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Tax Cheat Whistleblower Who Got Millions from IRS Will Owe Millions ... to the IRS

Bradley Birkenfeld
Bradley Birkenfeld just got some good news and some bad news.

The good news was that he got a $104 million payment from the IRS for his role in catching tax evaders using Swiss banks to hide money. Under the IRS whistleblower program, which was designed to give private individuals incentives to catch major tax cheats, the whistleblower gets a cut of whatever the IRS recovers in unpaid taxes. In Birkenfeld's case, his work in helping the government collect a $780 million fine entitled him to the nine-figure payday.

The bad news: He could have to pay more than $35 million of that right back to the IRS when he files his taxes.

No Good Deed Goes Untaxed

A couple of years ago, the Tax Court looked at a case involving a similar payout under the False Claims Act. The court found that the award was entirely taxable, and although expenses that the whistleblower paid were eligible to be treated as miscellaneous itemized deductions, the whistleblower couldn't just exclude those expenses from income.

If the same rules apply to Birkenfeld's award, his payment easily pushes him into the top 35% tax bracket. And if Birkenfeld is subject to state taxes, he could have another big chunk of money taken away.

Taxing Lotteries, Garage Sales, Panhandling, and Lemonade Stands

Of course, Birkenfeld isn't the only big winner -- or small windfall recipient -- to owe big bucks to the IRS.

The Feds happily tax lottery winners on their multimillion-dollar payouts, leaving them with far less of an after-tax award than the headline numbers you hear about. Fortunately, many states make lottery proceeds exempt from state income tax, letting you keep at least a little more of your winnings.

Holding a garage sale? Be careful. Many people rely on garage sales for some extra cash, and as long as you don't receive more than you paid for an item, then you won't need to report sales. But if you hit the jackpot with an undiscovered antique that brings you some extra money, you can expect the IRS to claim its share of your good fortune.

The same holds true for selling things through online auctions. Potentially more problematic is that if you do garage sales or online sales regularly enough that they look like an ongoing business, you could end up treated as a self-employed person and have to pay employment-related taxes on top of regular income tax.

Panhandlers are also subject to tax for the money they receive. Although gifts ordinarily don't count as taxable income, the IRS apparently sees begging as an occupation. With minimum income guidelines for having to file a return, though, most panhandlers probably wouldn't need to file a return in any event.

Believe it or not, even your kid's lemonade stand may get attention from tax officials. A surprising number of incidents involving lemonade stands getting shut down have come up in recent years, with the stands facing allegations of not obtaining required licenses or meeting health regulations.

Crime pays ... the IRS

Perhaps the funniest tax, though, has to do with proceeds from criminal activities. Earlier this year, one tax preparation company said that a person came in asking if she had to pay taxes on $2,000 in proceeds she had earned selling cocaine. After consulting with the IRS, the preparer told the client that she would indeed have to declare the drug proceeds as income. According to a report, the taxpayer ended up putting the words "dealing cocaine" on the tax return as the explanation for the income.

As silly as that may sound, not declaring illegal income has gotten plenty of people in trouble. Al Capone is probably the most notorious, but numerous criminals have found themselves targeted not for their primary crimes but instead for not giving the IRS its fair share.

So the next time you're filing your taxes, be sure to think twice before you leave something out. You might owe more than you think.

You can follow Motley Fool contributor Dan Caplinger on Twitter at @DanCaplinger.

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Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

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Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

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Sir/Madam: The IRS has already screened his and others returns - do you really think if he wasn't compliant with "Current" IRS rules he'd not get slammed??? Get real! A better discussion might be why the IRS does not go after our elected officials serving in Washington who are delinguent in paying their federal taxes.... and, along that same line - why do people continue to elect/re-elect those idiots who are to blame for making this country go down the tubes..... now that's a discussion worth having!

September 17 2012 at 12:30 PM Report abuse rate up rate down Reply

The next scandal will be the wives and families of congress who trade on insider info since the bill recently passed was a fraud.

September 14 2012 at 11:27 AM Report abuse +1 rate up rate down Reply

Too bad we can't find a way to get a few IRS agents to do their job against the 1% crowd. Like look into Romney and his buddies with accounts in the Cayman Islands and Swiss accounts.

September 14 2012 at 11:26 AM Report abuse -1 rate up rate down Reply


September 14 2012 at 5:09 AM Report abuse +1 rate up rate down Reply

I`m done ,..again sorry azz subject,...but the IRS needs to quit threatening the US Citizen,...and start focusing / doing their job, and penalizing the real crooks of society.
Along with the Govt. , start making the " crooks " of D.C. accountable for their actions,..and NOT punish the U.S. Citizens for going to work and being over-taxed for everything we do in life everyday.
Time for D.C. to pay their fair share,...make them pay a premium out of pocket expense for their Health Care / Pension / Doctor visits / etc/ etc. ....like WE THE PEOPLE do every damn day of our lives !!
If you want to help bring the DEFICIT down,...start in D.C. !!!!!

September 14 2012 at 5:08 AM Report abuse +1 rate up rate down Reply

Again, sorry,...but if ALL of our GOVT. DEPT`s. acted and " played " together as kids on the same team, we shouldnt have experienced all of the BS that we live today.
From hiding " secrets " from each dept., to keep robbing from every tax paying citizen, and Soc. Sec. / pensions / etc.,....then why are we broke ??
Soc. Sec. was started LONG ago,...generations ago,..to have some kind of " reward " for having put a good days work for many years,...yet our Govt. STOLE from it for many years / generations, to pay for crap they couldnt account for, for the incompetence of those who were in charge of the funds in D.C.,..but yet the IRS keeps threatening every tax paying citizen for more money, because of the incompetence of those in charge to have the money *** THERE*** for those who are eligible to receive ALL that money they paid into ALL of their lives in taxes to the Govt. for which they are entitled to.
Now they say SOC. SEC. is BROKE ???? WHY ?? And how can that happen,..if our crooked GOVT. hasnt STOLE from it for many years / generations ????? !!!!!!!!
There should be TRILLIONS apon TRILLIONS in SOC. SEC. if our own Govt. did their sorry job to protect it,...instead of STEALING from it to pay BS " EARMARKS " , and other crap ,..and failure to balance the U.S.`s budget for the last 70 yrs !!
BUT YET,..... " We the People " have to suffer ,...while Govt. employees get BENEFITS FOR LIFE , with out paying a SINGLE PENNY out of their POCKET for HEALTHCARE / PENSIONS / ETC. / ETC. !!
BUT " We the People " pay our fair share of taxes,..so the RICH OF D.C. get the best of everything,...while we have to struggle / suffer / go with out to make " ends " meet, PAY MORE out of our pocket,.....while the fat cats in D.C. get the best of everything,.....DONT see a problem ??????
Time for " We the People " to be in charge ,....NOT the Govt. telling us what to do !!! WE pay their rich salaries,...with our hard earned taxes ,....so WE should have the " say " on what goes on / policies / etc. ,...NOT them telling US , what we need to shove up where the Sun doesnt shine !!
Thats the road this Country is headed,...instead of " killings ", its a FINANCIAL HIT !!!
To every Citizen of the U.S.A. !!
Point been proven in 2008,...and in 1998-99,..they knew of the BS regulations back then,...did nothing about it,....and again did nothing before 2008 ,....LOOK WHAT HAPPENED !!
And today,...STILL in a recession / depression what ever you call it, ....nothing has changed as far as regulations ,...but " We the People " keep paying for it out of our azz for the incompetence in D.C. !!
Now the Govt. wants to " pamper " us with low interest rates ,....big deal , millions out of work, more undetected, wrote off, who is really benefiting ???

September 14 2012 at 4:58 AM Report abuse rate up rate down Reply

Why should we be in " fear " of the IRS ??? Our tax dollars pay for that Dept. of the Govt. !!!!
So our tax dollars ,....which pay for the IRS, ...we should get the benefit of the doubt,...and NOT have the IRS threaten us !!
We pay so many different taxes EVERYDAY of our lives, ..everything from sales, GAS , clothes , property , death , CARS and licences every year to drive them on the road,....ALSO, tolls /, UTILITIES, ( electric / gas / water / etc. ) , food , LOTTERIES,.. phone / internet / connecting fees to be on internet / access for data plans for smartphones , access fees for having a " home phone ", access fees for every damn thing we do,.......so my point is ,....... HOW THE HELL IS THIS COUNTRY IN A $ 15 TRILLION DEBT FOR ??????????
Seems to me,....We the People are paying out of our AZZ for all these TAXES every damn day of our life,.....but our Country is BROKE,.....and the IRS wants MORE for US ??? !!!!!!!
The more I think about it ,...the madder I get,..because our own Govt. wants to keep robbing all of US , stealing from Soc. Sec. / pensions / etc. etc.,.... because they cant do their own job, by balancing the Nations own budget !!
Pisses me off,...and the IRS thinks they can threaten US, for more money !!
Sorry ,...but the GOVT. is wrong !! And they sure as hell are not setting any kind of example to all the U.S. Citizens !! Why are ** We the People** all of a sudden,..The Victims of piss poor GOVT. Management ???? !!!!!!
Again, sorry,...but again, the more I think about why the IRS wants to suck more out of the avg. U.S. Born Citizen,...the more I get pissed,...while wasteful unnecessary spending from our own Govt. is still allowed to happen, without consequences to the clowns in D.C., ( for which they only care about where the next campaign contributions come from, rather than REALLY care what the PEOPLE need and want ) ,.... this will never change,....the ONLY change We the People can make is ,...DONT keep voting for the same " cronie system in D.C. " !!! If you want change, move " forward " , then vote NO in 2012 to all " lifers " in CONGRESS / SENATE !!
Time to wipe out Big Business interests, and get back to what our Great Constitution was intended for ,..... " WE THE PEOPLE " ,..which the 1st 3 words were written,...again it starts,... " We the People ". Everything after that,..is has been corrupted,....including the recent " Patriot Act ",..which further takes away from our FREEDOM every day !! ONLY because our own Govt. can collect secrets, but FAIL to distribute the info. and pass it on to protect our Country, from 9 /11 to the present day,...ONLY because of the " power struggle " to say ,.... I know something you dont,..and its a secret,..why ???
Are we not on the SAME TEAM ???
It`s just disgusting / embarrassing / that our own Govt. acts this way,...when they knew of the knowledge of every damn thing for 200 yrs,...but " withheld " it ,...because of their own incompetence.

September 14 2012 at 3:48 AM Report abuse rate up rate down Reply

And also some facts involved from personal experience.

September 14 2012 at 2:57 AM Report abuse rate up rate down Reply

Hahahaha,...sad isnt it ?? !!
Our tax system is so screwed up its pathetic !! And a total disgrace.
For one,..its sad that our Govt. cant even balance their own damn books,..but expect everyone else to,..or you get penalized / fined / jailed / etc. Why isnt these clowns in D.C. fined / jailed / etc. ??
Also, if you help the Govt. get money from tax evasion, you have to pay, when them clowns in D.C. wouldnt of ever gotten the money to begin with.
And if your are that STUPID to want to report DRUG SALES to the IRS,...well just shows how stupid people still are in this day and age,..for them, sure pay taxes on illegal drug sales you morons !! Hahahahaha !!
But YET, our Govt. / IRS , allows Millionaires and BILLIONAIRES extreme tax breaks for crap and BS, so they end up paying LESS taxes than the lower and middle class, its sad, and thats where this whole tax bs crap needs to change,.....QUIT punishing the "little " guy,..and make the " big cheeses " pay their fair share, when they can damn well afford it !!!!!
ALSO,...its sad, that our Govt. cant even justify the money they pay out,...meaning they cant even get their OWN figures straight to whom they have sent checks to,..and how much money they sent,...its true, but yet come time to file your taxes, the IRS doesnt have a damn clue either,...if the GOVT. makes a mistake on how much they " think " they have paid you,...( in either Soc. Sec. payments / disability / retirement / etc. etc. the list goes on ) ,....by the name of God, the IRS will want their damn money RIGHT NOW !! With out an explanation, just send you a letter,....saying " You OWE us ( IRS ) , whether we are right or wrong !!! It`s total BS !!! They dont even have the guts to investigate the issue,...but EXPECT you to just PAY !!!!
Point being,...our system is BROKE !! And is BIAS to every damn U.S. Born Citizen of the Great U.S.A. !!! ,..while immigrants get free money , better treatment than our own citizens !!!! BS !!! And reason why is because our Govt. is too damn lazy to fight against the illegal immigrants, would rather give them the benefit of the doubt rather than its own citizens !!
Sorry for being so long,...just a touchy subject,..and its wrong how OUR tax dollars, which pay for these Govt. Departments, treat US like 3rd World Country citizens, when we pay for this crap,...we get the end of the whip.
Again sorry, but thats MY opinion,
Thanks for reading, have a nice day !

September 14 2012 at 2:51 AM Report abuse rate up rate down Reply

He didn't earn this money...the government earned it for him!

September 13 2012 at 11:35 PM Report abuse rate up rate down Reply
1 reply to mccglf's comment


September 17 2012 at 12:31 PM Report abuse rate up rate down Reply