I did not want to write a blog for Tax Season. I really didn't. The internet is awash with advice and gizmos and multi-disciplinary insights. My pertinent opinions would be at best duplicated somewhere else. I was inspired however by a conversation I had at dinner with friends last night (yes, tax lawyers are allowed to eat in restaurants during the "season", and yes, some lawyers have friends). One friend turns to me and stated ever so innocently:
"Ben, you're the tax man of the group, seriously how bad is it if I lie on my tax return. My accountant KEEPS telling me to tell the truth but level with me, do I really HAVE to tell the truth?"
It hit me that many people might have similar thoughts, "what's the worst that could happen?" Taxpayers often view tax returns as an area of mostly grey instead of black and white. For much of the tax code this is correct. Our system is incredibly complex and there are ins and outs that are arguable by the adept tax preparer. The issue arises when a taxpayer views a return as an area appropriate of "little white lies." Omissions happen, misstatements occur, but lies are clear black and white, you cannot have made $100,000 and only report $50,000, there is no way to argue the "Ooops". Similarly you cannot have $100,000 in income and $98,000 in expenses without backup, if your backup does not exist you are in trouble. (Also, miraculously losing your backup will not be a successful excuse as it is as believable as "the dog ate my homework")
So what is the worst that can happen? Willfully filing a false statement on a tax return is a felony, a felony connected to perjury. As anyone who has ever seen aLaw and Order episode can tell you, perjuring yourself is usually considered a big deal. That's why you need to read that fine print above your signature on your return, which I will transcribe for ease of education:
"Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete."
This statement that most people do not read says in plain English, " I hereby swear that I READ this tax return, I understand it, it IS the information I provided to my preparer (which means I can't blame him/her later for the ridiculously low income disclosure), and it is above all else, TRUE!
Which means that if you lie, the IRS now owns you. What can they do? Send you to prison (1-3 years), and issue fines ($100K-250K) and even have you pay for the cost of your own prosecution. Oh and here is the best part, the statute of limitations. The basic rule is that the IRS has 3 years after you file to audit you. Should an omission be more the 25% of your income, that timestamp gets doubled to 6 years(for criminal, civil can be left open as you will see below). What if this was not an omission but a provable lie? The statute runs for 6 years from the time of the last evasion, which means that if you place that money in a nominee account or overseas or do any one of 100 things to shield the unpaid income from taxes, the statute 6 year time clock does not start to run. That is just for criminal charges, indictments and prosecution etc. Civil fraud is open forever, the IRS can come after you to audit, collect penalties and interestforever and ever and ever and ever. Let me say that again FOREVER.
So don't lie friends, it's just not worth it. If you have lied, call a tax professional (ahem ahem). Stay safe this tax season, see you on the other side.
Benjamin Goldburd is an Associate at Goldburd McCone LLP a boutique tax law firm in New York City.
For more information on these and other tax issues feel free to contact our offices at 212-302-9400, or on the web at www.goldburdmccone.com.