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IRS and Taxes: 1 in 4 Americans Say Lying Is OK, Survey Finds

March 18, 2016
Income Taxes, Taxes
IRS and Taxes: 1 in 4 Americans Say Lying Is OK, Survey Finds
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As the filing deadline nears for 2015 income taxes, a new national survey found that among financial lies considered, concealing income from the IRS is one of the most acceptable. In the survey, tax cheating was deemed even less of a taboo than lying about a child’s age to save a few bucks in the buffet line.

The survey of 2,115 adults, commissioned by NerdWallet and conducted online in February by Harris Poll, asked a nationally representative sample of Americans about the acceptability of eight financial lies.

Most popular lie

Using someone else’s password to avoid paying for a service like Netflix is acceptable to 33% of Americans surveyed. Not reporting under-the-table income to the IRS is the second most acceptable lie, with 24% calling it OK. Fudging a child’s age to receive a meal discount was acceptable to 21% in the survey, but lying about smoking habits for lower life insurance rates was the least acceptable (11%) of the eight questions.

Willfully failing to report income to the IRS is a felony that can carry a five-year prison sentence. Although the consequences are severe for some financial lies, whether we tell the truth isn’t always as simple as weighing the risks and rewards.

“I don’t think that, in general, people really think very much about the size of the punishment,” says Dan Ariely, behavioral economist and author of “The (Honest) Truth About Dishonesty.” “The level of dishonesty we’re willing to commit is influenced by how much we can rationalize at that very moment.”

IRS and failing to report income

For example, people may minimize the harm in something like lying about a child’s age when ordering from the kids menu by reasoning that their child has a small appetite. They may rationalize concealing income because they distrust the government or believe it’s wasting their tax dollars.

The IRS estimates unreported and underreported income account for hundreds of billions of dollars in uncollected taxes each year.

“The IRS is getting wise on how to catch people underreporting or not reporting taxable income,” says Crystal Stranger, a tax expert licensed to represent taxpayers in IRS proceedings.

Stranger says the IRS uses “lifestyle audits” to single out people who may be living affluent lifestyles but reporting modest incomes, or to target people in jobs “known to have questionable reporting practices, such as taxi drivers, bartenders and construction workers.”

‘Significant’ losses

The survey didn’t inquire about the degree to which people would fail to report income. Omitting the cash you earn from occasionally mowing your neighbors’ lawns may be acceptable to many Americans, but hiding large amounts of income may cross the line. The law recognizes this as well.

“Criminal charges are generally recommended only in those cases where the government can prove intent and the tax loss is fairly significant, upwards of $10,000,” says Al Drucker, a retired IRS special agent. “In most instances, the matters are handled civilly with stiff financial penalties and applicable interest.”

Elizabeth Renter is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @ElizabethRenter.

Image via iStock.