With the population over 320,000,000 in the US, is it possible to avoid the IRS radar? Lets face it at face value the odds sound good. It is a needle in a haystack situation.
One of the sillier programs I have been known to watch is the reality (I use that term loosely) TV show Moonshiners. It chronicles the trials and tribulations of distilling illicit hooch in the ‘backwoods’ of Virginia and other states. This would appear to be a strictly cash only operation. But there is no paper trail.
While the distilling of hooch is clearly illegal and can represent jail time if caught, lets call it the Black Market, there is also a Grey Market. We have all heard stories of ‘being paid under the table’. Just like Moonshine there is no official record, so again I find it difficult to understand how the IRS might track down the culprits.
I watched an op-ed piece about the grey market on CNN recently. It was interesting. The claim was made that the grey market was no longer the realm of just Blue Collar workers, with the economy being in such a bad shape more and more white collar workers are now participating. The technique is to take on short term contract projects that generate small sums of money.
This creates an interesting situation. Assuming the amount of money is small the company has no legal obligation to put it on the books and generate a 1099. And with no 1099 there is no paper trail for the IRS to follow.
I asked my good friend and now retired IRS agent Wayne Vinson for his thoughts. They may surprise you.
My honest opinion is that regretfully, a lot of tax dodgers do not get caught. I want to make it absolutely clear where I stand on this: If you owe tax, pay it, the full amount. Cheating is grossly unfair to all of us Americans who DO pay every bit we owe. The USA is broke, partially due to lots of people dodging taxes.
Most tax dodgers, I believe, are self-employed, not wage earners. The reason should be obvious—a self-employed person handles and controls all the money that he takes in. How much he earns and what he does with it is a secret, unless he chooses otherwise. Probably, most self-employed people who cheat on their taxes, DO file. They just report less income than they had. Think how hard it would be to determine the actual income of a house painter, or a carpenter, a roofer, a farmer, a tree trimmer—if the person was determined to cheat.
The IRS can audit an income tax return ’til hell freezes over and unreported income may never be found, if the cheater was careful to not steal too much. Let’s say the return shows $42,000 adjusted gross income. The guy actually took in $61,000, an under-reporting of $19,000 which is easy to conceal unless his family is really living ostentatiously.
The non—filing tax dodger is more likely to get caught for obvious reasons. If he filed for previous years, IRS would follow up. Then the cheater would have to lie—say he had died, or got sick and didn’t earn enough to have to file—and hope the IRS would drop it there.
Wage earners can cheat but the problem is that their wages are almost always reported on form W-2, a copy of which goes to the IRS. I say “almost always reported” because there are a few employers, mostly small outfits who are tax protestors or whose business is failing, who do not provide W-2s to their employees. In this case if the employees report the fact that they have no W-2s to IRS, IRS will investigate and try to determine the wages paid. This is a messy situation….
I ran into an interesting scheme where wage earners DID cheat for a while, illegally “saving” many thousands of dollars. It was during the 1970s or 1980s, when a large group of employees at an automobile plant changed their forms W-4. Form W-4 is where an employee writes the number of exemptions he has and turns it in to the employer, which uses it to determine how much income tax to withhold from the employees’ pay. The more exemptions there are on Form W-4, the less income tax is withheld.
Now these guys were autoworkers, making a good buck, and not happy about income tax coming out of it. So they got the idea of upping the number of exemptions on their Forms W-4, raising the number so high that the employer withheld NO income tax from their wages. It must have been a real party for two or three years—all that money coming in. At least some of the group did not file for 2 or 3 years, because at the end of the year(s) they owed a large amount of income tax, and there had been no income tax withheld.
I guess there was some tax protestor influence at that plant—it was a terrible idea, because it couldn’t last. They must have known IRS would catch up with them in due time. I only saw one of those taxpayers—he happened to live in my group area, so one of my revenue officers got his accounts for collection. In the IRS office the guy still did not think he should pay income tax. He argued with the revenue officer and finally came in to see me. The amount of tax he owed was astounding: lots of tax, huge penalties and interest. I don’t remember the figures but as I remember the total due had doubled what he would have paid if he’d paid on time.
I am sure some of those guys lost their homes over that scheme.
Moonshining is an all cash operation. Illegal booze is the province of the Alcohol, tobacco, and firearms part of IRS. These ATF agents obviously deal in estimates of liquor made and sold, but in a way their job is easier than revenue agents and officers, because to make untaxed moonshine is a crime—and if you find their still and it’s working, there is a crime. They don’t have to worry about records or accuracy because there aren’t any records. They just bust up the still, and arrest people if any are around.
There is much more to this story, but I will save that for future articles.
Wayne Vinson was an IRS agent for 33 years and the author of a real thriller, Tax Collectors and Other Sinners, the story of a psycho killing tax collectors. It is available at amazon.com as an E-book or soft cover.