The Extended Arm of the United States Government in its Battle against Tax Evaders
Professor: Kenneth Lavery
Submitted By: Deanne Patterson
Week 6: July 31, 2011

Taxes are a major contributor of the American economy. The tax system in the United States depends on voluntary compliance, which means that each citizen is responsible for filing a tax return when required and for determining and paying the correct amount of tax”. (Albrect, Albrect, Albrect & Albrect and Zimbelman). When individuals under report, exaggerate deductions, and hide money in off shore accounts, this is clearly misrepresentation of their income to the Internal Revenue Service (IRS) and is deemed tax evasion. The term “tax evasion” is defined as using illegal means to avoid paying taxes. The U. S. Government loses billions of dollars every year because of tax evasion. Wealthy individuals have engaged in hiding their earning in offshore accounts. This student believes that it is necessary for the United States to continue to monitor and implement laws to improve financial transparency globally in order to curtail tax evasion in addition, the integrity of the federal income tax system continues to be tested by individuals and entities in their attempts to defraud the United States Government. The United States Treasury, IRS, and Congress took a long hard look at the global financial system and determined that UBS, the Swiss bank giant sold tax evasion services to those who did not want to pay their taxes (http: www.nytimes.com/reuters/2011/08/19/business). A new law signed by President Barak Obama in March of 2010, the Foreign Account Tax Compliance Act (FATCA), which goes into effect January 1, 2014, is meant to expose billions of dollars in offshore tax evasion. FATCA is an instrument where foreign banks must spend millions of dollars to help the U.S. enforce its own tax law. (http.www.nytimes.com/reuters/2011/08/19/business). As a result of the FATCA law by the U.S. the private banking arm of HSBC said it would stop offering services to U.S. residents outside the United States because of the cost of complying with the rule. Letters have been sent to the Treasury, IRS and Congress, opponents from Australia to Switzerland to Hong Kong assail FATCA’s application to a broad swath of institutions and entities. Those affected include commercial, private and investment banks and shells and trusts; border-dealers, mutual, hedge and private-equity funds; domiciliary companies; limited liability companies, partnerships; and other intermediaries and withholding agents. FATCA also covers affiliates of the entities. The European Banking Federation and the Institute of International Bankers, both trade groups, told the U. S. Treasury that forcing banks to track pass-through payment on syndicated loans, swaps, foreign currency trades and routine money transfers can create stresses in the global financial system. (http.www.nytimes.com/reuters/2011/08/19/business). The Internal Revenue Service is the major enforcer for the United States government to ensure that income taxes are reported and tax liabilities are paid. Recently, there has been a push to crack down on offshore account used to conceal assets. In 2009, as U.S. prosecutors were bearing down on Swiss bank UBS to disclose the names of tax cheats, thousands of wealthy Americans decided it was best to avoid prosecution and come clean with the Internal Revenue Service. Under a limited amnesty program, they disclosed their secret offshore accounts and paid the taxes they owed, along with the reduced penalties that were part of the deal. They also agreed to turn over records and cooperate with the IRS. (http://www.irs.gov) As it was pursuing UBS, the U.S. also began flushing out bank clients who had been hiding away money in offshore havens such as Liechtenstein, Hong Kong, and Panama. From March to October 2009, 15,000 taxpayers came forward under the IRS's voluntary disclosure program. After October 2009, some 4,000 more joined the program. To avoid prosecution, the taxpayers had to disclose their offshore accounts, bankers, and advisers, as well as how they moved their money. The Interpretation of the Sixteenth Amendment to the Constitution of the United States continues to present many arguments as to the legality of income taxes in America and Globally. This student believes that the interpretation of the Sixteenth Amendment to the Constitution of the United States continues to present many arguments concerning the legality of the American income tax system. When the Sixteenth Amendment to the Constitution was ratified (February 3, 1913) giving Congress the power "to lay and collect taxes on incomes", citizens began arguing that it was not properly ratified and income taxes are illegal. Citizens continue to raise such arguments in spite of the fact that they have no basis in law and the courts have repeatedly rejected their arguments as frivolous. Promoters and their followers have long employed frivolous arguments concerning the legality of the income tax as pretexts to enrich themselves or evade their taxes. Their motivation is usually monetary. Anti-taxation groups used different arguments to gain followers, they all share one thing in common; they received substantial sentences in a federal prison for their activities. Their followers paid a steep price for following bad advice. Some were prosecuted, many more were involved in years of litigation and ultimately had to pay all taxes owed along with penalties and interest. People who are considering involving themselves in these anti-taxation "programs" should consider the consequences. Tax evasion is a serious crime punishable by imprisonment, fines, and the imposition of civil penalties (http//www.irs.gov). Complicated arguments against the American tax system are built by stringing together unrelated ideas plucked from widely conflicting court rulings, dictionary definitions, government regulations, and other sources. Some of the most popular arguments follow:

Compensation Argument

Wages, tips and other compensation received for personal services are not income because there is allegedly no taxable gain when a person "exchanges" labor for money.
The Truth: The Internal Revenue Code defines gross income as income from whatever source derived and includes compensation for services. Internal Revenue Code Arguments (1) There is no Internal Revenue Code that imposes taxes; (2) Only "individuals" are required to pay taxes; or (3) The IRS can only assess taxes against people who file returns.
The Truth: The tax law is found in Title 26 of the United States Code. The requirement to file an income tax return is not voluntary and it is clearly set forth in the Internal Revenue Code (IRC) Sections 6011(a), 6012(a), et seq., and 6072(a). Our system of taxation allows taxpayers to determine the correct amount of tax and complete the appropriate forms "voluntarily" rather than have the government do it for them. However, any taxpayer whose income falls below the statutory amount does not have to file a return.
III. Sixteenth Amendment Argument
The Constitutional Amendment establishing the basis for income tax was never properly ratified. Tax evasion is the intentional and fraudulent underpayment or non-payment of taxes. It is paying less than the legally due tax liability by using illegal methods. The crime of tax evasion involves deliberately misrepresenting or concealing the nature of financial affairs to the tax authorities to reduce their tax liability, and may include such dishonest tax reporting tactics as under-declaring income, profits or gains; or overstating deductions. The Internal Revenue Service is the major enforcer for the United States government to ensure that income taxes are reported and tax liabilities are paid. Recently, there has been a push to crack down on offshore account used to conceal assets. In 2009, as U.S. prosecutors were bearing down on Swiss bank UBS to disclose the names of tax cheats, thousands of wealthy Americans decided it was best to avoid prosecution and come clean with the Internal Revenue Service. Under a limited amnesty program, they disclosed their secret offshore accounts and paid the taxes they owed, along with the reduced penalties that were part of the deal. They also agreed to turn over records and cooperate with the IRS.

Anyone found guilty of evading taxes is generally subject to criminal charges and substantial penalties. The following federal law governs fines imposed for tax evasion: "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution." (http:www.irs.gov). Many high profile celebrities such as actors, singers, athletes, and entertainers have had problems with the Internal Revenue Service: Celebrity tax invaders are as follows:

Wesley Snipes (Actor) and Sinbad were accused of owing millions in overdue taxes.

Redd Foxx (Actor) (Deceased) owes the IRS $755,000 in back taxes.

Singer Otis Williams, (Temptation) presently owes the IRS an estimated $176,000.

Comedian Eddie Griffin owes $142,000 in back taxes.

Actor/Comedian David Alan Grier owes the IRS $50,000 in back taxes.

Singer Tony Braxton owes $79,000 in taxes owed to Uncle Sam.

Gospel Singer BeBe Winans owes the IRS $1.2 million in taxes.

Author Terry McMillan owes $253,446 in back taxes.

Olympic swimmer Michael Phelps: 23,000 owed

Hockey star Darren McCarty: $62,000 owed

Model Gisele Bundchen: $72,000 owed

Actress Zsa Zsa Gabor: $118,000 owed

Actor Burt Reynolds: $225,000 owed

Actor Stephen Baldwin: $1,084,000 owed

Photographer Annie Liebovitz: $1,500,000 owed

Actress Pamela Anderson: $1,952,000 owed

Golfer Jim Thorpe: $5,400,000 owed

Actor Nicolas Cage: $6,250,000 owed

In conclusion, there will always be a battle between some tax payers and certain branches of the Federal Government such as the Department Of Justice and the Internal Revenue Service. This student believes that everyone should participate in the voluntary contributions to the Americas tax system. In today’s economy, the confidence of the American people has been shaken, this is why it is necessary for everyone to participate and not misrepresent their income to the Internal Revenue Service. Tax evasion in the United States is a crime and is punishable by law. The Internal Revenue Service does not discriminate when it comes to reporting income to them. This strong arm of the United States Federal government will investigate and pursue the smallest taxpayer to the wealthiest. It will investigate and pursue financial transactions at home and abroad. Compliance is the primary goal of the IRS to its taxpayers.

REFERENCES

Albrect Chad, Albrect Conan, Albrect Steve and Zimbelman Mark; Fraud Examination, 3rd

Edition, 2009, 2006, Southwestern, Cengage Learning, Mason Ohio.

Internal Revenue Service: http://www.irs.gov

New York Times: http://www.nytimes.com/reuters/2011/08/19/business