There is no tax fairy
It's okay to dislike taxes. In fact, it's normal and healthy. But that doesn't make them go away. It would sure be nice if a Tax Fairy could wave her wand and make them disappear.
It's not going to happen.
People will have been seeking the Tax Fairy as long as there has been an income tax. That's fine, until you think you have found her.
- The founder of Buy.com sought the Tax Fairy in "OPIS," a tax shelter marketed by a national accounting firm designed to generate artificial losses. The Tax Court ruled that there was no Tax Fairy, imposing $25.7 million in taxes and $10.7 million in penalties.
- A defense industry consultant looked for the Tax Fairy in the "Millennium Plan," attempting to deduct contributions to a Section 419A(f)(6) welfare-benefit plan while earning tax-sheltered income and retaining access to the funds contributed. The Tax Fairy never showed, and the Tax Court upheld $5.7 million in additional taxes and $870,000 in penalties.
- A group of medical professionals in North Platte, Nebraska, sought the Tax Fairy through a CPA from Bakersfield, California. They attempted to hide their income and deduct personal expenses in "loan-out" corporations. They were sentenced last week on federal tax charges, and the Tax Fairy never showed.
Tax professionals can do a lot. They can make sure you pay no more than you need to; with the right facts they can delay your tax and sometimes get you nice refunds. They can guide you safely through the dangerous and byzantine byways of the tax law.
But if you make a lot of money and you want to continue to control and use it, you will eventually have to pay taxes. There is no special "de-tax" plan or double-secret pay-no-taxes-ever trust scheme that your preparer is just too lazy or ignorant to tell you about.
There is no Tax Fairy.
- Joe Kristan
Image courtesy Wikipedia Commons.