Everybody likes to save money, especially on taxes. It’s not a crime to reduce, avoid, or minimize business or personal income taxes by legitimate methods. State and federal tax codes provide for many exceptions and deductions to reduce tax burdens.
However, when you resort to deceptive or fraudulent tactics to save on taxes, you run the risk of sizable penalties and even jail. Although only a tiny fraction of returns are audited each year, it’s not worth the risk. These famous tax evasion cases show just how high a price you can pay for this crime.
Tax Evasion Hall of Fame
From the famous to the infamous, tax evaders end up paying a high price for their crimes.
An American entrepreneur, Mr. Anderson made his millions after the breakup of AT&T. He was convicted of the largest tax evasion scam in U.S. history for evading more than $200 million in taxes. It is reported that in 1998, he paid $495 in taxes on $67,939 of income. The I.R.S. alleges he paid $126 million that year. Mr. Anderson was sentenced to nine years.
Richard Hatch “Survivor” Fame
America was watching as Richard Hatch won $1 million the first year of the reality TV show “Survivor.” Hatch received a Form 1099-MISC for his winnings from CBS because winnings from contests are taxable. However, he failed to pay taxes on his winnings and other earnings from his new celebrity status. He was convicted in federal court, receiving a combined prison sentence and fines and fees of more than $300,000.
The Grammy Award-winning rapper, whose real name is Dwayne Carter Jr., has an I.R.S. lien against him for more than $12 million for two years of back taxes plus penalties. The I.R.S. reports that Carter had only paid $175,719 for 2012 and still owed 11,979,365.48.
Ron Mix, Football Hall of Famer
Ron Mix was a former offensive lineman with the San Diego Chargers, who turned successful worker’s compensation lawyer since retirement. He faced a three-year prison sentence and $250,000 in fines for listing referral fee payments as charitable donations. Between 2010 and 2013, Mix reportedly donated $155,000 to charity in this manner.
In 2009, the IRS charged Mr. Cage owed more than $6 million in unpaid taxes. He accounts the failure to pay taxes to high managements team. He ended up suing his money manager for fraud and negligence.
It’s hard to say what made Willie Nelson more famous, the songs he wrote in the late 1950s or his decades long struggle with the I.R.S. In the late 1990s, federal agents seized most of Nelson’s property and alleged a $32 million tax debt. It’s believed that bad advice from his accountant who hid money in bogus tax shelters caused his tax woes. In the end, Nelson negotiated a settlement with the I.R.S. and recorded The I.R.S. Tapes: Who'll Buy My Memories? (The I.R.S. Tapes). That album was recorded as part of the settlement to pay down Nelson's tax debt. The IRS only collected $3.6 million from the sales of the album, but Nelson’s career picked up and he was able to pay-off his debt.
The infamous Chicago gangster of the early Twentieth Century, was linked to murder, extortion and bootlegging. He was eventually brought down by a tax scandal after prosecutors failed to make any other charge stick. In 1931, Capone received an 11-year sentence for not paying $215,000 in taxes. He did not serve the full term and retired in Florida.
In a case dubbed by federal prosecutors as “the biggest criminal tax fraud in history,” former attorney Daugardas received a 15 year prison sentence for helping clients evade taxes. He was convicted of creating a fraudulent tax shelter that would create fake loss to reduce the tax bills of the extremely wealthy. During its operation, the tax shelter generated more than $7 billion in fraudulent losses, creating $1.6 billion in lost tax revenue.
Mr. Snipes received a three-year prison sentence for willfully failing to file I.R.S. tax returns for six consecutive years, avoiding $7 million in taxes. He reportedly was following his advisors that claimed they he didn’t legally have to pay taxes. His advisor was wrong.
In addition to her high-profile conviction for insider trading, television celebrity and entrepreneur Martha Stewart was fined $221,677 in back New York State Taxes for her home in the Hamptons.
Learn More About Tax Evasion from a Lawyer
Failing to file or pay taxes can have tough consequences. There’s a fine line between legal tax avoidance techniques and evasion. As you can see from the famous examples shown above, what you save now isn't worth the trouble you face later. If you have tax questions or received a notice from a tax agency, it’s a good idea to contact an experienced tax attorney to discuss your situation and find out about your options moving forward.