Cheating on Taxes: It’s More Common Than You Think

cheat taxesWould 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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24 Responses to Cheating on Taxes: It’s More Common Than You Think

  1. Renée (@nickelbynickel) March 17, 2014 at 11:48 pm #

    I haven’t cheated on my taxes, though I do make sure to use every possible deduction. I grudglingly pay them at the last possible moment beause render unto ceasar… I think you’re in the US but my comments are related to the Western world and not necessarily just Canada. I think taxes are too high, I think sometimes people are justified in cheating and I think there’s more than a few things wrong with the entire taxation system in many countries.
    Renée (@nickelbynickel) recently posted…Link-love #24My Profile

    • Mr. Utopia March 18, 2014 at 6:08 pm #

      There’s nothing wrong with taking all the applicable deductions you can. Tax planning so that you have the lowest tax liability possible is perfectly legit. I agree with you about the high tax rates. The government will nickel and dime you anyway it can.

  2. DC @ Young Adult Money March 18, 2014 at 10:22 am #

    I don’t think ignorance is cheating. Cheating requires intent. If you misstate something due to ignorance you aren’t technically cheating. I think this is an important distinction because I know a number of people my age who almost certainly misstated a thing or two on their taxes due to the complexity of the tax code. I think self-employment is one area that can be very complicated. Yes, you could get a preparer (and many do, thankfully), but there may be errors, omissions, etc. even if you are doing due diligence.
    DC @ Young Adult Money recently posted…9 Things to Consider Before Renting a Basement or BedroomMy Profile

    • Mr. Utopia March 18, 2014 at 6:16 pm #

      I don’t think ignorance is cheating either and I agree with you on there needing to be intent behind the action for it to qualify as cheating. My reason for even listing it was because, depending on the severity, the IRS may not believe you when you explain your case and claim ignorance. So, even if that person didn’t purposefully cheat, the IRS (and maybe a court) might view it otherwise. I doubt this happens often, but I’m sure it has and does occur.

  3. Ryan @ Impersonal Finance March 18, 2014 at 1:25 pm #

    I try to fill out my taxes as honestly, and more importantly, as correctly as possible. I know I’ve probably messed up a return, especially in my early 20s when I first started doing them on my own, but I never outright tried to lie or cheat on my taxes. The general deterrence of fines and possible jail time was more than enough to get me to be honest. I do think the cheats are higher than 12%, but the analogy to driving was awesome, and definitely dead on.
    Ryan @ Impersonal Finance recently posted…my career as a job hopperMy Profile

    • Mr. Utopia March 18, 2014 at 6:22 pm #

      I think the majority of taxpayers are just like you. They file their taxes as complete and as honest as they can while probably making a few mistakes along the way. And, they do so even if they don’t necessarily agree with how or why they’re being taxed. But then there’s the 12+% who blatantly don’t care. That means up to 1.5 or 2 out of 10 returns have cheating going on. Multiply that across the entire taxpayer population and you have a massive amount of fraudulent returns!!

  4. krantcents March 18, 2014 at 4:17 pm #

    Cheating is cheating! It is one of the reasons I use a CPA.
    krantcents recently posted…How to Get Rich?My Profile

    • Mr. Utopia March 18, 2014 at 6:41 pm #

      Technically, you could still cheat if using a CPA. The CPA is only as good as the info you give him, so if you omit or falsify that information then cheating can still be possible. It might even be a better way to disguise the cheating – under the veil of a CPA!

  5. Daisy March 19, 2014 at 9:33 am #

    I couldn’t cheat on my taxes. I just would be far too scared to get caught and have to pay the penalty. I don’t think it’s necessarily ethical of the government to take so much of our checks, but at the same time I don’t think it’s ethical to cheat your way out of taxes while other citizens are paying rightfully; those people who aren’t cheating are paying for the roads you drive on, government programs, and I. Canada the free healthcare we enjoy!

    • Mr. Utopia March 19, 2014 at 9:38 pm #

      You’re right about it being unethical to cheat on your taxes. It’s also illegal! You’re not alone about deeming it unethical for the government to be taking so much money in taxes. If you don’t agree with how you’re being taxed, the way it is supposed to work is: you make an effort for change to happen. You vote, campaign, run for office, etc. The problem with that is it’s really so hard to make a difference nowadays. I think that’s why some people resort to cheating – they don’t think how they’re being taxed is fair yet they feel powerless to change things.

  6. Peter March 19, 2014 at 2:56 pm #

    All I gotta say is that this was a painful post for me to read. In the beginning it was just stupidity and ignorance, but now that I’m running a business and I’m dealing with larger figures, greed is a formidable foe. Temptation is very strong, but I’ve learned the hard way to never cheat on taxes, but be smart and wise about it.
    Peter recently posted…My Profitable Side Gig revealed: I don’t know why I’m doing this.My Profile

    • Mr. Utopia March 19, 2014 at 9:43 pm #

      I hope the post wasn’t painful for you to read because it was poorly written! Greed is certainly a tempting seductress. I’m curious – how have you learned the hard way not to cheat on taxes? Have you run into troubles with the IRS before?

  7. Holly@ClubThrifty March 19, 2014 at 3:46 pm #

    I know this is a boring answer, but I just play by the rules. I don’t need any extra stress in my life, and the fear of being audited is enough to make me do the right thing.
    Holly@ClubThrifty recently posted…An Open Letter to ComcastMy Profile

    • Mr. Utopia March 19, 2014 at 9:39 pm #

      There’s nothing wrong with being “boring” when it comes to taxes…that also makes you a law abiding citizen!

  8. Stefanie @ The Broke and Beautiful Life March 20, 2014 at 9:34 am #

    That quote by your professor is spot on. It’s amazing how a good teacher can make something that might seem mind numbingly boring interesting.

    • Mr. Utopia March 20, 2014 at 1:19 pm #

      I totally agree. It’s too bad good teachers like that are usually the exception and not the norm.

  9. Kay March 21, 2014 at 10:43 am #

    Man, I’m so scared of being audited as it is and I try to do everything right. I would never “cheat” intentionally. A lot is lost to fraud and we all pay higher taxes as a result.
    Kay recently posted…A Guide to Freaking Out About Retirement PlanningMy Profile

    • Mr. Utopia March 22, 2014 at 3:48 pm #

      The majority of people are just like you, Kay. And, everyone knows there are cheaters. I just never guessed they could potentially amount to 15-20% of the population.

  10. Donald Morris July 5, 2016 at 4:17 am #

    In my book Tax Cheating, I develop a morally neutral definition of cheating that permits a clear starting point for a discussion of the morality of tax cheating.

  11. Delores Manson October 16, 2016 at 1:14 pm #

    Manson roofing in Bradenton , takes their brother and his wife, on seminars and charges it on their account so they can get a tax break. he works for a restaurant and never did work for them.

  12. doc Hope November 26, 2016 at 7:09 am #

    Cheating the government is not and should not be labelled as cheating. These are heard earned dollars that should not go to the government. I will NOT lose a minute of sleep whenever I conceal cash income when filing my yearly return. I am more worthy of my money than any government is.

  13. Raquel February 21, 2019 at 7:09 am #

    You could definitely see your enthusiasm within the article you write.

    The sector hopes for more passionate writers like you who are not
    afraid to mention how they believe. At all times follow your heart.
    Raquel recently posted…RaquelMy Profile

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