Thursday, December 9, 2010

What You Can Learn From … Wesley Snipes’ Tax Evasion Blunder

http://blackbusinessownership.com

via BLACK ENTERPRISE by Janell Hazelwood on 12/9/10

Today, actor Wesley Snipes reports to prison to begin a three-year sentence after being convicted on three misdemeanor charges of failing to file tax returns. (Prosecutors in the case argued that Snipes hadn’t paid taxes on $37 million in income between 1999 and 2004.) Though this case is far more public--and bizarre--than the average taxpayer’s woes, there are quite a few lessons to be learned from Snipes' case. We consulted a tax professional to break it down.

1) Failure to file because of fear, protest, or negligence just isn’t going to cut it. "With most people who don’t file, it’s typically a fear that they expect to owe or they know they’re going to owe," says Robert L. Gregg, registered tax professional and vice president of operations at Mainline Partners Inc. "It’s better to get the filing over with to avoid penalty. With the build up of those years of the tax return being avoided, it gets more expensive as you go."

    Don’t take the chance of the IRS deeming your excuse for not filing inadequate. According to reports, Snipes claimed he was a “non-resident alien to the United States” and that “the Internal Revenue Code’s taxing authority 'is limited to the District of Columbia and insular possessions of the United States, exclusive of the 50 States of the Union.’’ Gregg points out that even if you are living overseas, and you're a U.S. citizen, you must still file a tax return for monies earned.
  • Not filing can cost you time and penalties which can tack on up to 75% of your unpaid debt to the balance owed, especially if your excuse is denied because of accuracy issues or because an amendment was deemed frivolous.
  • Also, not filing can have a negative domino effect on other aspects of your life, Gregg warns. "When you apply for a loan or when you're going through the home-buying process, the banks look into whether you've filed taxes and in what years. If you haven't filed, that's a red flag." Though in typical cases you won't be jailed for owing tax debt, the IRS can take any legal means to collect the debt, including garnishment of wages and seizure of property.
  • 2) If you haven’t filed taxes in years, or you neglected to file for monies earned while working for a former employer, they haven’t forgotten you. "If you’re a salaried employee and receive a W-2, that’s reported to the IRS anyway," Gregg notes.  "If the IRS files a substitute return, they won’t give you credit for deductions, and you could miss out on a refund."

    • There are options for you if you neglected to file:
    • Call your employers for that tax year or years, get in contact with human resources or the payroll department, and get a W2 reissued," Gregg says. "If that’s not possible, call the IRS to get a statement of wages and earnings for those tax years."
    • Consider an offer and compromise agreement or payment plan. An offer and compromise is an agreement to settle a tax liability for less than what is owed, and you must meet specific qualifications, Gregg says.
    • Try your local taxpayer assistance center Also try volunteer services such as the IRS Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TCE) Programs.

    3) Vet your tax and financial advisers/professionals carefully and educate yourself so you can know details of what’s being filed on your behalf and what’s owed.

    • Snipes maintains that he doesn't deserve his sentence and says he's not a tax protester. Instead he is simply someone who relied on tax professionals to, in so many words, handle his business. But the "tax preparer did it" or the "I was too busy to do it myself" excuses aren't valid ones, says Gregg. And most times, they won't hold up in court.
    • Be sure your adviser holds the appropriate certifications. Look into their affiliations and background and make sure they're registered. And look for red flags on your return, such as inflated deductions or numbers that just don't make sense.
    • Find a tax professional who you can correspond with on an annual basis, Gregg suggests. "It’s much easier to be prepared throughout the year than to have to sift thorugh 12 months of documents and information in one shot."
    • Include calender updates or reminders for major dates, including tax time. The tax deadlines vary for businesses and individuals, so it's good to have those dates noted, Gregg says.

    For more advice on managing your taxes see ...

    Six Ways Your Taxes Could Increase in 2011

    Manage Your Tax Obligations

    Pick the Right Financial Professional

No comments:

Post a Comment