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Maybe evading taxes isn't such a great idea

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TRIGAUX
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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published March 10, 2002


I turned on the news this morning, and they said President Bush closed down a terrorist organization, one that had been collecting millions and millions of dollars from the American people. I said, 'Yes, the IRS is finished!'

-- comedian Jay Leno

* * *

In a funk over the approaching April 15 tax deadline?

Me, too. It's an annual malady.

But this year, there's a new itch to stretch an extra deduction or two. Or pad that business loss. Maybe even quietly establish that personal offshore account.

Admit it. You want to scratch that itch, too.

Now most of us would never seriously cheat the Internal Revenue Service. But what's wrong with an extra shot of "creative" personal accounting or "managed" earnings?

Hey, if some of the nation's biggest corporations embrace it, why can't we?

In 1999, 87 percent of American taxpayers said it was wrong to cheat. Now 76 percent of taxpayers say it's wrong, according to recently released results of a 2001 poll. The Roper organization interviewed 2,000 people in the survey for the independent IRS Oversight Board.

Sixteen percent now say it's fine to cheat "a little here and there" or "as much as possible." That's up from 11 percent in 1999.

Holy tax evasion.

Must be something new in the air. The Roper analysts suggest the change in attitude parallels a big decline in IRS audits. In 1988, one out of every 79 tax returns was audited. By 2000, it was one out of every 232. The IRS is trying to reverse the trend.

I suspect there's more to our diminished desire to pay our share.

Maybe it's all the publicity over big business practices such as those personified by the get-rich-quick and cut-all-corners style of Ken Lay and his executive pals at Enron in Houston. Before going bankrupt, Enron paid no income taxes in four of the past five years, using almost 900 subsidiaries in tax-haven countries.

For every Enron caught cooking the books, surely there are hundreds if not thousands of other millionaires and billion-dollar companies getting rich, hiding funds in offshore accounts and not paying their legitimate share of taxes.

Is it fair for U.S. companies to move their headquarters offshore to save money? Is it unpatriotic? Somebody's got to pay for this growing U.S. war on terrorism. Somebody's got to help cover the growing shortfall in the federal budget.

If more companies head offshore, guess who's going to be stuck with the bills?

Not that any of these arguments will slow the pace of legal headquarter relocations to tax havens.

Insurance companies led the way. Now all sorts of companies are following. Stanley Works, a Connecticut maker of hammers and wrenches, plans to become a corporation in Bermuda, where there is no income tax. Tyco International, with headquarters in New Hampshire, is now a Bermuda corporation. Other companies incorporated in Bermuda or planning to do so include New Jersey manufacturers Ingersoll Rand and Foster Wheeler, Texas energy service company Nabors Industries and Houston industrial equipmentmaker Cooper Industries.

Maybe it's the growing number of people who are embracing the same offshore idea, increasingly from Internet sites hyping tax-avoidance schemes.

Last Friday, newspapers reported how the IRS and Justice Department are in hot pursuit of U.S. citizens who set up personal accounts in phony corporations in the Bahamas and other tax havens. Then they use MasterCard or American Express cards issued to their "company" to tap personal funds kept hidden from IRS eyes.

Maybe it's this odd message from the IRS to taxpayers: If you make lots of money and file complex tax documents, you are less likely to be audited.

Last year, the IRS audited 403,506 tax returns filed by the working poor who applied for the earned-income tax credit. For this low-income group, the odds of being audited were one in 315. For the IRS, such simple audits are quick hits but low average payback.

For those making $100,000 or more, audits in 2001 fell to a record low of one in 208. That's down from one in 164 in 2000 and one in nine in 1988. Audits of the highest-income Americans and big companies also dropped.

Most Americans have little opportunity to cheat because most of their taxes are withheld by their employers. Those most likely to manipulate their returns have multiple sources of less-documented income, including the self-employed and corporate managers who receive a variety of supplemental bonuses, stock options and other perks.

Maybe it's the loss of national respect and fear toward our federal tax collector. IRS enforcement activities such as seizures, liens and levies dropped significantly after the passage of a 1998 law that made it easier for delinquent taxpayers to fight enforcement actions.

IRS employees began to complain of the "10 Deadly Sins," a vague set of mandatory firing offenses that made it impossible for IRS agents to counter unsubstantiated claims of harassment by taxpayers.

In 1997, the IRS's number of property seizures for back taxes was 10,090. Last year, it was 255.

Now the IRS is trying to shake its paper tiger image.

The agency wants to revive a version of the "superaudits" that were so dreaded and controversial that they were all but eliminated. Plans call for the IRS to audit 49,000 taxpayers selected at random beginning this fall.

Of those, 8,000 returns will be checked by computer. Another 9,000 returns will involve correspondence with taxpayers. Another 30,000 will involve relatively modest face-to-face sit-downs with IRS auditors.

The remaining 2,000 taxpayers will be targeted for the toughest line-by-line reviews, called calibration audits.

IRS officials hope the superaudit program will slow the growth of tax cheating.

After such ineffective years of trying the carrot, the IRS is bringing back the stick.

Will it work? Come April 15, don't forget to duck.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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