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Profile of the American tax cheat

According to the IRS, Uncle Sam misses out on $450 billion every year because of honest mistakes and dishonest taxpayers. Just who are the cheaters?

By Stacy Johnson Feb 20, 2012 6:26PM

This post is from Brandon Ballenger at partner site Money Talks News.

Picture a person most likely to cheat on his or her taxes. If what you imagine is an older, rich businessman, you've got it wrong.  More than likely it's an egotistical, big-spending single guy in his 40s living paycheck to paycheck.

According to the DDB Life Style Study conducted last year, those are the characteristics of the most likely tax cheater. The survey concluded there are no big income differences between cheaters and non-cheaters, with 42% of cheaters describing a paycheck-to-paycheck lifestyle, and 45% considering themselves spenders.


Cheaters have a higher opinion of themselves than non-cheaters, the survey says -- 46% think they're "overall better than most people," and 52% believe they're "special and deserve to be treated that way." They’re also far more likely to work under the table while claiming unemployment, lie and ask friends to lie for them, and even take money from their kids’ piggy banks.

Of course, tax cheating isn’t always the product of a character defect – sometimes it’s an honest mistake. In the video below, Money Talks News founder and CPA STacy Johnson has more on tax cheaters, and talks to a few people who didn’t realize they might be cheating. Check it out, and then read on for more. (Post continues below video.)

Are we a nation of cheaters?


According to the annual taxpayer attitude survey commissioned by the IRS, 84% of taxpayers believe you should never cheat, and only 8% say it’s acceptable to "cheat as much as possible."

But apparently those who do cheat are going to town. The IRS computes what it calls a tax gap estimate, which shows how much money should be coming in vs. how much actually does. Estimates for 2006, the most recent year completed, show an increasing number: In 2001, the tax gap was a staggering $345 billion. In 2006, it was $450 billion.

While you might get away with failing to report yard-sale profits, the IRS will notice if the income you fail to report is reported by someone else -- such as your employer. The agency also randomly picks people to audit every year, and the IRS is investigating and prosecuting more people now than it has in at least a decade.

That’s just one of several initiatives the IRS has begun to catch cheaters. A speech by IRS commissioner Doug Shulman last year reveals an expanded "voluntary disclosure" program, in which cheaters turn themselves in and pay penalties to skip jail. Those confessions often lead to investigations of related people, such as co-workers or professional tax preparers.

The IRS is also forcing professional tax preparers to register and take continuing education courses, and the agency is watching small businesses more carefully. From the speech: "Beginning in 2012, electronic payment processors, including credit and debit card processors, will also be required to make an annual information report to the merchant and the IRS stating the gross amount paid to the merchant during a calendar year."

If you do get caught cheating, the penalties can be severe. Tax evasion can mean years in jail and a $250,000 fine on top of what you already owe. Many celebrities have found this out the hard way, including recently released "Survivor" winner Richard Hatch, who just lost a court plea to lower his tax payment and reportedly can’t afford an apartment.

More from Money Talks News and MSN Money:



Feb 20, 2012 10:41PM

I dont go out of my way to give more to IRS, I use a CPA. I think the government also gets us on state ,county ,city tax levels. Then all the other zillion fees for park services, passports, FAA,FCC ect........... it never ends. Wish they would stop whining and learn spending restraints.

Feb 22, 2012 10:08AM
Some people earn millions and they pay little or no income tax. What they are doing is legal because congress has given them preferential tax rates. The reason congress has given them lower tax rates is  because these people donate millions to the congressmans political campaigns. Also these people say that by paying a lower tax rate than the middle class they will use their tax savings to create jobs for Americans   Sometimes instead of creating jobs for Americans they put the money in a bank in the Cayman Islands.  
Feb 22, 2012 4:04PM

I have only earned over $100K twice in 55 years of paying social security and income taxes.  Another 4 times over 50K so I am definitely middle class.  However, IRS records show that approximately 49% of workers pay no income tax and many of these receive money back through credits that exceed what was deducted from their pay. Other than for payroll taxes, they would pay nothing and then Obama gives them a reduction in payroll taxes that weaken social security and medicare further.


I do not resent those who honesty earn more than I.  I resent Obama's class warfare against those who earn more than $200K and corporations.  The constitution only provides for certain functions to be performed by the federal government and does not include welfare, unemployment, national healthcare, education and a myriad of other unconstitutional programs performed by the federal government.  If the federal government performed their only their constitutional functions, we could almost eliminate income taxes.

Feb 22, 2012 7:29PM
Yard sale profits??  Most of what is sold at yard sales is for pennies of what the items cost.
Feb 21, 2012 6:40PM
What if you make an honest mistake?  And don't know if you can fix it?  Thinking
Feb 22, 2012 12:59PM
I just read that Obama is going to decrease corporate taxes to 28%. Lets see, 28% of nothing seems to still be nothing. Oh ya, then I forgot the tax credit. Still comes up negative.
Apr 2, 2012 7:56PM



We have a SPENDING problem, NOT a revenue problem.

Apr 2, 2012 7:53PM

Yard Sale profits are NOT taxable as income. Your purchased these items RETAIL, not wholesale. Then sold them YEARS later AT A  L O S S  for pennies on the dollar.


 This article does not substantiate it's claim with facts.

Apr 2, 2012 7:50PM

You can't cheat a thief.


Want a profile of a "tax-cheat"? They work for the US Dept. of Treasury, and they have ID that spells I R S..


There's your profile.

Apr 12, 2012 4:25PM

Whenever the Media resorts to using name-calling in the title of the article you can safely conclude it is mindless propaganda.


When we use names, it is "Hate Speech!", or "Insensitive!, Intolerant!", or "Supremist".




This is the mark of the Elites! Know them when you hear them, and reject it!



Feb 21, 2012 10:09AM
Tax cheaters - Democrats and federal employees.
Feb 21, 2012 11:51AM
Tax Cheats - Tea Party & Tea Baggers. They think all tax is wrong. So they cost our country $500B a year. Like I always said, "We don't have A Spending Problem in this Country - We have a Revenue Problem".  
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