Looking for the real tax cheats?

Many of our progressive minded politician like to beat the tax cheat drum usually aimed at the “wealthy,” whomever that may be. The IRS needs more money to go after theses cheats, right?

This is all political rhetoric designed to pit average Americans against their wealthier neighbors. When it comes to the super wealthy and corporations avoiding taxes or deferring them, look to the IRC and it’s immensely complicated regulations often subject to interpretation. The name of the game for every taxpayer is to avoid paying taxes you can possibly avoid. Sometimes you need lawyers to figure it all out – that’s what the wealthy and corporation do.

But it applies to everyone. How do you think we got 401k plans, cafeteria plans? Interpretation! Following is what Section 401k actually says (it continues for many more pages). Do you see anything about saving for retirement? Any chance of different interpretations?

Cash Or Deferred Arrangements

I.R.C. § 401(k)(1) General Rule — 

A profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan shall not be considered as not satisfying the requirements of subsection (a)merely because the plan includes a qualified cash or deferred arrangement. 

I.R.C. § 401(k)(2) Qualified Cash Or Deferred Arrangement — 

A qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan which meets the requirements of subsection (a)— 

I.R.C. § 401(k)(2)(A) — 

under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash; 

I.R.C. § 401(k)(2)(B) — 

under which amounts held by the trust which are attributable to employer contributions made pursuant to the employee’s election— 

Editor’s Note: Sec. 401(k)(2)(B)(i), below, before amendment by Pub. L. 117–328, Div. T, Sec. 334(b)(1), shall apply to distributions made on or before the date which is 3 years after the enactment of this Act [Enacted: Dec. 29, 2022].

I.R.C. § 401(k)(2)(B)(i) — 

may not be distributable to participants or other beneficiaries earlier than— 

I.R.C. § 401(k)(2)(B)(i)(I) — 

severance from employment, death, or disability, 

I.R.C. § 401(k)(2)(B)(i)(II) — 

an event described in paragraph (10), 

I.R.C. § 401(k)(2)(B)(i)(III) — 

in the case of a profit-sharing or stock bonus plan, the attainment of age 59 1/2, 

I.R.C. § 401(k)(2)(B)(i)(IV) — 

subject to the provisions of paragraph (14), upon hardship of the employee, 

I.R.C. § 401(k)(2)(B)(i)(V) — 

in the case of a qualified reservist distribution (as defined in section 72(t)(2)(G)(iii)), the date on which a period referred to in subclause (III) of such section begins, or 

I.R.C. § 401(k)(2)(B)(i)(VI) — 

except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in subsection (a)(38)(B)(ii)), the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the arrangement.

IRC

How People Cheat on Their Taxes

Most cheating is from deliberate—actual or willful—underreporting of income. This is called tax evasion—the most commonly charged tax crime. A government study found the most underreporting of income was by self-employed restaurateurs, clothing store owners, and—you’ll no doubt be shocked—car dealers. Telemarketers and salespeople came in next, followed by doctors, lawyers (heavens!), accountants (heavens, again!), and hairdressers.

Business owners who over-deduct business-related expenses—such as car and entertainment—came in a distant second on the cheaters hit parade. Surprisingly, the IRS contends that only 6.8% of deductions are overstated or just plain phony.

Tax Attorney Daily