So you want to be a tax cheat.

• Author: Schnepper, Jeff A.
• Position: Economic Observer - Tax evasion - Brief Article

IT IS THE BEGINNING OF THE YEAR, and the scammers are out to get you. Don't want to pay taxes? According to some advisors, you don't have to! I can't get on the Web without someone e-mailing me new strategies to set up special personal family or offshore trusts to hide my income from Federal taxation.

Various "constitutional scholars" declare the Federal income tax system to be unconstitutional. If taxes are voluntary, why can't we just opt not to volunteer and choose not to pay? The simple answer is because their strategies and schemes are just plain wrong and illegal; those who offer them as tax solutions are criminals; and those who are being caught are going to jail. Let's look at what's being suggested, and why it just doesn't work.

The family trust gambit. This idea is attractive because it appears, on its face, to make sense. Proponents recommend setting up a family trust to own all your assets. The concept behind it is that the trust is a "business," and by filtering all your "personal" expenses through the trust, they become deductible business expenses, which zero out your taxable income. Advocates of this structure also claim that the trust protects your assets from creditors.

This scheme looks great. The only flaw in the design is that it doesn't work. You can't convert personal expenses into deductible business expenses without a legitimate business. Unfortunately for those contemplating this ploy, the management of your personal and family finances and living expenses doesn't rise to the level of being a business.

The nature of a business, from an income tax standpoint, is an enterprise that has a profit objective. Your objective in managing your family finances and living expenses isn't so much to generate a profit as it is to control your expenditures to create a desired standard of living.

Universally, the courts have rejected these family trust structures. Taxpayers who fell victim to this scheme have suffered additional taxes, penalties, and interest. Promoters of this illegal structure have gone to jail. Don't get suckered into this one.

The law is unconstitutional. If the tax law is unconstitutional, then you don't have to pay, right? Yes, but only if the law isn't constitutional. Here's where we have to be very careful. Let's start with some basics. Neither you nor I are the final arbiter of whether a law is legal. Under our system of government, the legislature (Congress) passes the laws; the Executive Branch (the...