We can learn just as much from others’ mistakes as we can from their successes. So when we stop to consider some of the biggest tax scandals, what lessons can we bring home? You don’t want to repeat history with these types of fraud!
The Biggest Tax Scandals—and How to Avoid Them
Whoever said “rules were meant to be broken” needs to think twice. These five famous cases serve as prime examples for what NOT to do with your tax planning services. Taking a couple hints from these major mistakes can help you make sure you’re filing your taxes the right way.
1. Charitable Donations: Lori Loughlin
In order to claim deductions for charitable donations, your financial support actually needs to go to a legitimate organization with non-profit status. You also can’t receive anything of higher value in return for your contribution. The legality here might seem obvious, but there are still plenty of people who try to create loopholes. If Loughlin’s investigation continues to go sour, she’ll be looking at a significant bill for tax fraud.
2. Tax Filings: Wesley Snipes
After skipping his tax filings and avoiding his tax payments of around $7 million for the years 1999-2001, actor Wesley Snipes was convicted for tax evasion and served time in prison. He attempted to claim that his domestic income wasn’t taxable, but this simply isn’t the case. If you have a tax professional telling you information that seems “too good” to be real, you should always get a second opinion. Just because some steered you in the wrong direction doesn’t mean you’re off the hook.
3. Illegal Earnings: Al Capone
Here’s an important note: Even if your income is collected illegally, it’s still taxable! After years of crime, Capone was eventually charged with over 20 counts of tax evasion. Strange as it might sound, you need to report all income, regardless of where it came from. Otherwise you could be looking at additional legal troubles specifically for your taxes. Capone was ultimately sentenced to 11 years in prison.
4. Business Expenses: Leona Helmsley
In the 1980s, Leona Helmsley was a big-name real estate giant. She made the mistake of not keeping her business expenses separate from her personal accounts. After billing over $8 million in renovations for her private home to her business account for a tax deduction, she was eventually caught and convicted. She went on to serve 18 months in prison and had to return the $8 million.
5. Likeness Income: Pete Rose
If you’re a celebrity like baseball athlete Pete Rose, be sure to report your earnings from autographs and other “likeness” income with your taxes. Even after retiring from the sport, Rose was still making good money from his memorabilia and appearances. But because he decided not to report the more than $350,000 he earned over a 4-year period, he wound up with some jail time and a hefty $50,000 fine—on top of all the back taxes he owed.
It can be interesting to see how crime evolves over the years, but maybe it’s even more intriguing to see how certain situations stay the same. When you want to keep on the right side of the law, NSO and Company can help! (That shouldn’t be surprising to hear, right?)
We’re happy to consult with clients on all of their tax planning needs, for both individual and business tax returns. If you have a pressing question, please don’t hesitate to give us a call at (317) 588-3131. Our team is here to help!