Tax Evasion – The Temptation of Cash Businesses
When it comes to tax evasion, most of us are never going to have a problem because it would be too complicated to come up with a scheme. Then there is the temptation of cash businesses.
There is an old joke that is worth telling at this point. A man is outraged at how much he has to pay in tax and is complaining to his accountant. The accountant sits patiently and then tells him that investing in elephants would take care of the problem. The man gives the accountant a baffled look. The account snickers and asks the man how much it costs to fee an elephant? The man has no idea. The account laughs and says, “Neither does the IRS.”
While few people invest in elephants as a tax strategy, many are nonetheless tempted by the ultimate temptress – the cash business. Cold, hard cash gives rise to the temptation to play funny with what you report to the IRS as income because it is cash and hard to track. The usual refrain is something along the lines of “Who will know if I pocket 20 percent.” It is tempting!
The fact of the matter is underreporting income in the number one way to get in tax evasion trouble. The government is simply going to hammer you. Don’t believe me? Consider the case of sixty-six-year-old Vincent Mavilia. He owned the double temptation – a strip club for adult entertainers. Such clubs are very cash oriented and he was nailed underreporting income based on a close IRS inspection. He is going to be paying $370,000 in back taxes and faces five years in jail and up to another $720,000 in penalties. A 66 year old man going to jail is not a good thing.
Tax evasion can be very tempting if your business is cash oriented. Don’t fall for it. The IRS has entire departments set up to analyze cash businesses and has formulated models of expected revenues for each. If you fall out of the range, you can expect to gain their attention very quickly. That is the last thing you want.
Of course, there are always elephants.