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Financial Complexity and The Potential for Tax Fraud

Tax law is technical. There are no philosophers of Natural Tax Law, and even though taxes are perceived to be, along with death, one of the few certainties in life, they are arbitrary and changeable. The tax laws of the United States, to a great degree, are whatever the Congress, or perhaps more precisely, the staff of the Joint Committee on Taxation, say they are.

Because they are ultimately a political decision, one should never expect logic or intuition to serve as a guide when dealing with your taxes. When you hear a story about tax fraud, you may have some idea of what behavior may be encompassed, such as making up numbers on a tax return or stealing a Social Security number to file a fake return.

Yes, those would be tax fraud. Nevertheless, there are multitudes of ways in which a tax fraud may occur. Some are very intricate and others fairly stupid. A state representative from Illinois plead guilty to a single charge of misdemeanor tax fraud. This was a victory for the defense, as he had been facing 17 felony bank fraud charges, so a single misdemeanor tax fraud charge was a great improvement.

From the story, the tax fraud was related to his claiming more expenses in remodeling a home than he actually spent. This increased his tax basis in the property and lowered his capital gains tax. The tax savings was $3,782.

The felony charges claimed he had lied to get a loan and used some of the proceeds for personal expenses. His defense attorney was happy with the outcome, with the underlying suggestion that the U.S. Attorney's Office had overcharged the case, and that is why it collapsed to the single tax fraud charge.

As favorable as it was, it points out the risks some transactions bring with them. Whether he was targeted because he was a politician or for other reasons, he was involved in a complex tax transaction. Hence, the more complex your financial transactions are, the more likely they could be seen to be questionable and potentially, illegal.

And this is why you want to speak with a tax attorney before a transaction occurs, rather than later, when you may need a criminal defense tax attorney.

Source: Chicago Tribune, "Surprising plea deal in state Rep. Ford's bank fraud case," Jason Meisner, August 4, 2014

Tags: tax fraud

Related Posts: Troubles with the IRS can sometimes lead to criminal proceedings, Former mayor acquitted in criminal tax prosecution

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