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. 

You might also be interested in: 

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 Does IRS Stand For? Everything You Need To Know About The Internal Revenue Service.

Many Americans and foreigners working or living in the United States only engage with the IRS once a year when they file a federal income tax return and either wait for a refund or transfer money to pay taxes. However, the IRS does a lot more than just collect money and send out refunds.

So, whether you’re familiar or unfamiliar with this government agency, understanding thoroughly about the IRS will definitely help you in your future career. This article will walk you through the IRS, from its name, history, how it works, and the IRS’s importance in our lives. 

What does IRS stand for?

Most of you probably have heard about the IRS several times before, but what does IRS stand for actually? IRS stands for the Internal Revenue Service. 

Although the Internal Revenue Service didn’t get its name until the 1950s, the origins of the agency date back to the Civil War. President Abraham Lincoln created the IRS through the Revenue Act of 1862 and enacted an income tax to help pay for the Union cost of the Civil War, which lasted for ten years before being repealed. 

In 1894, the Wilson Tariff Act reestablished the income tax, but later, in 1895, the Supreme Court ruled the income tax unconstitutional. This meant no income taxes could be collected until three-quarters of the states ratified the 16th Amendment to allow Congress to enact an income tax. This created and established the legality of the first federal income tax program. The first income tax rate was 1% on income over $3,000 and 6% on income over $500,000. 

Tax rates increased to finance World War I, then decreased in the postwar years before rising again during the Great Depression and World War II. Tax withholding was instituted at this time.

The tax collection agency was reorganized in the 1950s, and the Bureau of Internal Revenue became the Internal Revenue Service. The IRS was reorganized again in 1998 to become more consumer-focused. 

What does the IRS do? 

The Internal Revenue Service’s mission, according to its website, is to help America’s taxpayers understand and meet their tax responsibilities and enforce the law with integrity and fairness, and provide top-quality services to achieve these goals. The IRS divides this mission into three distinct responsibilities: 

  • Administer tax laws:  

One of the first and foremost responsibilities of the IRS is to assess and collect taxes on behalf of the federal government. In 2020, the IRS collected nearly $3.5 trillion in taxes, accounting for income taxes, employment taxes, business income taxes, excise taxes, estate, and gift taxes.

Besides collecting taxes, the IRS is also in charge of issuing tax refunds, which an individual or business can claim if they overpay their taxes. In the fiscal year 2020, the IRS processed more than 240.2 million federal tax returns and supplemental documents. 

  • Enforce tax laws: 

An essential part of the IRS’s enforcement mission is to seek and identify those who have underpaid their taxes, whether due to a math error or criminal activity. These examinations can either take the form of correspondence or field examinations. For the 2019 fiscal year, the IRS audited 771,095 tax returns, accounting for 0.6% of individual income tax returns and 0.97% of corporate tax returns. About 73.8% of IRS audits occurred by mail, while 26.2% happened in the field. 

From 2010 to 2018, the IRS examined about 0.63% of individual tax returns and 1% of corporate tax returns for errors. While most errors are likely unintentional, the IRS completed 2,624 criminal investigations in 2020 alone.

There are various reasons that the IRS will undertake an audit, but certain factors may increase the odds of an examination. The chief among these factors is high income. The audit rate for all individual income tax returns in 2018 was 0.6%, but for those who earned more than $1 million in income, it was 3.2%

Running your own business might bring greater risks, too. Individuals who earn between $200,000 to $1 million in one tax year and file a Schedule C (the form for the self-employed) will have a 0.6% chance of being audited. And for those who do not, the chance ranges from 1.4% to 2.8%. 

Some noticeable red flags which could trigger an audit are failing to declare the correct amount of income, claiming a larger number of deductions than usual (especially business-related ones), making abnormally large charitable donations compared to income, and claiming rental real estate losses. No single element determines whether or not you will face an IRS audit each year.

  • Providing services to assist taxpayers:

Another important responsibility of the IRS is to provide services to taxpayers to help them understand and comply with their obligations. There are numerous reasons for an individual, business, or an exempt organization to call the IRS, but the main reason is the need for help with excise taxes, estate taxes, and gift taxes. You can find these services through the IRS website, its telephone helplines, IRS Taxpayer Assistance Centers, and volunteer tax assistance.

Why is the IRS important?

Income tax revenue, along with other tax revenue, pays for a major part of the activities of the United States Government. Taxes are used to fund Social Security, Medicare, Medicaid, national defense, aid for veterans, foreign affairs, etc. Taxes contribute to community development, pay for law enforcement, and support many government services.

The mission of the IRS is to procure these funds from taxpayers through a variety of passive and more proactive means. The IRS’s secondary purpose is to educate taxpayers on the nature of taxes and their obligations. Therefore, the importance of the IRS can’t be understated.

The bottom line

A successful business starts with great knowledge and experience. Now you know what does IRS stand for, its mission and responsibilities, and how it helps keep the government functioning. You can then prepare how to work with the IRS, from filing taxes to preparing for a business audit

Shoeboxed is a smart receipt and expense tracking app that helps businesses track and manage their business expenses. Whether you are a business owner, independent contractor, or freelancer, you can take advantage of Shoeboxed by using this app to scan your receipts, store them online, create expense reports, and get them ready in the event of an audit. 

After scanning your receipts, Shoeboxed will extract the most important data points and automatically categorize them by vendor, the total spent, date, and payment type. We ensure that the extracted data is fully searchable, editable, and human-verified. From there, you can create clear and comprehensive expense reports that include images of your receipts within just a few clicks. Then, you can export, share or print all of the information you need for easy tax preparation or reimbursement.

Shoeboxed even makes sure that the digital versions of your receipts are legibly scanned, clearly categorized, and fully accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. 

Try Shoeboxed now to get yourself well prepared for the IRS! 

Download our app on iOS or Android

Shoeboxed and TaxACT Partner to Make Filing Taxes and Organizing Receipts Easier

We are happy to announce that Shoeboxed and TaxACT, a leading online tax preparation service, have partnered to bring you complementary services. Here at Shoeboxed, we hope this will help make Tax Season 2009 easier and less stressful for you.

When used together, TaxACT and Shoeboxed provide consumers with an easy way to complete tax returns on time, protect themselves from IRS audits and maximize their deductions. Shoeboxed helps consumers organize their receipts, including many tax-related documents, without having to do any scanning, data entry or organization themselves. By just putting receipts into an envelope, they can have receipts archived in a format that can be easily referenced when filing their federal tax return. Additionally, Shoeboxed scanned receipts are an accepted IRS format for proof of purchase. TaxACT allows users to file their tax forms online, streamlining the process to save time and frustration.

Read the full press release here: Shoeboxed and TaxACT Partner