Tax Law FAQ

Do many people cheat on their taxes?

In a national poll, one out of five Americans admitted to cheating the IRS on their tax returns. The IRS says that 17% of taxpayers don't fully comply with the tax laws on a regular basis. If you throw in people who cheat by not filing tax returns, the number is closer to one in four. Undoubtedly the figure would be higher if wage earners did not have taxes withheld by their employers and the self-employed did not have their earnings reported to the IRS on 1099 forms.

Arguably, cheating by self-employed people approaches 100%. It may just be a question of degree -- did you ever mail a personal letter with a business-bought stamp?

Is it true that the IRS pays rewards for turning in tax cheaters?

Yes, but you won't get paid unless and until the IRS collects from the cheater. The IRS pays about 8% of the first $100,000 it collects and 1% of the balance. Of course, any reward you recover is taxable income. Identities of informers are kept secret, but tax cheats usually know who reported them -- mostly ex-spouses or disgruntled business associates.

In a recent year, the IRS paid out a total of only $1.5 million for tips, on $72 million collected. The IRS places low priority on investigating tips and then looks for ways to avoid paying rewards. And, most of the time, you will never know what action is taken on your tip. If you want to try it, use IRS Form 211. P.S. Rumor has it that turning someone in to the IRS can result in the informant being investigated.

How legitimate are the seminars and books by "tax experts" claiming you don't have to pay income taxes?

Not at all. Some of these con artists are very convincing. Constitutional arguments against the tax laws are routinely struck down by U.S. federal courts. Typical scams involve multiple family trusts, limited partnerships and offshore banks. While these schemes can confuse and slow down the IRS, they are bogus, period. Would a federal judge -- whom you will appear before if you are prosecuted for tax evasion and whose salary comes from the federal government -- ever be likely to uphold one of these schemes? Get serious.

Copyright © 2002 Nolo

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

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