Top Five Ways to Cheat the Government and How You Will Get Caught

There is no such thing as a free lunch. There is a vein of gold in that old saying. And yet, that doesn’t stop many from trying to get something for nothing. Entire generations have grown up now trained to depend on the government for support whether it be through food stamps, skewed tax credit laws or welfare. The price they pay in dignity, respect and freedom is barely noticed by many of them. And yet, even with those who are truly in need or who truly deserve the help there are many more who look for ways to scam the government for funds.

Each one of them is convinced they have found the fool-proof way to scheme Uncle Sam and in many cases they get away with it temporarily. Though there are many variations on the overall themes, each will generally fall within one of five categories.

  1. EIC Fraud
  2. “Under the Table” Payroll
  3. Falsifying of W-2 or 1099 information
  4. Clustered Nest
  5. Multi-Level Marketing Tax Evasion Methods

For the purpose here, following is information on item 5 above.

Multi-Level Marketing Tax Evasion Fraud

Lately there has been a group promoting an old idea they tout as being “new”. This group stems from a MLM that sells legal insurance plans and a big part of their business is in recruiting other representatives. As the steam has gone out of their engine in the past seven years, it is getting more and more difficult to recruit smart people into these pyramid schemes. So their approach has changed to deemphasize the MLM aspect and sell them on the benefits of being able to deduct expenses they already have by opening their own business.

Most W-2 earners as they call them, don’t have time to work 40-60 hours a week and put in another 10 – 20 on an MLM. So the approach is this, let me show you how to deduct those expenses you have now anyway and save you money on your taxes. When you own your own business you do get to deduct losses, home office expenses and a percentage of your utility bills depending on the size of the home office.

So now they have otherwise smart people joining this pyramid MLM group, not to advance within the MLM, but to deduct all the losses they will have pushing these pre-paid legal insurance plans on their friends and family. There are several things wrong with this; First, your business needs to be in operation for the purpose of making a profit, NOT for writing off day to day personal expenses. Second, there are rules and regulations for home office and vacation deductions that these ‘fake tax experts’ don’t bother explaining to their new recruit, which easily lead to the deductions being disallowed and the penalties and fees start rolling in. And third, these so called tax experts are the furthest from being experts that one could be. A weekend training class does not a tax expert make.

How They Get Caught

The chief inspiration behind this devious scheme deftly avoids investigations and prosecutions. The pre paid legal insurance company however, seems to attract investigations constantly. Experts in corporate fraud have cited several red flags that show a company is ripe for fraud to be committed on the corporate level and this particular company is at that point. Since it is difficult to hold the corporation liable for the outlandish claims of its’ sales force, there will continue to be people sucked into this ‘incorporate yourself’ scheme that has been around for over 30 years. The good news is that the eyes of the corporate fraud experts are on them and soon there will be a slip up. Gee, I hope they know a good lawyer.

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