In Reality, Phony Returns Don't Win

By Michelle Singletary
Thursday, April 13, 2006

I thought in the last days before the income tax deadline I might share with you some interesting tax facts and tips.

In the category of "this is why you should pay your taxes," Richard Hatch, the first "Survivor" television contestant to win $1 million, is sitting in a jail because he didn't pay his fair share to Uncle Sam.

Hatch is being held until his sentencing this month on the tax-evasion charges. The charges carry a maximum of 13 years in prison. He probably won't get that much time, but hey, any time in jail would be too long for me.

A federal jury in Providence, R.I., found Hatch guilty of failing to report to the Internal Revenue Service the money he won on "Survivor" and $391,000 in income from a half-dozen other sources.

Amazingly, according to evidence submitted during the trial, Hatch asked an accountant to prepare an alternative return for informational purposes only, so he could see what his tax situation would be without his reality-show earnings. He then ignored a warning from the accountant that he should not file that return.

The kicker? Based on that phony return, which he filed anyway, Hatch was due a $4,483 refund. Unbelievable.

Some of you may not be cheating at that level, but you are cheating nonetheless. A poll taken last month by Yahoo found 38 percent of those surveyed have been dishonest on tax returns.

And what are the most popular ways to cheat, according to the Yahoo poll?

Thirty-six percent said they underreported income (no surprise there). Eight percent deducted work expenses previously reimbursed.

If you do cheat on your tax return, consider what U.S. Attorney Robert Clark Corrente said after Hatch was found guilty: "Paying taxes is an ordeal, but it is every citizen's obligation to pay them honestly and fully."

In other words, don't try to outwit, outplay or outlast the IRS. Lying may help you win on a reality show, but when it comes to your taxes, this is not a game.

I hope you know that this year you have an extra two days before your tax return is due. Tax returns are due Monday, April 17. And if you live in Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont or the District, you have until April 18 to file and pay, thanks to the Patriot's Day holiday on April 17 in Massachusetts. Folks in these six states and the District get the extra day because they are served by the Andover, Mass., IRS processing center. To avoid confusion, everyone in these jurisdictions gets the extra day, even if some taxpayers are instructed to send their payments or returns to IRS locations outside Massachusetts.

Please keep in mind that filing an extension for your return does not grant you an extension to pay.

Still looking for some last-minute tax tips and want to get your information by video or audio? Try PodZinger, a free Web site that searches for podcast content.

PodZinger.com will link you directly to the portion of a video or audio broadcast of the information you want. For example, I typed in "tax tips" and received links to experts who have appeared recently on major networks.

Lastly, are you wondering which tax documents you should keep and for how long?

The National Association of Tax Professionals says to keep in mind that the main reason to save any tax records is to back up the information you report on your tax returns.

Specifically, you need to keep any records that support an item of income or deduction on your tax return until the period of limitations for that return runs out, according to the IRS. In general, keep your records for at least three years from the date your tax return was filed.

According to the IRS, you should also keep to the following schedule:

· If your claim is due to a bad debt deduction, keep records for seven years.

· If you have a loss from worthless securities, keep those records for seven years.

· If you're a business owner, keep all employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later.

· Keep all the information on an asset (stock, bond) indefinitely, even after you sell it. This is especially true for any records pertaining to a home purchase, particularly your settlement documents. You want to keep these records to figure the gain or loss when you sell or otherwise dispose of the property.

· If you are a cheat or you didn't file your return when you were supposed to, the IRS recommends that you keep your records indefinitely. Of course, once the government catches up to you, you'll have some explaining to do.

As they say in racing, we're heading into the homestretch. So if you've done your return, good for you. Start tax planning for next year because it's never too early.

If you're not done, what are you waiting for? Stop procrastinating.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.