GringoPost | Ecuador: Tax Facts, Quotes and Humor

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Tax Facts, Quotes and Humor

Tax Fact: What do a mansard roof and a Cadillac Escalade have in common? Both became a way to avoid taxes. In 18th century France, building heights were measured up to the cornice line, making any space above that untaxed, and encouraging the trend toward steep pitched roofs that held one or more floors of living space..........And in the 1970's, when the oil crisis gave birth to Corporate Average Fuel Economy (CAFE) ratings, while some people moved to smaller fuel efficient cars like Toyota, Datsuns and Volkswagens, others gravitated towards the larger, heavier vehicles that US manufacturers produced under the label of "trucks", vehicles for the working man. These "trucks" were allowed lower fuel efficiency, so manufacturers worked overtime making them more car-like inside while still meeting the spirit of the "truck" law on the outside.

Tax Quotes: "The power to tax is the power to destroy"............Chief Justice John Marshall

Tax Humor: "Worried about a tax audit? Avoid what's called a red flag. That's something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That's a red flag."...............Jay Leno

Tax Subject: How a "Plain Vanilla' Civil Tax Audit Can Cross The Line and Become Criminal Fraud - In all criminal cases, the government must prove each element of the offense "beyond a reasonable doubt." There are 3 elements in a standard tax evasion case (1) Substantial Tax Deficiency (2) Affirmative Attempt to Evade Taxes and (3) Willfulness. These and other actions are also referred to as "badges of fraud".

(1) Substantial Tax Deficiency: "Substantial" is a fact specific inquiry that is left up to the jury, which must employ the everyday meaning of this word. The 3rd Circuit Court has also approved a definition of the term ("Whether the amount is "substantial" turns on whether under the surrounding circumstances the amount of the deficiency would be Significant to an Ordinary Person" but that is not very useful. If "substantial" means "more than noticeable" then 15-20% would will qualify.

(2) Affirmative Attempt to Evade Taxes: In an analysis borrowed from criminal conspiracy laws, the government must first prove that the taxpayer formulated an intention, or scheme to evade the tax, and secondly, that the taxpayer has committed at least one overt act in furtherance of that scheme. The statute uses the term "attempts". Courts have added "affirmative" to the statute in order to emphasize the seriousness of the crime and to distinguish "tax evasion" from other less serious tax an example, a taxpayer may intend to evade tax by failing to file a tax return. However, a failure to do something alone is not an affirmative attempt to evade taxes. There must be some other affirmative conduct to defeat the tax due and owing to support a tax evasion charge. Using the example from above, this does not mean that the taxpayer gets off scot free. the taxpayer may be charged with the lesser offense of "failure to file" under Section 7203, a misdemeanor.

(3) Willfulness: In of its self, the word is an elusive term. While it may be easy to define it as "an intentional violation of a known legal duty" it is not easy to apply. All that is required is that the taxpayer knew he/she had a duty to pay the tax and knowingly intended to violate that duty. As courts have noted "willful" is a "chameleon" which changes in tone and color according to the Internal Revenue Code section involved and the circumstances.

Next time, I'll discuss how the Internal Revenue Service Reconstructs Income in Tax Fraud Cases.

Disclaimer: Before the naysayers come out of the woodworks, let me say that I am not an attorney nor am I giving you legal advise. As a licensed tax preparer I am required to know, understand and apply the tax laws in preparation of any tax return. All the information I have provided is easily obtainable from various sources and is a matter of knowledge in the public domain.

If you are in doubt, always file a return as you've now started the clock on the Statute of Limitations. As a quote attributed to Mao Zedong says "The best defense is a good offense" and so should you view taxes.

If there is a tax topic you would like me to write about, please feel free to e-mail me and I'll do my best.

John Papile: .

City: Cuenca