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My understanding is that if a little guy evades taxes, but then cooperates with the IRS when caught, and agrees to pay all taxes and interest and penalties, then they generally don't get thrown in jail and have all their other money and possessions and responsibilities taken away, as this article seems to imply they should do with billionaires.

I don't see how this is evidence of special treatment for billionaires. The guy paid way more in penalties than he saved on taxes and also had to help prosecute his friend, who evaded way more tax than he did. It doesn't seem to me like he came out on top.

There are four differences. First, the IRS prosecutes a lot more low-income people than high-income people (by percentage as well as by absolute numbers) so a billionaire has much better odds of not getting caught. Second, billionaires have access to better layers, accountants, publicists and politicians to give them negotiating leverage if they do get caught. Third, the payoff for a billionaire successfully cheating on their taxes is much higher than for a non-billionaire. And finally, even if a billionaire does get caught and pays all their back-taxes with penalties, they will still most likely be a billionaire and be able to sustain a pretty posh lifestyle. So the expected value of the tax-cheating lottery is much higher for a billionaire than a normal person.
My dad had a similar experience with the IRS. He had startd a small business and was supposed to be paying something monthly, but he thought it was quarterly. He got fined, and when he mailed in his payment, he included a letter explaining that it was his first time running a business, and it was an honest mistake. ~6 months later he got a check back from the IRS for the fine amount, plus interest. They seem to be pretty lenient as long as you aren't actively trying to make their lives difficult.
>My understanding is that if a little guy evades taxes, but then cooperates with the IRS when caught, and agrees to pay all taxes and interest and penalties, then they generally don't get thrown in jail and have all their other money and possessions and responsibilities taken away, as this article seems to imply they should do with billionaires.

Maybe, but that's sort of like how a person who slaps somebody usually doesn't get jail time compared to the person who beats somebody to a pulp.

The billionaire tax cheat has much larger impact on society. And the billionaire has much less justification for doing so (if they pay their taxes properly they're still a billionaire).

Yes, why don't we prosecute a one-time shoplifter the same as a guy who stole so much he used it to fund a shoplifting conspiracy, then paid a bunch more to various PACs and related contributions to not go to prison for it?

The obvious, trivial answer of course is that in tax law, how much you evaded determines the severity of the crime.

Yeah, generally criminal prosecution is reserved for the really egregious cases, such as complete failure to file or failure to claim large amounts of income for substantial time periods.
>> My understanding is that if a little guy evades taxes, but then cooperates with the IRS when caught, and agrees to pay all taxes and interest and penalties, then they generally don't get thrown in jail

Where in the world did you get this idea? If you don't pay fully or on time, but don't lie, they just make you pay, because that's not "evasion."

Elaborate premeditated lying using fake books or shell corporations to deliberately hide assets is a serious crime, which the rest of us can't get out of with our armies of lawyers and well placed phone calls to politicians.

> My understanding is that if a little guy evades taxes, but then cooperates [..] then they generally don't get thrown in jail

This is how it more or less works in my country but you do have to file a "active repentance" form and spill out of your misdeeds. Otherwise, anything you tried to hide, will work even harder against you.

> The guy paid way more in penalties than he saved on taxes

Is this a fact?

Billionaires can avoid paying taxes equal to what people make in life time. It is fraud.

Why should Bernie Madoff gone to jail then?! if some guy can steal a car then?

The scale matters.

> Barr signed off on a non-prosecution agreement...required Smith to admit he had committed crimes, pay $139 million and cooperate against a close business associate indicted in the largest tax-evasion case in U.S. history—Texas software mogul Robert T. Brockman

Prosecutorial discretion is a tricky thing to judge. On one hand, it's a black box. On the other hand, it has to be. It's a human judgement around which investigations are worth pursuing given the facts and circumstances, the law and the will of the polity.

Within the confines of the rules, this looks...fine? It sounds like Smith was fined more than he aimed to save. And if it bags a bigger fish, particularly if with jail time, it seems like the trade would be worth it. At the very least it makes tax evasion riskier going forward--your billionaire co-conspirator is now a real liability.

Without knowing the odds around that case, it's difficult to judge this decision.

Is it tricky to judge though? I think the reason why such stories get more attention is because they shouldn't be decided inside a black box.

This person admitted guilt, he also admitted that at the time he made the deal with Brockman he knew it was sketchy. He only tried to course correct when he knew he was being investigated.

If this individual makes a mistake, I can understand the leniency but essentially he made a deal that he knew at the time to be wrong and knowingly kept defrauding the government till he couldn't anymore due to discovery, and essentially came out of it with not so much as a scratch, maybe some stress from all this. And he's continued to whitewash the narrative around this with 'philanthropy'.

In my opinion it shouldn't be about him being fined more than he aimed to save. That essentially encourages others to strike similar bargains with other bad actors as the net result is the consequences are relatively small compared to the upside.

> It sounds like Smith was fined more than he aimed to save.

That might be true in absolute terms, but saving the money at the time likely enabled him to grow his wealth faster, putting him in a better position now, even accounting for repayment, than he otherwise would have been.

Companies do this all the time when they take on debt. Having the money now, even if you need to repay it layer, lets you grow fast, and the longer you can put off repayment, the more you can compound your gains.

I feel this article is gas-lighting the audience. Buried midway through the article is the important tidbit that as part of the DPA, Smith has agreed to pay $139 million USD. And, over the years, he has given away more money to charity than owed in taxes, making him very sympathetic to a jury.

Ergo there’s no chance of prosecution, he’s given more than he owes to charity, and has still agreed to pay back most of what he owes. It’s not perfect, but the system is working.

Notice that his charitable giving began after he was aware the IRS was after him. There is evidence he committed criminal tax fraud, giving the money back or giving the money to charity doesn't ameliorate that. To make an analogy, suppose you robbed a bank and were about to get caught. If you gave back the money, and made some donations to charity, would that absolve you of criminal liability? This seems like an accurate analogy to me, with the "bank" being the US taxpayer in this case.

Here's another article that highlights how he became a major, high profile philanthropist only after it became clear the feds were on his case:

https://www.washingtonpost.com/business/2020/11/09/smith-bro...

The charitable giving seems to clearly be part of an aggressive, multi-pronged, and ultimately successful strategy to avoid prosecution.

This is not evidence "the system is working", this is evidence that you can buy your way out of trouble.

> And, over the years, he has given away more money to charity than owed in taxes, making him very sympathetic to a jury.

It should be the voters‘ decision where the money goes to. Charities can also be a place to store money. If you control them you can also decide where the money is invested in. You just need to put a bit each year into some charitable cause where again you can spend that money buying products from wherever you want.

So in consideration for a fine and cooperation against a bigger fish, he got a deal in connection with a nonviolent offense. Exciting because of all the extra 0's, but sounds like an everyday occurrence in DA offices across the country.
I see this as a cynical mass-media emphasis on an individual tax case, while a multi-national corporate tax-evasion party continues larger than ever. -- As a US citizen with some decades behind me, I can say that the US has lost balance with taxes badly. On the one hand there are "illegal" laborers with no working benefits and little protection, paying who-knows-what for tax; secondly, in the 90s, international money transfer by corporations ran rampant for tax evasion. The Clinton's became super-powers on Wall Street for turning a blind eye to it, and later the Ms. of the family became essentially the official enabler of this with the US State Department Foriegn Aid office ($8 billion a year slush fund, on top of dollar-based commerce tax evasion). Saavy multi-national corporations pay little to no tax here, and it is widely documented.

Meanwhile, a 20-something engineer at a six-figure salary can tell you how much of that they get to keep. (hint about half here in California)

> Meanwhile, a 20-something engineer at a six-figure salary can tell you how much of that they get to keep. (hint about half here in California)

This is patently false. Before even counting any deductions a married couple with a joint income of $300k in CA pays an effective income tax rate (Fed,State,Local) of 29%. Single at the same income pay 38%.

Once you add 401k contributions and the variety of pretax spending benefits, it goes even lower.

Go ahead and model it:

https://smartasset.com/taxes/california-tax-calculator

You have to be earning $3 million a year before you hit an effective tax rate of 50%.

People making that kind of money and more in SV aren't usually making it via regular income but rather via tax minimizing deferred compensation plans taxed at much lower rates.

I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny (at least in the US). Are you including 401k contributions as part of the half not kept?
It is tax avoidance technically because it is legal. Still a problem and arguably an even bigger problem. But the distinction is crucial. If you were head of the IRS and tried to score big by going after tax avoiders for tax evasion you will lose in court badly by precedents.
> Saavy multi-national corporations pay little to no tax here, and it is widely documented.

> Meanwhile, a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.

Isn't this actually a good situation, from the point of view of the tax collector? Corporations can afford to spend a lot of money figuring out tax loopholes and financing schemes so they can avoid paying taxes. But your average high-income individual can't. You might as well let the large corporations have lower taxes, pass on the extra revenue to shareholders and employees, and then tax the shareholders and employees.

How much in taxes do you have to cheat as a middle class tax payer to be investigated and tried in your mind?

In my experience (misreported some accounts due to a misunderstanding, which had a ~25% impact on what taxes I paid) the IRS sends you what you owe with a nominal penalty. I believe I paid ~5% extra. I paid it, and life went on.

I think there's a huge misunderstanding around the IRS "going after the little guy." For you to actually be convicted of tax fraud, the IRS would have to take you to court (expensive) and prove you set out commit fraud (hard to do in most cases).

At the point where this is worth it for the IRS to do, are you really 'the little guy' any more?

This is a systemic problem with tax enforcement in the US in recent years, caused in part by reduced funding for the IRS. Wealthy people can afford expensive legal defenses, which makes it more expensive for the IRS to pursue these cases, so they focus instead on easy to win cases against low income people.

>According to data released by the IRS last week, millionaires in 2018 were about 80% less likely to be audited than they were in 2011.

Audits of the rich continue to plunge while those of the poor hold steady, and the two audit rates are converging. Last year, the top 1% of taxpayers by income were audited at a rate of 1.56%. EITC recipients, who typically have annual income under $20,000, were audited at 1.41%. [1]

[1] https://www.propublica.org/article/irs-now-audits-poor-ameri...

This has nothing to do with that
I replied to another comment with this story which has now been downvoted to oblivion, but I'd highly recommend another article on the topic from the washington post[1], it has a far better narrative (in my opinion).

At the start of his career as a private equity investor, he got one of those offers he couldn't refuse, a billion dollar investment from a single source that came with some strings. When the strings came undone in the form of govt. investigation into the tax obfuscation, he tried to fix it by applying for a IRS program which was rejected. He then went 0 -> 100% on headline making philanthropy.

Essentially he made a deal with the devil and came out of it without a scratch, relatively speaking. Perhaps came out ahead would be a better way of phrasing that. Obviously none of this takes away from the work/drive that went into making Vista successful, but it's still an interesting story of how he got his start.

> Brockman’s offer set Smith up with his own private equity firm, Vista Equity Partners, and more than $1 billion in capital to invest, according to Smith’s statement to prosecutors. That arrangement eventually allowed Smith to become a billionaire himself.

Both aspects stem from a deal Smith and Brockman made 20 years ago, one that joined the unlikely pair in a venture with vast ambitions. Smith, the determined son of Denver schoolteachers, was then an aspiring financier; Brockman was older and far wealthier, a man who had already made a fortune with a company that sold software for the automotive industry.

These two sides of Smith — the impressive generosity on one and the admitted tax evasion on the other — may be hard to reconcile. But they are inextricable, according to documents reviewed by The Washington Post, including charity filings with tax authorities and Justice Department court filings.

Smith applied for the IRS program in March 2014 but was quickly rejected. This is typically a sign the agency already is scrutinizing the applicant’s tax filings, former federal prosecutors said.

It is about this time that Smith became a major philanthropist, frequently making headlines with his generosity.

[1] https://www.washingtonpost.com/business/2020/11/09/smith-bro...

Although there was a tax compliant way to accomplish everything they did, still without paying more to the US, The divorce started all this.

Divorce laws are far too simplistic and rely on the concept of a “unit” with both spouses being equal partners by mere nature of showing up. This seems to be a stretch of the imagination with a reality having diminishing returns. For example, even with a spouse providing some form of unpaid labor, the level of utility in how that helps the other spouse is not unlimited, it would be closer to (O)logn. It should have a specific value that is quantifiable. This does not seem to be part of discussions and in most places seems to be the most egregious thing one could suggest! In any other form of financial partnership, this is easy to quantify or at least there is greater flexibility in setting it up. One example - which I am not suggesting is applicable to marriage - is how vesting agreements really help give the (O)logn compensation path.

I have seen some divorce laws that seem holistic, specifically Monaco’s. Which provides a limitation on alimony as well.

For people that actually own assets outright (not mortgages but the whole asset) There is also fairly easy estate planning possibly even in “community property” states to separate assets from before a marriage. So thats another wealthy privilege.

Fixing all of that would fix what would even be attempted to be listed in a divorce court proceeding.

This is a pretty interesting take on divorce.

I'd be hesitant to view marriage as a financial partnership though. To me, marriage is more of a life partnership where both parties are "all in". A lot of the benefits of having a "life partner" stem from having someone who unconditionally watches your back and keeps your needs in mind. You can't put a price on that type of a partnership by definition (you introduce a monetary condition).

I agree that someone with real wealth could hire folks to manage their assets, administrate, listen to their thoughts/concerns, provide intimacy, etc, at the cost of a fraction of their net worth well below 50%.

Maybe people worried about protecting their wealth should just hire out those roles instead of getting married. I wonder why they don't. :)

Whatever problems divorce law has, marriage is a voluntary contract. You could enter into an even more lopsided business partnership, with the difference that you could actually set out penalties for breach. In most jurisdictions, if your spouse abandons you little time after your marry, you're mostly going to be returned to the status quo ante, because assets they have before you marry or that are donated to them/inherited by them do not count as common property.
Monaco is actually pretty biased against women in its divorce laws (I think alimony is capped at $100k per annum). There's a reason a lot of rich folks go to Monaco to surprise their spouses with a divorce. Now imagine if you were someone like MacKenzie Scott, who was actively involved with Amazon's founding. While her settlement with Jeff was quite generous on his part, in a Monaco divorce, she would have gotten maybe a mil or two tops. Monaco is in no way holistic when it comes to divorce, just a magnet for boomer millionaires and billionaires.
This is very fascinating!

He tried amending his tax returns to correct the reporting issues.

He tried to use amnesty program on undeclared Swiss banking back in the early 2010s when the US was piercing the Swiss Constitution, and was denied!

And this all started because divorce proceedings listed many assets. Eventually ensnaring a completely unrelated person in actual jail.

Wow.

For all intents and purposes it seems like they were overly focused on Smith, until some of the hobnobbing with the administration started to pay off.

There is a tax compliant way to accomplish everything he did.

Its interesting to me that they went after some of those things too: the prosecution agreement required Smith to not claim the deduction on $182 million donated to charity.

That’s a crafty way of getting money back. Kind of like a ballast system to provide balance.

What’s the tax compliant way?
Given propublica’s investigation into higher audit rates among the poor than the wealthy, I view this as a win. Keep moving in this direction and chase higher payouts with longer periods of nothing rather than volume
The national security issue is surprising... I’m curious what it was. Vista is really more of a large tech conglomerate so they’re in lots of business lines.
That was very surprising. If I buy shares in Lockheed Martin, can I claim "national security" too.

It is a very powerful and opaque defence. Companies use it all the time too to avoid anti-trust action (AT&T did so for decades). Using it in the case of a private equity fund manager seems a stretch..

Imagine being a billionaire and then avoiding taxes. No matter how you look at it you are always going to remain in the tres commas club and afford a fleet of yachts, mansions, rare Nike Jordans and throw parties for instagram models in Tulum.

Yet you still do it.

I assume there’s a risk reward calculation being made where all they care about are their yearly returns.

I know a guy who is quite rich off of Bitcoin (bought thousands when it was $2 and has held most of it). Refuses to pay taxes unless the IRS actually comes after him. So maybe these billionaires are similar. They’ll only pay if the IRS makes them and they’ll drag their feet in whatever way they can.

If you are middle class and you don't pay taxes or hide your income, IRS will come down with the full force of the law. Prosecution for the serfs Non-prosecution agreements for the Club.

"Its a big club and you ain't in it" - George Carlin

Your assertion is not correct. The IRS is surprisingly reasonable about things. There are penalties and interest for failing to pay your taxes correctly, but they are also willing to cut deals to make things work.

Criminal prosecution is rare and reserved for the egregious and uncooperative. It's something like 2,000 cases per year total.

Ah corruption out in the open. What else is new.
To rich to fail. Disgusting how the wealthy get away with pretty much everything while the poor are robbed of their possessions and freedom.

This needs to be fixed ASAP or the US won't be any different than any corrupt banana republic.

Imagine getting punished by a robber for trying to evade getting robbed by him. That is basically what happens with "tax evasion". And the IRS are the robbers.
China hangs its fallen oligarchs. Here you just buy off politicians and threaten media with lawsuits if they don't tow the line. Literally a reporter walked off set this week, because a guest strayed too far into lawsuit territory. And a voting machine company sued a politician for a Billion Dollars for disparaging its black box results. All in the last month. While I support everyone having their date in court. I think its safe to say that in the last year, millions of people both left and right have woken up to how politicized and crooked the justice system is.
I don't get it. If you want the same privileges that Billionaires have then you should work on becoming a billionaire not complaining because nothing will change.

It doesn't make sense for Billionaires to be taxed as it would lead to poor capital distribution in the economy.

I'm all for philanthropy but there is also no law that says Billionaires should give just because they are a Billionaire.

You know (and I realize that this comment will be highly controversial), you know, it's amazing to me that in this day and age, if someone is rich and/or famous and accused of a crime, it's amazing to me that the media never seems to give them "Due Process"...

"Media Due Process"

For lack of a better term...

It doesn't seem to exist in this day and age.

I'd like to hear the other side of the story before I make up my mind, thank you very much!

Until I do, from the accused own's mouth, I might add, I'm going to presume innocent until proven guilty.

I will not be "the court of public opinion" in response to the media, any media, slighted one way or slighted the other.

I simply refuse.

I don't know the accused, I don't know what happened, and until all of the facts are on the table -- pro and con -- I refuse to make up my mind on the subject.

A single set of facts from a single media outlet, or even several -- are not all of the facts, because they could have been cherry-picked, one way or the other...

I take this approach; this mindset; with all media in this day and age -- not just the media outlet that broke this story...

OK, those are my thoughts.

Go ahead and lambaste me if you disagree...