Here is one of the best stories. A District of Columbia police detective earned more than $450,000 in a three year period, a staggering income resulting from a lot of overtime. Even though Michael C. Irving worked for the government and benefitted from the taxes paid by citizens, he paid no taxes to the US Treasury or the DC government from 2003 to 2005. He maintained that he had found a program that exempted him from income taxes, some obscure tax loophole that he learned about from a friend who had attended a seminar. even had the audacity to attempt to get a refund from taxes paid earlier.
He then started to get letters from the IRS began warning him not to file "frivolous" returns. Stuck in his delusion he threatened a lawsuit. About four years later in 2007 Federal prosecutors charged the detective with tax evasion, fraud and filing a false claim for a refund. Interestingly, under cross-examination said he couldn't really explain how the program he used really worked. As in virtually all such cases, the jury convicted of two counts of tax evasion and he was sentenced in January to 14 months in prison.
And then there was the more publicized case of actor Wesley Snipes. Last year, he was sentenced to three years in prison for failing to file tax returns for three years. He did not pay taxes on about $40 million, according to federal prosecutors. He is free pending appeal of his conviction. Two machine shop owners, who hit the government with letters extolling tax defier arguments, were convicted in March of tax evasion. And this April, a man was convicted of filing false returns; after he argued that he was a citizen of his state, not the United States. Despite such convictions there seems to be endless number of stubborn and stupid people who will keep trying to avoid paying income tax.
To lighten its load the IRS recently updated a 77-page book on its website rebutting dozens of arguments used by tax defiers. Why? It received more than 10,000 ludicrous returns last year and more than 90,000 pieces of related correspondence. Both numbers have held steady over the years. In most cases, tax filers correct their returns after receiving a stern letter from the IRS. Meanwhile, the Justice Department has increased enforcement against tax defiers, and the IRS has referred more cases for criminal prosecution: 132 cases in fiscal 2008, up from 74 the previous year and 80 in 2006. The Justice Department also has filed about 100 civil lawsuits since 2001 asking judges to block defiers from promoting or selling related tax-preparation products. In fact, in March this year, the department filed a civil suit to stop a tax preparer and his company, Reclaim Services, from filing frivolous tax returns on behalf of customers.
Here is what Nathan Hochman, former head of the Justice Department's tax division, said: "There are people out there who are misguided tax zealots who, to the day they die, believe their bogus theories no matter how many times courts tell them they're wrong. But for the bulk of people, it's now about greed. They can't even explain the theories."
Misguided is being more than generous. These people are delusional and plain stupid. No different than the inventors who keep thinking that they have created a perpetual motion machine.
The current economic meltdown will undoubtedly cause even more Americans to buy into all sorts of tax denial schemes and totally refuse to accept the reality that they have zero chance of succeeding against the government. What we do need, however, is massive public support for a major overhaul and simplification of the federal tax system, something that President Obama says he is committed to. What ordinary Americans have every right to be outraged about is that it remains too easy for the rich to avoid paying all the income taxes they should pay. If recent events have shown anything it is that the Upper Class with all its political influence should be paying higher tax rates. Between 1932 and 1980, the top tax rate averaged 80.2 percent. It is now less than half that.
In 1955, the first year April 15 marked the IRS filing deadline, America's 400 richest taxpayers paid an average of 51.2 percent of their total incomes in federal income tax - and that was after taking advantage of every deduction they could find. How much of top 400 income will go toward taxes this year? Nothing at all close to 51.2 percent. In 2006, the most recent year with IRS data available, the 400 richest paid a mere 17.2 percent of their total incomes to Uncle Sam. And the top 10 percent of households paid just 28 percent.
Understand this: when American prosperity was equitably shared and economic inequality was very low during several decades after World War II, the richest Americans paid a whole lot more taxes. But in recent years the rich have gotten richer because of overly low tax rates. And the middle class has been brutalized, because they have received a low fraction of the nation's prosperity.
Consider this: IRS face-to-face audits of taxpayers who report $1 million or more in income produce on average nearly $200,000 in additional taxes per return. However, the IRS last year audited, face-to-face, just 3.1 of every 100 millionaire returns.
Forget tax day tea parties. Let us keep focused on what really matters when it comes to taxes, justice and good government. Not fighting the government about paying, but demanding from our elected representatives a far fairer tax system. Yes, we can.