Two ideas, one good, one bad

Here's the good one: [Link]

You must have your own pet peeves about many politicians who after a lifetime of moderate income retire to a posh life style, or about locals who stuff bribes into their underwear. If so, join me in my hope, and support my plan for relief.

It's called the net worth test, an internal revenue gimmick invented to convict Al Capone, the famous prohibition gangster.

The feds wanted Al for many reasons, but all attempts to nab him failed -- he was cleverly cautious about his criminal dealings. But he lived big, much bigger than his reported income suggested he could afford.

So some bright guy invented the net worth test, and it became law. Under its provisions, agents could examine all aspects of Capone's lifestyle, compute the income needed to support it, and compare the answer with his reported income.

Bingo! They had big Al on income tax evasion and locked him up.

So what? The answer is this: As a matter of routine, have agents examine the lifestyle of all elected officials every (say) two years. Compare the necessary income computed with the reported income. When comparisons make no sense, investigate and report to the public -- where possible, charge, convict and jail the ones with sticky fingers. (Keep an eye on the income of the spouses, too).

More on tax evasion investigation. [Link]

Under the net worth and cash expenditure methods of proof, the IRS performs year-by-year-by-year comparisons of net worth and cash expenditures to identify underreporting of net worth. While the net worth method and the cash accrual method may be used separately, they are often used in conjunction with one another. Under the net worth method, the IRS chooses a year to determine the taxpayer's opening net worth at year’s end. This provides a snapshot of the taxpayer's net worth at a particular point in time. The snapshot includes the taxpayer’s cash on hand, bank accounts, brokerage (stocks and bonds), house, cars, beach house, jewelry, furs and other similar items. Generally the IRS learns about these items through very thorough and in-depth investigations, sometimes casing the suspected fraudulent taxpayer. In addition, the IRS also assesses the taxpayer’s liabilities. Liabilities include expenses such as the taxpayer’s mortgage, car loans, credit card debts, student loans, and personal loans. The opening net worth is the most critical point at which the IRS must assess the taxpayer's assets and liabilities. Otherwise, the net worth comparison will be inaccurate.

The IRS then evaluates new debts and liabilities accumulated in the next year, and assesses the taxpayer’s new net worth at the next year’s end. In addition, the IRS reviews the taxpayer’s cash expenditures throughout the tax year. The IRS then compares the increase in net worth and the cash expenditures with the reported taxable income over time in order to determine the legitimacy of the taxpayer’s reported income.

The net worth method was first used in the case of Capone v. United States.^[5] The cash method was approved in 1989 in United States v. Hogan.^[6]