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Tuesday, April 8, 2014

Johnston: How to Cheat on Your Taxes

Newsweek:  How to Cheat on Your Taxes, by David Cay Johnston (Syracuse):

There's never been a better time to cheat on your taxes. Or a better way.

As millions of Americans rush to file their tax returns on time, trying to be ever-so-careful in hopes of avoiding an audit or, far worse, prosecution, they will find it instructive, and infuriating, to learn about Jerry Curnutt.

Curnutt can show people how to cheat on their taxes and not get caught. His trick won't work if you are a wage earner, but those rich enough to invest in real estate partnerships have escaped paying billions of dollars in the past decade by using this technique.

Now Curnutt's mission in life, at age 76, is to get states and the IRS to go after these cheats. ...

[T]he tax-cheat ploy Curnutt uncovered is remarkably easy. On Form 1065, the one partnerships file, just leave Line 10 on Schedule K blank, or report a smaller figure than the real one.

Why does that one line go unnoticed when the IRS selects tax returns for audit? IRS software scans only for what it is told to look for. (Think of those Star Trek episodes in which the Enterprise scans a planet for life, detects none and then discovers life forms the scanners were not tuned to notice.)

This week, news broke that the IRS effectively fails to audit massive partnerships, like hedge funds and private equity funds, even though corporations of the same size are under constant IRS audit. A short video, "Tax Analysts Video Examines Audit-Proof Businesses," explains how partnerships escape audits.

Curnutt knows this because he is a tax detective. He retired from the Internal Revenue Service in 2000 as one of its top snoops, overseeing all investment partnerships. Using his desktop computer, Curnutt discovered a simple way to cheat that no one at the IRS had noticed. Call it Curnutt cheating.

For his brilliant sleuthing, the IRS gave Curnutt commendations and multiple cash awards, each for about $1,000. It sent him around the country to conduct 64 training sessions so IRS auditors could learn how to efficiently spot these cheats. He also trained state tax auditors from California, Indiana, New Jersey and New York.

But the IRS never put Curnutt's insights into practice and never cracked down on the cheaters, allowing them to escape paying tens of billions of dollars in federal and state taxes.

The odds for taxpayers overall, according to IRS data analyzed by Syracuse University's Transactional Records Access Clearinghouse for 2013 and 1993, per million taxpayers:

2013

1993

 

13

20

Recommended for Prosecution as Tax Cheat

6

11

Indicted

4

8

Convicted

3

4

Sentenced to Prison

0

0

Caught for “Curnutt Cheating” in Real Estate Partnerships

Tax Analysts:  Why It Matters That the IRS Has Trouble Auditing Partnerships, by Amy S. Elliott

http://taxprof.typepad.com/taxprof_blog/2014/04/johnston-.html

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Comments

Uhhh, what would Darrell say if the IRS were caught targeting large partnerships? Another scandal. Another chance to link President Obama to corruption. Get the subpoenas ready, Darrell!!!!!

Posted by: Publius Novus | Apr 8, 2014 8:26:00 AM