Enforcing the Laws and Paying Taxes: Is There A Connection?
When you became a law enforcement officer, you took an oath to fairly and impartially enforce the laws under your jurisdiction. This is a serious responsibility that affects many aspects of your personal and professional life. The public's perception of you is based not only on the way you enforce the law, but also on the way you comply with the law.
The Standards of Conduct Model Policy written by the International Association of Chiefs of Police and issued August 1, 1997, states under section IV, Procedures,
“. . . officers shall not violate any law or any agency policy, rule, or procedure." This responsibility includes complying with our nation’s income tax laws as well.
The Internal Revenue Service, Criminal Investigation Division, has seen an increase in the number of investigations and prosecution recommendations of tax professionals who prepare false income tax returns for clients who are primarily law enforcement officers. At trial, questions are usually raised about the law enforcement officer’s knowledge of the false deductions or omission of income, the degree of participation by the officers in the filing of the false returns, the potential criminal and/or civil liability of the officers, and the credibility of the officers in other matters.
Taxpayers are responsible for the accuracy of all entries made on their tax returns, including all related schedules and supporting documentation. This is true no matter who prepares your return. Be careful when selecting a tax professional to prepare your return. Be wary of any practitioner who claims to be a “specialist” in preparing returns for law enforcement officers or promises a large refund based on special deductions.
Tax evasion is a felony punishable by up to five years imprisonment and a $100,000 fine. Severe civil sanctions can also be imposed. A felony conviction for tax evasion will most likely lead to disciplinary action and could end your law enforcement career.
Here are answers to questions law enforcement personnel commonly ask about taxes.
What Income is Taxable?
Law enforcement officers, like all taxpayers, must pay the correct amount of tax on all income they receive unless that income is specifically excluded by the Internal Revenue Code. Reportable income includes your salary as a law enforcement officer as well as any income you earn from outside employment, such as being a security guard or a retail sales person. Other sources of taxable income might include workmen’s compensation payments, disability income, performance bonuses or monetary awards.
How Should You Report This Income?
You must report the total amount of income you receive regardless if you received this income in the form of cash, check or in exchange for services.
What Happens If You Do Not Report Your Income?
Failure to report all income can result in severe civil and/or criminal penalties. For example, in Fiscal Year 2008, the average defendant sentenced for tax violations was incarcerated in over 81 percent of all cases. The average time of imprisonment was two years. For law enforcement officers, a tax conviction could impede your ability to continue in a law enforcement position. Criminal prosecution for tax violations, at a minimum, can impair an officer's credibility as a witness in any future criminal proceedings and could lead to disciplinary action, including dismissal.
What Tactics Do Dishonest Tax Preparers Use?
Dishonest tax preparers use a variety of ‘legal sounding’ methods to formulate fraudulent and illegal deductions to reduce taxable income. These can include but are not limited to:
• Preparing a fraudulent Schedule C, Profit or Loss from Business, for the purpose of claiming false deductions to offset virtually all Form 1099, Miscellaneous Income, or income earned from outside employment.
• Encouraging police officers to “incorporate” ostensibly for the purpose of allowing them to deduct "business expenses," thereby reducing total income. In fact, many of the expenses are inflated or non-deductible.
• Encouraging police officers to establish foreign corporations or enter into fraudulent trust agreements.
• Including false and inflated itemized deductions on Schedule A, Itemized Deductions, to include unreimbursed business expenses which are derived from the Form 2106, Employee Business Expenses.
Dishonest tax preparers succeed because they enthusiastically convince individuals they know how to obtain “secret” law enforcement officer deductions. There is no such thing! No secret deductions exist for law enforcement officers and you may not deduct hair cuts, personal car insurance, uniforms provided by the government, commuting costs, dry cleaning or any other ‘special’ expenses unless specifically allowed by law. Ask your return preparer to prove a deduction exists before you sign your return.
What Should You Do If You Filed Returns In The Past That You Know Are False or Incorrect?
You should amend these returns by filing a Form 1040X, Amended U.S. Individual Income Tax Return, for the years in question and pay any amount of tax due or owing. You have a duty to obey all laws, including the tax laws that apply equally to all taxpayers. You are part of a noble and rewarding profession; don't jeopardize your career by becoming involved in tax fraud.
Where Do You Report Suspected Tax Fraud Activity?
If you suspect tax fraud or know of an abusive return preparer, you should report this activity to the IRS. Law Enforcement Officers should report suspected return preparer fraud to Criminal Investigation, Refund Crimes. You can also report information about a known individual or company that is not complying with the tax laws by completing Form 3949-A. You can also fill out Form 3949-A online, print it and mail it to: Internal Revenue Service, Fresno, CA 93888