Research on tax compliance is a thought-provoking task because tax returns are private, and people have a conferred interest in lowering their tax accountabilities. The tax evasion case against Richard Hatch provides a rare knowledge into ethical issues surrounding taxation. Richard Hatch won one million dollars in the introduction season of the reality show named ‘Survivor’. Hatch was found guilty of failure to pay taxes and giving false information.
Hatch was convicted of $32,700, that he was compensated for being a co-host on a radio show in addition to $2,800 in rent on one of his properties. However, he was not guilty of charges on mail, bank and wire charges. He was also accused of using money contributed to the charitable foundation that he opened to help the youth. Allegedly, Hatch spent the money donated to the charitable foundation on personal expenses such as dry cleaning and improving his house. The judge ruled that he was a flight risk and ordered him to be taken into custody.
In his defence, Hatch argued that the procedures were responsible for paying taxes on the money he won on the show. He also argued that he had invested more money in his charity organization than the donations he was accused of taking.
The judge stated that Hatch persistently maintained his guiltlessness and did not show remorse or make an effort to act following an order to agree to his mistakes and pay the due taxes. The judge further argued that the period of overseen release did not provide any solution to the case. Therefore, a substantial sentence was necessary to send a warning to Hatch and other people who fail to adhere to court orders.
The judge also ordered the accused to serve twenty-six months of controlled release. A quarter of his gross income would be paid to the Internal Revenue Service (IRS) during this period. During the court proceedings, Andrew Reich and Lee Volker, assistant Attorney, provided evidence that after Hatch received one million dollars for winning the first series of the show, he did not report that income or pay any tax on it. Despite that the accountants prepared returns showing the Survivor Series’s income, Hutch did not file any returns. On the contrary, Hatch filed an informational return that did not clarify income from the show considering that the accountants who organized it had explicitly signalled that it was not supposed to be filed.
Hatch overruled a petition bargain, testified at his trial and provided false information besides dishonored terms of his home imprisonment. Following his failure to file the modified tax returns, he was sentenced to additional nine months in jail.
He was also accused of failing to report proceeds for the years 2000 and 2001, which denoted a Pontiac Aztec’s worth as part of the prize for winning the show.
In his defence statements, he claimed that errors he made were innocent faults due to various convolutions in his financial status and other distressing occurrences in his life. He also argued that he had been victimized due to his sexual preferences and that debt is not legally payable. He further claimed that the trial was filled with numerous irregularities, such as futile counsel and was detained after the conclusion of the trial.
Tax avoidance and tax evasion are characterized as questions of morality. From Hatch’s case, it is evident that various rich people are hiding a greater percentage of their income from the IRS. The top one per cent of earners is responsible for approximately a third of all the unpaid federal taxes.
To identify tax cheats and evaluate evasion, the IRS audits proceeds randomly. However, such reviews reveal minor evidence of evasion among the filthy rich individuals who use complex techniques that are difficult to find, such as conservation easements and offshore levy protections.
They are dodging taxes by the rich results in inequality and poverty. Wealthy individuals in society use their power to capture economic gain and use the economy’s structures to benefit themselves at the expense of the poor. Individuals who are supposed to pay the highest taxes instead maximize their returns partly by paying little tax.
The wealthy tax evasion deprives the government resources required to offer services and infrastructure such as hospitals and infrastructure to the public. The government is forced to reduce its public expenditure or compensate the shortfall by collecting higher taxes from other people.
Avoiding tax is a social responsibility that affects the growth of the economy. How people view tax avoidance is dependent on their ethical foundations, which are principles and values that guide behavior and philosophies. Ethical foundations shape what individuals deem significant such as loyalty and care for other people, and also guides on what is right or wrong.
Lawyers and investment advisors meet potential clients seeking help because they are being accused of tax crimes. Tax evasion is influenced by tax compliance and fairness, and if tax fairness is well implemented, taxpayers are less likely to seek evasion strategies. If the cost of compliance is too high, taxpayers seek ways to evade the responsibility and filing false returns as Hatch did is unethical. When a false return is edited and a possible prosecution comes up, the clients shift the blame to the tax preparers. Therefore, IRS officers and CPAs should pull out their representation when the client is giving false information. For instance, even after Hatch signed a letter in the presence of Wallis, an accountant assuring him that he was not going to file the tax return that did not include his income from the survivor series, he still went ahead and filed it with IRS.
It was unethical for taxpayers to knowingly and deliberately omit amounts that they are certain are subject to tax. From the case, it is unethical to hide or distort income through ways such as failure to report cash transactions and inflating deductions like Hatch did. It is unethical to hide or transfer returns in an attempt to escape taxes. It is unethical to make false entries and overstating total deductions.
Hatch claimed a personal expense as a business expense when he used money from the charity organization for his expenses.
To avoid penalties for tax evasion, people should report the wages of their employees, report their overseas income, and avoid banking on bitcoin. People should also report income from business operations that deal with cash money. Further, individuals should avoid misreporting personal expenses and using property meant for business for personal use without any significant reason.
Tax avoidance is an immoral and unethical act that weakens the integrity of the taxation system. CPAs should do due their due diligence when dealing with taxpayers to ensure that information provided is authentic. Due diligence doesn’t mean that the accused should not be given a fair trial. Hutch’s explanation that he did not pay the taxes because he believed the producers paid should have been heard. However, this raises a moral issue since it is a loophole that people could use in the future for tax evasion.