There was a recent post on lesswrong, which also got highlighted on AC10, that struck my interest. It claimed that he had been avoiding taxes for 20 years through "one simple trick:" filing, but not actually paying them. The idea is that the IRS is so small and incompetent that they basically won't do anything against this sort of passive resistance.
Is this too good to be true? I'm not any sort of "effective altruist," I just don't want to pay taxes. And as it happens, I have a lot of capital gains income this year. According to the rules, I'm supposed to write the IRS a big check by Jan 15 for "estimated taxes." I can afford it, but it would make my life better to keep that money for myself. Can I just... not...? This feels like a real Matrix, red pill moment-
"You're telling me that I can dodge taxes?" "No. I'm telling you that when the time comes- you won't have to."
Then again... I really, really don't want to go to prison. even just getting my passport suspended would be a major hassle. And the guy who wrote that post seems like a real hippy... no bank account and no salary income??? how does he live?
Perhaps it would be better to set up a shady small business and claim all sorts of vague tax deductions. Thoughts on this?
btw: long time lurker, first time poster. I'm asking here because you seem like people who are smart, outside-the-box, and not simps for the government.
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I think I'll take a pass on discussing the morality of it. I'd question the practicality though. Let's think here.
So it seems the primary mechanisms of enforcement against most people are through other institutions - they tell W2 employers to knock it off on bad withholding filings, and they do, they tell banks and investment institutions to hand over owed money, and they will. They know about all your bank accounts because the banks report to the IRS too. I am willing to believe that the IRS's most-feared punitive measures are actually pretty rare to come into contact with as the LW OP describes, but what is the plan for dealing with such institutional enforcement? You can choose to not actually write a check to the IRS when they come knocking, but your payroll processor and bank won't.
So then plans for refusing to pay taxes are mostly about living a lifestyle that avoids all such institutions. The low-end one is a pretty obvious option - take a job that pays cash under the table, seek living arrangement that accept cash, never use a bank. Certainly possible to do, but that's pretty low-end living, you'd have to be really determined to do that.
Maybe there's a Bitcoin variety of this? If you can take a job that pays in Bitcoin and doesn't pay attention to taxes, it might be possible to make pretty good money like that. Maybe you could convert that directly to cash by various means, buy prepaid cards and such, and consume luxury goods at a normal rate. Not sure about living space though, I don't think you can buy with crypto or any landlords would accept it, but maybe a roommate will, or would accept converted cash? Or maybe in a super-techy space like SV you could infact rent or buy with crypto. Though if you buy, you'll owe property taxes, which I'm not sure if we're also objecting to here. So maybe this is a practical way to avoid paying income taxes entirely while not living a minimum-wage lifestyle?
But then, the crypto world is not exactly a bastion of honest dealing and fiscal responsibility. What are the odds your crypto employer will pay the correct amount on time every time? How about the people trading crypto for physical goods? The failure rate for bank-like institutions working with crypto is not great either. I'm not even saying the scam and fraud rate is super-high, but if you're relying on it for your primary financial dealings, just one serious mishap could be a huge deal, even if it only happens once every few years. And where's the recourse on any of that? Think the police or courts will give a crap? I doubt it. Hey, organizations that are built around avoiding all taxes and regulation are rather less honest than the "legit" world, who would have guessed? If they're willing to screw over the Feds for more cash, why wouldn't they screw you over too - you're much easier and less dangerous to screw than the Federal Government. Maybe living and working in the normal regulated world isn't so bad after all, even if the Federal Government is not exactly great. Also, it seems kinda lame to be like, I hate the government so much that I refuse to pay any taxes ever, but then go crying to them for help when some third-party scams you.
Along the lines of there being other risks and dangers than the Government, if you live the all-cash or all-crypto no-taxes lifestyle, and you are anything but dirt poor, then you will probably have substantial cash/crypto lying around somewhere. This makes you an attractive robbery target. If you have any social life at all, people will figure this out eventually. You will be targeted. I've known people this has happened to, despite not being as obvious as guy who pays cash for everything because he wants to pay no taxes ever. Organized multi-person burglary schemes can very much happen to you if word gets around that you have 5-figures of cash lying around. Think the cops are gonna help? Unlikely. If you go crying to them that you got ripped off for $50k cash, they're probably going to be a lot more interested in why you had that much cash around than busting whoever did it. Also falls under the theme of, how you gonna refuse to pay taxes because you hate the government so much, then cry to them for help when somebody else screws you over.
I guess the independent community life might be an option. Can be called a "commune" or a "compound" depending on your politics. It can be a viable way to pay little to no taxes without living a completely shitty life. But it's definitely a very different lifestyle. If you dig that, well more power to you I guess, but I don't think it's worth going to that much trouble just for the specific reason of avoiding paying taxes.
So yeah, I don't have a strong moral objection to it, but show me a way to live a no-tax life that's not completely shitty and doesn't expose me to much more likely dangers than whatever the Federal Government is doing, and maybe I'd be into it. If it exists.
The way I understood it, the whole strategy was based around the IRS just being kind of a paper tiger. There were surprisingly few IRS agents, and they are mostly focused on big corporations and extremely wealthy people- it's just not worth their time to go after a regular shmuck who owes less than 100k. EG, Donald Trump seems to have gotten away with a lot of... questionable tax returns over the years, and he's not exactly poor or low-profile.
A whole lot of our life in a first-world society really just relies on cultural norms and the honor system. Like, if everyone decides to just start littering all over the place, the cops aren't going to stop that.
But it's been pointed out to me that the author of that strategy was kind of a hippy who avoids regular income, and also that the IRS has hired more agents lately and stepped up its game in automation. So it's possible that it worked for him in the past, but not for us going forward.
Most of the target of IRS activity is EITC fraud.
It isn’t so much that the IRS goes after big dollars but easy dollars.
So, if I don't claim the EITC i'm set?
The reason that is audited is because it is often just straight up easily proved fraud. Rich people frequently take gray positions which means (1) the field agent auditing has to be smart enough to understand the issue, (2) the Service has to agree that the tax position is against the law, (3) the Service has to believe pretty strongly they won’t lose in court (because if they do, then it opens the flood gates) and (4) the time and effort is worth the funds.
did you read the original post that's linked in the title? dude was claiming taxes and just not paying them. It's about the simplest "fraud" you can get.
And my point is OP will (if he isn’t lying about the whole thing m) get caught and fucked.
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This strategy seems pretty dependent on never becoming somebody who the IRS might eventually target.
That is, if your income grows over time, you have a real chance of becoming a big enough fish that they'll find it worthwhile to target you. And if they can target you for years or decades of back taxes, that's a pretty heavy hand they can bring slamming down.
Tax liens are not fun to deal with.
Only up to 10 years, according to the guy who wrote the post. And it's a wash if you have to pay back taxes with penalties, since you also get the time value of the money.
If I someday become a billionaire, then I'll be happy to pay back my middle-class taxes from 10 years ago.
Have you ever personally gotten a tax lien, or known someone that did?
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I'm thinking the IRS probably operates more like a business than most parts of the Federal Government. For any possible enforcement action, they're going to be looking at how much money they put into it versus how much they'd recover, and they'll stick with the things that bring in the most money for the least effort.
Are they going to send a SWAT team to raid your house and drag you off to jail for 20 years? Probably not. All of that is super expensive (dozens of agents tied up all day, plus vehicles and gear etc) and not likely to lead to recovering much money.
If you're living a normal upper-middle-class lifestyle, they're going to write a letter to your payroll processor telling them to fix your withholding and garnish your wages, and they will. Then they'll write a letter to your bank telling them to hand over $x from your account, and they will. That takes 10 minutes of work for one guy at a desk and will probably recover whatever they want. If you think they took too much, well sucks to be you, you can spend your own $$$ and hire a lawyer to sue them, and good luck winning anything back. Maybe they'd let it slide for a few years until the amount owed goes over $100k, but no reason to think they'd forget about it entirely when they can still collect easily.
If you're a weird hippie who went to the trouble to have hard to track income and savings, maybe they'll just ignore it because it's too much work to track down and probably not all that much money anyways. Why bother, when writing letters to compliant corporations regarding normal upper-middle-class people is much faster and easier and yields much more money.
For a Donald Trump level figure (let's say pre-Presidency, so kind of a stand-in for any super-rich cantankerous person with weird complex finances), they can assume it'll take tons of their resources to really audit what's going on with him, and he's going to throw a dozen of his own high-priced lawyers and accountants at you, so maybe they'll just leave it alone unless they think they have a rock-solid case that you owe big bucks that they can actually collect.
I actually read some of the "War Tax Resistance" people's website. They don't seem to have much better advice for avoiding enforcement action. Basically, don't work for people who will report to the IRS and obey their garnishment letters, and don't hold money in banks they can track easily.
I'm sure that's their plan. But I've never gotten the sense that they're even that competant. Partly because the Republicans have shrunk the IRS for political reasons, they're just not even active enough to spend 10 minutes writing a letter to your bank.
They certainly are. And its not even 10 minutes. They are literally just filling out a standard form. They are up on their game when they think you underpaid. That letter comes out swiftly. And if you don't pay or contest the next step isn't much more for the IRS.
Do you have any personal experience with this? Because what you say directly contradicts the post I linked and what I've heard about the IRS in general.
I was a 1099 contractor, at least, in part, for many years. If I ever reported less income than the counterparty I'd get a letter giving me XX days to respond. I always did contest, because I am not a goober. But then they dedicated hours of work to following up with both parties over typically $500-$1000 in income, which means some low hundreds amount in revenue. On top of that, a few years ago my wife, then fiance, got improperly claimed for like $5000 in 1099 income, from a company that somehow got her SS #, but was from another state. We sent at least 10 correspondences on that, spent at least 8 hours on the phone and the agent ultimately had to, at least pretend to read hundreds of pages of bank and credit card statements on top of whatever they got from the fraudulent counterparty claiming it paid out 1099 income. So, it seems to me, they are perfectly willing to chase ghosts over a few hundred speculative dollars. Why wouldn't they be willing to issue a garnishment order which takes 4 minutes and is guaranteed to net them those hundreds/thousands?
Cool, that's the kind of experience I was looking for. That does make them sound a lot more competant than I expected.
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