Wednesday, April 30, 2014

Tax Returns: "to the best of my knowledge and belief, they are true, correct, and complete."

From Procedurally Taxing:  Donald Rumsfeld submitted a letter with his tax return saying

  “I have absolutely no idea whether our tax returns and our tax payments are accurate”, and “I know that I cannot have any confidence that I know what is being requested and therefore cannot and do not know…whether or not [my] tax return is accurate.”  

Mr. Olsen asks

Upon reading the letter, besides being mildly amused, I immediately wondered if the statements by Mr. Rumsfeld could actually have caused his return to be invalid.  When you execute your Form 1040, you sign off on a jurat stating, “[u]nder penalties of perjury, I declare that I have examined this return and the accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.”   It would seem awful hard to swear something is true and correct if you “have absolutely no idea whether [it is] accurate.”  So, did Mr. Rumsfeld’s comments cause him to negate the jurat and fail to timely file his return?

Here is an example of a situation compatible with Mr. Rumsfeld’s.

   A taxpayer fills out his return while a tax shelter he was using is being litigated. His lawyers say the the tax shelter will survive with 50% probability. The taxpayer owes either $0 or $100,000 in taxes. He writes down $0 and adds a note to his return saying he, like everybody in the world including the best tax lawyers has absolutely no idea whether it is correct or not.

Of course, he knows it is correct as likely as not, so the question is whether “absolutely no idea” is compatible with that belief. Note, too, that the “expected value” of his tax bill is $50,000, but that is incorrect with 100% probability.

In even worse shape is someone who is told by his lawyer that the shelter only has a 30% chance of surviving litigation. Can he sign his return without criminal perjury?

http://lawprofessors.typepad.com/law_econ/2014/04/tax-returns-to-the-best-of-my-knowledge-and-belief-they-are-true-correct-and-complete.html

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