"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration. " - The sixteenth Amendment to the U.S. Constitution - Ratified 1913.
Congress passed a new income tax law with rates ranging between 1 - 7% for taxpayers with income in excess of $500,000 in 1913. At the time, this meant less than 1% of the population actually paid income tax. Form 1040 was introduced and although changed over the years, is still in use today.
Prior to the enactment of the income tax, most citizens were able to pursue their endevors without the direct knowledge of the government. Wages and profits were earned with little or no government involvement. In 1916, after the passage of the income tax, congress realized the invasiveness of the income tax and pass the requirement that tax returns be kept confidential.
Prior to the income tax, the government relied on excise taxes and and tariffs for its funding.
Monday, April 28, 2008
Friday, April 25, 2008
Three years for Snipes!
Often I hear the question "What happens if I just don't file?" Well, here is a good example. Wesley Snipes has just been sentenced to three years imprisonment. According to the New York Times, Snipes dodged approximatly $15 million in tax by concealing millions in offshore accounts and bombarding IRS employees with frivolous correspondence; claiming that taxation was unlawful. I guess he didn't get the memo. You MUST pay your share of Taxes.
A few other famous tax evasion cases:
Richard Hatch of Survivor fame was convicted in 2006 and sentenced to 51 months in prison for his failure to pay tax on his $1 million prize.
Richard Pryor served 10 days in a county jail in 1974 for tax evasion. He said he forgot to pay. :)
In 1990 Willie Nelson was hit with a $16.7 million bill in back taxes. The IRS seized and auctioned off his assets.
Chuck Berry served 4 months in prison after pleading guilty in 1979 of failing to pay tax on gigs he was paid in cash for.
My personal favorite, Al Capone once said the tax laws were a joke because "the government can't collect legal taxes on illegal money." Capone was sentenced to 11 years in jail and an $80,000 fine in 1931 for failure to pay four years taxes.
Heidi Fleiss must have been following Mr. Capone's logic before she was convicted in 1997 under tax evasion, pandering, and money laundering charges. Guess what folks. Illegal money IS taxable.
If you think IRS employees are exempt, think again. In 1952, then IRS commissioner Joseph Nunan was caught for evading taxes on an $1,800 bet he had won that Harry Truman would win the presidential election. He failed to report his winnings. OOPS!
A few other famous tax evasion cases:
Richard Hatch of Survivor fame was convicted in 2006 and sentenced to 51 months in prison for his failure to pay tax on his $1 million prize.
Richard Pryor served 10 days in a county jail in 1974 for tax evasion. He said he forgot to pay. :)
In 1990 Willie Nelson was hit with a $16.7 million bill in back taxes. The IRS seized and auctioned off his assets.
Chuck Berry served 4 months in prison after pleading guilty in 1979 of failing to pay tax on gigs he was paid in cash for.
My personal favorite, Al Capone once said the tax laws were a joke because "the government can't collect legal taxes on illegal money." Capone was sentenced to 11 years in jail and an $80,000 fine in 1931 for failure to pay four years taxes.
Heidi Fleiss must have been following Mr. Capone's logic before she was convicted in 1997 under tax evasion, pandering, and money laundering charges. Guess what folks. Illegal money IS taxable.
If you think IRS employees are exempt, think again. In 1952, then IRS commissioner Joseph Nunan was caught for evading taxes on an $1,800 bet he had won that Harry Truman would win the presidential election. He failed to report his winnings. OOPS!
Thursday, April 24, 2008
Spring Cleaning and Tax Records
It's spring time! Tax season is over and now is the time to start cleaning out those files. If you’re deciding what records you need or want to keep, you have to ask what your chances of an audit are. You should keep records to support those items until the statute of limitations runs out.
Assuming that you’ve filed on time and paid what you should, you have to keep your tax records only three years. However, some records need to be kept longer.
The three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old. For example, asset purchase information should be retained for as long as you own the asset and three years after the final disposition is reported.
The Three Year Rule
The statute of limitations usually runs the later of three years from the date you filed your return or the date you paid the tax. There are some exceptions:
1. If you didn't report all your income and the unreported amount is greater that 25% of the amount reported, the statute of limitations is generally extended to six years.
2. If you claimed a loss from a worthless security, the limitation is seven years.
3. "Fraudlent" returns or if you did not file a return have no statute of limitation. Records should be kept forever as the IRS can request and audit at any time.
Assuming that you’ve filed on time and paid what you should, you have to keep your tax records only three years. However, some records need to be kept longer.
The three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old. For example, asset purchase information should be retained for as long as you own the asset and three years after the final disposition is reported.
The Three Year Rule
The statute of limitations usually runs the later of three years from the date you filed your return or the date you paid the tax. There are some exceptions:
1. If you didn't report all your income and the unreported amount is greater that 25% of the amount reported, the statute of limitations is generally extended to six years.
2. If you claimed a loss from a worthless security, the limitation is seven years.
3. "Fraudlent" returns or if you did not file a return have no statute of limitation. Records should be kept forever as the IRS can request and audit at any time.
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