 

Partially refundable tax credits only reduce a certain amount of your taxes and leave the remaining nonrefundable. The American Opportunity credit, for example, is a partially refundable tax credit that allows you to pay up to 40% of the credit as a tax payment. If you calculate a $1,000 American Opportunity credit, you can claim up to $400 as a refundable tax credit and the rest as a nonrefundable credit.

Want to know more about finance? 

If you’d like to explore more entrepreneurship stories, get simple explanations of complex financial terms, or learn about the best productivity tools, find more posts like this on the Shoeboxed blog.


About Shoeboxed

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!