32 APRIL 2024 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby Battling Criminal Taxes The annual tax returns have been filed or postponed until later, but danger lurks. After all, it’s not only crooks who are being charged with crimes today. Increased government rules and regulations have placed many within the drilling industry at risk of being charged with “business crimes,” not the least involves the single biggest mistake businesses - and individuals - make, namely willfully evading paying taxes. Tax avoidance is legal, it’s even been acknowledged as acceptable by the U.S. Supreme Court. So long as the deductions and credits are supported by documents and meet the rules, it is avoidance, not evading. Tax evasion, on the other hand, involves not paying taxes by illegal methods. Not an honest mistake or in error, “voluntary, conscious, and intentional” conduct defines the difference between “avoidance” and “evasion.” So-called “willful” tax evasion can be a sin of omission (like failing to file a tax return or report income). Should the Internal Revenue Service (IRS), and/or the U.S. Tax Court label a taxpayer’s act as “willful,” it can mean substantial fines, penalties, and in some cases, jail time. There are quite a few willful acts that can be trouble for any drilling operation, including underreporting income. Obviously, all business income must be reported, including income from cash transactions. Despite the reported low rates of tax audits, the IRS, with the help of banks and other financial institutions, is extremely effective in catching this. Don’t forget underreporting large cash transactions by keeping deposits under the $10,000 reporting level is surely going to be revealed or detected by someone. Some businesses try to avoid payroll taxes by paying employees in cash. Paying in cash usually means no withholding for income taxes or FICA (Social Security and Medicare) are paid - nor are those cash payments reported to the IRS, opening up the recipient to tax fraud accusations. Many businesses overreport their expenses, with the most common being the failure to report payroll taxes. These socalled “trust funds” are withheld from an employee’s paycheck. Willfully using these taxes to fund a business instead of reporting the collection and paying when due is tax fraud. Avoiding becoming ensnared with a crime, begins with identifying where the drilling operation - and its operator - are most vulnerable. A thorough assessment now, along with a great deal of honesty, can mean little or no expected trouble with either those already-filed tax returns or those down the line. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com
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