Is it okay to cheat on your taxes? Even just a little bit? According to a recent poll conducted by GfK Roper Public Affairs and Corporate Communications, a whopping 87 percent of respondents believe that it is never okay to cheat on your taxes, even “just a little bit.” It's hard to reconcile the survey results with the hundreds of billions of dollars the IRS claims it loses every year due to tax fraud, unless, of course, you realize if a stranger called your home and asked you if you thought it was okay to cheat on your taxes, the common sense response is to say “no.”
In reality, a number of business owners and entrepreneurs do cheat on their taxes (a practice formally known as "tax evasion") and get caught; and the consequences can truly ruin your life personally and professionally. Just ask these five people, who didn’t heed the warnings, and paid a high price for their mistakes.
Anderson started out as a salesman for MCI Communications in 1979 and became a telecom entrepreneur, taking advantage of the opportunities that arose from industry deregulation. He used a significant portion of his wealth to become the first modern “space-preneur,” bankrolling a number of projects including the attempted rescue of the Russian Mir space station. All this came to a halt when Anderson was arrested for tax evasion in 2005 and subsequently convicted of hiding over $365 million in income to avoid taxes using shell companies, fake identities and offshore entities. In 1998 he earned more than $126 million but reported only $67,939 in income, paying $495 in income taxes. He served several years in prison and was released in December.
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Attorney Donna Guerin was a partner at the law firm Jenkens & Gilchrist, which was based in Texas but had offices around the country. Guerin started out as a rags-to-riches success story, but then greed took over. In 1994 she began marketing a scheme to wealthy individuals that would generate fake tax losses to reduce their income tax liability. The scheme worked for 10 years, generating $7 billion in fake tax losses, which lead to $1.5 billion in illegal tax savings for clients of the scheme. Guerin made nearly $20 million peddling the scheme until she was caught, convicted and sentenced to eight years in prison, plus nearly $200 million in restitution, fines and penalties.
Aristotle R. Matsa
Matsa at first glance appeared to be the least successful entrepreneur in all of Ohio. Despite owning a law firm, art gallery and an architectural firm, he only paid a grand total of $107 in federal income taxes between 1986 and 2002. The IRS and the U.S. Attorneys office indicate that Matsa used relatives and former lovers to appear as though they owned different assets that in reality belonged to Matsa. He was convicted last April on 22 counts of tax fraud and obstruction of justice. Despite facing a maximum of 108 years in prison, he was only sentenced to 85 months.
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Minnesota entrepreneur Beale founded Artist Graphics, a software company where he served as CEO, earning millions of dollars in salary during his tenure. To avoid paying $1.6 million in income taxes, he illegally hid $5.6 million of his compensation from the IRS. This started a battle with Beale, and he became a tax protester defying the legality of income taxes in general, which lasted for more than a decade. He was convicted in 2008 and sentenced to over 11 years in prison for the tax fraud and for threatening the judge who oversaw his trial.
Wisconsin-based neurosurgeon Ahuja earned millions of dollars operating as a successful surgeon. A native of India, he thought that his money could earn a higher return there than in the U.S. He transferred nearly $9 million to India and invested it, where he earned $1.2 million in interest income on the money. The problem? He did not disclose the foreign bank accounts on his tax returns, nor did he report the income or the interest income earned on that money. Ahuja claims that he did not receive the proper documents from his bank and was not aware of the tax laws associated with money held abroad. Unfortunately, ignorance of the law is no defense. He made restitution, but was still convicted and sentenced to house arrest. He was also allowed to keep his job.
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Mike Periu is the founder of Proximo, a leading provider of training and educational programs in finance, entrepreneurship and information technology. He is a nationally recognized speaker, blogger and writer on small-business finance.
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