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Quote of the Day - I'm spending a year dead for tax reasons. - Douglas Adams
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Line 7 to Line 21 - How (Not) To Get To Zero On Your Tax Return

Paul Petrino is one happy tax accountant now that he's been acquitted (for the second time in three months) of tax evasion.  Except that Paul didn't evade paying any of his own taxes, he had helped his clients not pay taxes.  Nearly $500,000 of taxes by some sleight-of-hand between Lines 7 and 21 on tax returns. 

Before you rush over to the IRS 1040 forms to see what the difference is between the two lines, I can let you in on a little secret:  it's not zero and the two lines are consequently not the same number.  Line 7 is how much you earned, and Line 21 reflects your losses. 

Here's Paul's gig:  he's alleged to be a tax protester, and (previously) advanced the theory that earnings "that wages and salaries are not taxable because they are simply a return for an individual's labor - 'his blood, sweat and tears,'" according to this Newsday article.  His next trick was to deduct the entire reported salary as a loss.  Not surprisingly, the IRS disallowed the deduction and unfortunately for Paul's clients, their luck wasn't the same.  The IRS made the clients pay the back taxes.

One of his clients' loose lips sunk Paul's ship.  The bragger client detailed enough about the "zero tax" scenario that another taxpayer who had actually paid taxes was upset.  That taxpaying taxpayer turned the deal over to the IRS, and viola', they sued Paul in tax court (where else?).  The IRS, however, was unable to convict Paul because it couldn't show that Paul intentionally committed a crime.

Call me silly, but I didn't know that accountants unintentionally filled out tax returns.  How the IRS lost this case is beyond me.

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Friday, May 05, 2006 at 00:33 Comments Closed (2) |
 
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