Would you cheat on your income taxes? That’s an absurd question, isn’t it? The obvious answer is “absolutely not.” Right? Well, apparently there are those among us who don’t quite see it that way. According to the 2013 Taxpayer Attitude Survey conducted by the Internal Revenue Service (IRS) Oversight Board, 12% of taxpayers indicated they are fine with cheating “a little here and there or as much as possible.” Pretty unbelievable. Or is it?
It’s Only Cheating if You Get Caught
When I was in graduate school earning my MBA, one of the most enjoyable classes I took was, surprisingly, Taxation. For most people, including myself, a class about taxation automatically conjures up images of being bored out of your mind studying the tax code. Thankfully, this class was nothing of the sort. Instead, the material focused on principles and tax efficient strategies that could be applied to businesses and individuals. The professor, who ended up being my favorite of the whole program, was as sharp and as witty as could be in his “nerdy” sort of way (and the use of the word “nerdy” is not an insult, but he was a CPA and really into taxation so it kind of goes with the territory).
One day in class, the professor made a statement about taxes that I found to be an astute observation (and it’s stuck with me all these years later). His insightful comments went something like this (I’m paraphrasing):
Taxes are like driving. There are laws and rules by which you must abide. Enforcement of those rules happens through two mechanisms – being caught or through the fear of being caught. You prepare and file your own tax returns, so you have the ability and “freedom of choice” to put what you want on those returns. This can be likened to speeding or ignoring a traffic sign. In both cases you’re violating the rules, but, unless you get caught by the authorities, you won’t face the consequences.
Obviously, he was not advocating for any of us to cheat on our taxes. Rather, he was implanting the idea that the current tax code structure allows for the opportunity to cheat and it is possible to get away with it. However, if you are caught, there could be a huge price to pay – including your freedom!
Also, I should take a moment to point out we are talking about tax evasion or tax fraud here. An example would be claiming more deductions than you actually had. We aren’t referring to tax scams whereby there is an organized crime effort to file fake or false returns under stolen identities in order to receive refund payments.
Some more food for thought: 12% openly admit they are fine with cheating on taxes. I’m sure many of those surveyed weren’t honest with themselves and either are cheating or open to it. While there isn’t a way to really quantify this segment, I would venture to conclude the rate of potential cheaters is higher than 12%.
Reasons for Cheating on Taxes
Here are some of the more common reasons for cheating. They include, but are not limited to:
- Greed – Not much explanation is needed here. Greed is a powerful motivator and is the cause of lots of evil in this world including tax evasion.
- Bad Financial Situations – Laid off. Foreclosure. Massive medical bills. Bankruptcy. Financial crises can be the impetus for people to justify cheating on their taxes so they can pay other bills.
- Political Beliefs – Political allegiances run passionately in many people. Some people fervently believe that taxes are too high or that we are taxed unfairly. Our country was partly founded on the colonists’ fight against “taxation without representation.” They also wanted small governments and personal freedom which included as little taxation as possible. Many people still think the same way and hold the same philosophy. These beliefs may push them to cheat on their taxes.
- Feel Cheated – This may be an offshoot of political influences, but many people feel cheated by the government. Or perhaps they believe the government is so bloated, inefficient, and wasteful that it doesn’t deserve their money. These feelings may breed enough contempt for someone to cheat on their taxes.
- Don’t Think You’ll be Caught – If mom isn’t there to catch you stealing out of the cookie jar then it’s ok, right? This parallels the driving example very well. If you’re in a hurry and are confident there’s no law enforcement around, then it’s perfectly fine to speed. This mentality comes into play when it comes to taxes as well, “hey, the IRS doesn’t know I received this cash income.”
- Ignorance – If you don’t know what you’re doing and are preparing your own taxes, then you stand a chance of making mistakes. Your accountant or tax return preparer might also goof. This is not cheating per se, but the IRS might not see it that way!
Penalties for Cheating on Your Taxes
The price to be paid for cheating on your taxes can be steep. It also varies by case. The fallout could include fines, penalties, interest, and even jail time. You could perjure yourself if you submit your return with false information on it. After all, when you sign the return, you are agreeing to the statement that reads:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.
You’d think the harsh penalties for cheating on taxes would be enough of a deterrence. Obviously, it’s not though for many people. And that’s because they can get away with it…or at least they think they can!
I know you would never cheat on your taxes – or at least never admit to it! Is the comparison to driving that my professor made accurate in your opinion? Do you think there are any other reasons why people might cheat? Do you believe any of those reasons are ever justified? Do you think the repercussions are too lenient or severe? Or are they just right?
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