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Don't Be on the Bad Side of the Tax Man

Wesley Snipes flew his private jet from Namibia to an Orlando airport on Friday to turn himself over to authorities on charges of tax fraud. (Don't worry, Snipes fans. This will not delay the release of his upcoming cowboy movie.)

Snipes has been charged with claiming fraudulent refunds worth nearly $12 million and failing to file tax returns from 1999 through 2004. This news comes as "Survivor" winner Richard Hatch, a.k.a. "the fat naked guy," appeals his conviction on charges of tax evasion.

Both Snipes and Hatch maintain their innocence. Nevertheless, we can use these experiences of the rich and famous to prevent us from running afoul of the tax laws. Here are some things we might learn from the misfortune of these celebrities:

1. Use a reputable tax return preparer. If you're not the type to do your own taxes, use a professional you trust. Don't go to someone who promises huge refunds before even asking you a single question about your financial situation. It's probably a red flag that something's wrong. The IRS has lately been looking for tax evasion by targeting bad actors in the tax preparation market, then following up on their client lists.

Snipes, according to the indictment, had his taxes prepared by accountants with a history of filing for fraudulent refunds and getting kickbacks for the work. They're the accountants who allegedly prepared returns trying to claim $12 million in fraudulent refunds. Need I even mention that accountants who ask for kickbacks should probably be avoided?

2. File your return. Mark that April deadline on your calendar and circle it with a red pen. Use gold stars if you must. By the deadline, you must have either filed a return or filed for an extension. Do this even if you believe you owe the Internal Revenue Service a lot of money that you can't pay. Why? The penalties for the failure to file a tax return can be much steeper than the penalties for failing to pay your taxes on time. There are also a number of ways to work out payment plans. Hiding under a rock will not make the problem go away; it will just make it worse.

Snipes allegedly failed to file returns for 1999 through 2004. It may have taken the IRS a little while to notice, but eventually they caught up.

3. If you have income, you owe tax. That is the general rule. There are exceptions to the rule, but they're mostly few and far between. In many cases, the IRS knows from third parties that you have received income. They will notice if it doesn't show up on your tax return.

Hatch won $1 million when he bested the competition on "Survivor." How did the IRS know? A few agents probably watched it on television, but that's not what caught the agency's attention. (In fact, agents are prohibited by federal laws from browsing through tax returns just for fun.) They found out because CBS sent the IRS an informational notice saying they had given Hatch that big check. When the IRS didn't find the income reported on his return, they went looking for it.

Hatch was also convicted of failing to pay taxes on $327,000 he earned as a radio show co-host and $28,000 in property rental income. Again, if you were paid income, you probably owe tax.

4. Excuses don't work. Hatch's lawyers told jurors that he never meant to do anything wrong, he was just the "world's worst bookkeeper." If that's true, you would think he could hire some decent help with that $1 million check, but I digress. The point here is that the jury didn't buy it. It's up to taxpayers to keep their own records and voluntarily pay the taxes they owe. Yes, tax laws might as well be written in Russian for as much sense as they make, but they're still the law. Get some help or tax preparation software if you don't understand your obligations.

Now, that was pretty easy. No lawyers, no jail time, no prying reporters asking lots of questions about your financial life. Just pay a little attention to Hollywood. You'll avoid all kinds of problems.

Here are some more tax lessons you can learn the easy way:

Fool contributor Mary Dalrymple does not own a private jet, nor has she ever been stranded in the wild with a bunch of strangers and television cameras. She welcomes your feedback.


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