you believe that Grammy winner Lauryn Hill went to jail for tax evasion? Here are some of the most outrageous tax fraud stories from recent years and what they could mean for you.

License: Creative Commons
License: Creative Commons

Hiding Out From the World

When former Fugees member and Grammy winner Lauryn Hill dropped out of the professional music industry to focus on her health and on her family, she also neglected to keep up with her tax obligations. In June 2012, Hill was officially charged with three counts of tax evasion. Rather than putting up a defense against these tax charges, Hill pled guilty and was ultimately imprisoned for three months in a minimum-security federal prison facility. After her release, she was restricted to her home in South Orange, New Jersey, under the terms of her agreement with court officials.

Acting His Way to Freedom

At one point, Nicolas Cage owed nearly $7 million in back taxes to the Internal Revenue Service (IRS) due to failure to report and pay taxes due on gifts Cage made to family members and friends over a period of five years. Cage has repaid approximately $600,000 of this debt and is currently appearing in numerous film projects in an effort to repay the remainder of his tax obligations. With $6 million left to go, we’re likely to see a lot more of Nicolas Cage in the next few years.

Fraud Behind Bars

According to the IRS, over 170,000 fraudulent tax returns were filed from inside prison in 2012 alone. Most of these returns were filed in an attempt to claim tax refunds from the IRS. Identity theft and misuse of personal information are also involved in many cases of tax fraud behind bars. The most notable case cited by the IRS involved two inmates who attempted to claim $1.1 billion in fraudulent tax refunds by e-filing from the prison’s in-house computing network. While these two individuals were caught, thousands more continue to pursue tax fraud from behind bars.

Who Can You Trust?

One of the most alarming cases of fraud occurred in Redding, California, where an established tax preparer stole $130,000 from clients by filing fraudulent tax returns that inflated the amounts of tax refunds due back to those clients. Shannon Ford was charged with 34 counts of filing false tax returns, 17 counts of bank fraud, conspiracy and aggravated identity theft. Ford filed Schedule C forms for companies that did not exist and attached them to the tax returns of clients to increase the size of the claimed refund from the IRS. Ford and her husband then pocketed the added cash. Ford was convicted in 2011 and sentenced to two years in prison. She will have to repay only $20,665 of the money she obtained through these illegal means.

Failure to pay taxes on time or to report earnings and dividends accurately can lead to charges of tax evasion or tax fraud. Even taxpayers who entrust their returns to professional tax preparers can run afoul of IRS regulations due to the negligence or deliberate malfeasance of their tax preparation professional.

About the author: Mary Sutton is a Senior Writer for Fertile Content and a frequent guest contributor to many blogs
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