When you became a law enforcement officer, you took an oath to fairly and to impartially enforce the laws. The public looks to you to not only enforce the law but also expects that you will also comply with the law. That is why I would like to talk about a very important issue, your duty and responsibility to pay income taxes.

In the recent past, IRS Criminal Investigation has prosecuted tax professionals for preparing false income tax returns for their clients who were primarily law enforcement officers. During trial of the tax preparers, questions were raised about the police officer's knowledge of the false deductions or omission of income, the degree of participation by the officer in the filing of the false returns, the potential criminal and/or civil liability of the officer, and the credibility of the officer in other matters.

As a fellow law enforcement officer, I would like to offer some key points to consider when preparing your tax returns. (1) Taxpayers are responsible for the accuracy of all entries made on their tax returns, which includes all related schedules and supporting documentation. This remains true whether the return is prepared by the taxpayer or a return preparer. (2) Select a reputable tax professional to prepare your return. Be wary of any practitioner who claims to be a “specialist” in preparing returns for law enforcement officers or promises a large refund based on special deductions. (3) Tax evasion is a risky crime, a felony, punishable by 5 years imprisonment and a $250,000 fine. There are also severe civil sanctions which can be imposed.

Criminal prosecution for tax violations, at a minimum, impairs the officer's credibility as a witness in any future criminal proceedings and often leads to departmental disciplinary action including dismissal.  

What Income is Taxable?

Law enforcement officers, like all taxpayers, are responsible for paying the correct amount of tax on all income they receive unless that income is specifically excluded by the Internal Revenue Code (IRC). This includes income from your law enforcement job as well as any income earned from outside employment. Other sources of taxable income might include workmen’s compensation payments, disability income, performance bonuses or monetary awards.

The total amount received must be reported, regardless if this income was received in the form of cash, check or in exchange for services.

Below are statistical data from our Criminal Investigation Management Information System on individuals who are employed as law enforcement officers or firefighters.

What Tactics Are Used By Dishonest Tax Preparers?
Dishonest tax preparers use a variety of legal sounding methods to formulate fraudulent and illegal deductions to reduce taxable income.  These can include, but at not limited to, the following:

(1) Encouraging police officers to “incorporate” ostensibly for the purpose of allowing them to deduct "expenses" thereby reducing total income. In fact, many of the expenses used are inflated or non-deductible;

(2) Encouraging police officers to establish foreign corporations or enter into fraudulent trust agreements;

(3) Preparing a fraudulent Schedule C, Profit or Loss From Business, for the purpose of claiming false deductions to offset virtually all Form 1099, Miscellaneous Income, or income earned from outside employment; and

(4) Including false and inflated itemized deductions on Schedule A, Itemized Deductions, or Form 2106, Employee Business Expenses.

The dishonest tax preparers capitalize on greed. They succeed because they become masters at claiming false deductions through the systematic abuse of the provisions of the Internal Revenue Code (IRC). Criminal Investigation has a Tax Fraud Alert web page with additional information about abusive return preparers at www.irs.gov (Keyword: Fraud).

What Should You Do If You Filed Returns In The Past That You Know Are False or Incorrect?
You should amend these returns by filing a Form 1040X, Amended U.S. Individual Income Tax Return, for the years in question and pay any amount of tax due or owing.

How Do You Report Suspected Tax Fraud Activity?
If you suspect tax fraud or know of an abusive return preparer, you should report this activity to the IRS.

The Standards of Conduct Model Policy written by the International Association of Chiefs of Police and issued August 1, 1997, states under section IV, Procedures, "... officers shall not violate any law or any agency policy, rule, or procedure."  The IRS does not want you to jeopardize your career by becoming involved in tax fraud.