TAX-DODGERS HOW INLAND REVENUE INVESTIGATES FRAUDS

Press, Volume XCI, Issue 27626, 5 April 1955, Page 10

TAX-DODGERS HOW INLAND REVENUE INVESTIGATES FRAUDS

IBV D. Fe,iow 01 the

Eighteen thousand major tax-dodgers paid £20,000,000 in back duty and penalties during Britain’s last financial year. This was an all-time record. In addition, 133,000 minor cases dealt with by local tax officers produced another £5,000,000 in back taxes. During a war, tax-dodging . 15 rampant. Taxes go up so that the incentive to evade is increased. A war provides more and wider opportunities for profit-making. People who have been scratching for a living all th® ir lives suddenly find themselves m the money. For some, it is their one and only chance to salt away a few hundreds or a few thousands; and they hate the thought of having the Inland Revenue as an invisible partner. At the same time, Inland Revenue staffs are depleted by military service, while the department’s work is increased by new legislation. During the war years many tax-dodgers seem to get away with it, so much so that i«ey boast about their exploits in public places. But even while they are boasting the Inland Revenue is taking the first preparatory steps for the inevitable post-war drive against taxdodgers. In every local tax office lists are prepared of cases that seem to warrant investigation, When hostilities cease, the Inland Revenue mobilises its forces by transferring its smartest inspectors to the special branch, where the black lists prepared by local officers are examined for immediate action. Quite frequently, special branch inspectors are seconded to local tax offices for a period. How do names get on these black lists? In a surprising variety of ways. A man who boasts in a public-house does not stop to consider that there may be a number of listeners who are either honest, or else have no opportunity to dodge tax. Such boastings produce resentment and envy; and either emotion may result in an anonymous letter to the tax inspector. In fact, the Inland Revenue receives about 5000 anonymous letters a year. All are investigated. Ostentation has been the downfall of many a tax-dodger. Expensive cars, jewellery, fur coats, and similar luxuries cannot be bought out of chicken feed; and although the Inland Revenue does not maintain any special look-out for ostentation, some cases come accidentally to its notice. Tax officials have to live somewhere; end if a neighbour runs a Bentley car and his wife sports a mink coat, it is quite on the cards that the comparatively underpaid tax official may look up the man’s tax return, perhaps more out of human curiosity than specially to see whether his stated income is commensurate 'with his apparent expenditure. One tax-dodger, quite unknowingly, had • party telephone line with the private residence of a tax inspector. One evening the tax inspector picked up his telephone to make a private call and overheard a i few chance words that put him on the track of a substantial tax fraud.

Reports by Employees Disgruntled employees sometimes “shop” their employers. A very large tax fraud, involving £250,000, was revealed by a confidential clerk who considered that his firm was not paying him enough for the extra work of keeping two sets of books. He became that rare thing, a paid informer. The Inland Revenue is empowered to pay rewards for information leading w the discovery of an evasion. unsatisfactory. features in income tax returns may result in names being added to the black list. Investments may have. increased out of proportion to declared profits. Of course, there may be an innocent explanation—a Jueky property sale or a pools win. The explanation” of money won on horse-racing or stock-exchange gambling js always suspect, unless adequate proof of the transactions can be furnished.

thin £ s ma y lead to the black list. When I was engaged on special work for the Inland Revenue, I noticed that one taxpayer always returned his bank deposit interest in round figures. A request for the exact figures resulted in dead silence for three months. Then came an apologetic tetter from the taxpayer’s accountants, which revealed the existence of six deposit accounts, each earning more interest than had been returned. This started an investigation as to where the money had come from. In another case, while examining a bunch of "Smith” files, I noticed a similarity pf signatures. Inquiry revealed that a woman teacher named A* Smith had consistently rendered two returns, one for her salary and one for her widow’s pension, thus obtaining double allowances. The idea had been gratuitouriy suggerted to her by the Inland Revenue itself, beeouae

when she first took a job as a teaches a return form addressed to A. Smith Esq., had been sent to her school ad. dress- She had accepted this double tax identity—male at her school ad. dress, and temale at her private ad. dress, and maintained it tor maa, years. At the school she passed 05 her occasional receipt of letters ad. dressed to A. Smith, Esq., as being due to the continued stupidity of thg Inland Revenue. Some of the larger cases of tax. dodging are sent at once to the special branch. The smaller cases are kept in cold storage until an investigator can be sent to the local tax office. The First Step Usually the first overt step in an in. vestigation is a request for an inter, view with the suspected taxpayer, no special reason being given. It is a fatal step, too. as far as the taxpayer i| concerned. Figures are awkward things: they cannot be denied or out. faced. The taxpayer may bring his accountant, if he has one; and the presence of an accountant renders the interview even more fatal, if possible especially if the taxpayer has fooled his accountant. As soon as any major discrepancy is disclosed, the account, ant—for the sake of his own profes. sional reputation—can only advise his client to make full and frank confes. sion. Thereafter, the professional skill of the accountant may save the tax. dodger a considerable amount of money, and possibly a prison sentence. The really tough tax-dodger, the man who knows that a prison sentence is inevitable, may decline the interview or, accepting it, may put on an oystej act. In either case the Inland Rev. enue will probably raise large addi. tional assessments for the last sig years. Such assessments are open tq personal appeal before the local Com. missioners of Taxes, and the tax. dodger has to take the risk that the assessments will be confirmed; and they almost certainly will be confirmed unless the taxpayer can produce re. liable evidence that they are excessive; At some point during the interview a formal warning will be issued. A tax inspector ranks in this matter as an officer ol the law, and he must give a suspected tax-dodger fair warn, ing that anything he says may be used in evidence against him. This is the point at which the tax. payer has to make a big decision-4 whether to come clean or whether to play the oyster. Even if he decides to come clean, the assistance he gives may not save him from a prosecution. If he decides to play the oyster there is an even chance that the Inland Revenue may not have sufficient evidence to justify a prosecution. It is not always an easy matter for the Inland Revenue, without assistance from the taxpayer, to produce sufficient evidence of tax evasion to satisfy a court of law. The Inland Revenue may, in such circumstances, resort to the alternative of heavy additional ln which case the taxpayer escapes a prosecution, but at very high cost. Generally speaking, it pays the average tax-dodger to come clean. The Inland Revenue officials are not vindictive; and unless theflt is evidence of deliberate and hardened tax-dodging on a large scale, they prefer to make a private settlement rather than prosecute. But if the take; payer makes only a partial revelatiotf and the Inland Revenue subsequently discover additional evidence of fraud, ; then he can hardly hope to escape a, prosecution. A private settlement wffi include the duty actually lost to the revenue, plus interest, and an agreed amount in lieu of penalties. In thM event of a successful prosecution, the maximum penalty is three times the duty lost, plus a fine or a prison sentence. Most large tax investigation 1 set up a chain reaction. Items of in-, formation which concern other people may be unearthed, and this leads to an investigation of their affairs. Many tax-dodgers overlook the fact that, after their death, their probate statement, as prepared by their execifc ~ : tor#, 1# compared with tbeir incor® tax returns. In the event of anv di® crepancy, the Inland Revenue is eiw titled to claim back taxes. Of course , this does not worry a dead tax-dodger, . but it worries his dependants and may ; . seriously affect their financial post* tion. This is a point that all taxdodgers should consider when they ar® i taking their decision whether to com® , clean or not. It is better for a tax? I dodger to clear up his affairs before h® . die#, rather than.leave them to execu--1 tors who, from the very nature at things, can know little about them* [ and are therefore in a much les® ■ favourable position to rebut allegation® 1 of fraud made by the Inland Revenue