The 7 Most Insane Ways People Legally Avoided Paying Taxes

Most of us fill out our forms and pray that a math error won't result in tax debt, an audit, or men in dark suits showing up at our work and carting us off to tax prison.

But the truth is that the IRS isn't nearly as draconian as people think. There is a huge range of things you're allowed to write off from your taxes if you can make a decent enough argument. And some of them are truly insane.

#7. Crashed Car Deduction

In 2005, a man and his truck slid off an embankment. The police found him legally drunk and fined him with a DUI. The insurance company denied his insurance claim of $33,629. He then tried to deduct the loss of the vehicle from his taxes. Like the insurance company, the IRS turned him down. He then brought the case to U.S. Tax Court to try to force the issue. He believed he deserved a casualty loss deduction for his damaged truck whether or not he was illegally intoxicated when he damaged it. Incredibly, the judge agreed. He got to take the deduction.

#6. A 70 Cats care deduction as

a Charity

A cat-loving woman named Jan would go out of her way to capture random feral cats on her street and care for them in her home, at one point housing over 70 cats. For her 2004 tax return, Jan tried to write off $12,068 for all her cat "rescue" items like cat food, vet bills, paper towels and other supplies. The IRS denied this deduction, asserting that these were personal expenses. Jan fought the IRS, insisting that her cat rescue activities were volunteer work for IRS-qualified charity, “Fix Our Ferals.” In the end, she managed to beat the IRS and got deductions for most of her claims. 

#5. Illegal Bribes Deduction by A

Corrupt Businessman

An unethical businessman ran several companies in the '70s and '80s. In 1984, his company began doing business with Ford, and in order to get some fake invoices that would let him skim money from his own company undetected, he bribed some people there to the tune of $180,000.  He was eventually caught and charged with defrauding the American government. The IRS was determined to get back the taxes he avoided with the fake invoice scheme. If he made money, he owed taxes on it, even if the money was made illegally. He filed a petition to the Tax Court, claiming the under-the-table payments as legal “operating losses.” The court agreed. These deductions wound up slashing his taxable income by a quarter.

#4. Gambling Losses Deduction

In 2001, a habitual gambler bet $131,760 on horse racing and collected $120,463 on his wagers. So, he wound up in the hole. Naturally, on his tax return for the year he listed $10,968 in expenses for travel to the racetracks, research and "handicapping information.” When these expenses were denied, the gambler challenged the IRS and after a decade the court ruled with him. The court established that since gambling was in essence his profession, these were not gambling losses, but business expenses. This was a very important case, as it deemed on a federal level that being a professional gambler is an actual job.

#3. An Exotic Dancer Deducts

Her Implants

An exotic dancer with the stage name “Tonda Marie” made less than other dancers due to her "hereditary deficiency," average-sized breasts. So, she decided to get breast implants to make a better living and chose an abnormally large size: 56 FF. Naturally, she decided to deduct the implants as a business expense. When the IRS said no, the exotic dancer pressed the point, saying that when she went back to work, her fees and tips doubled. She asserted that breasts were so large they could only be used for business purposes. In fact, she planned to have them removed once she retired from dancing. In the end, a tax court allowed her to deduct the expense.  

#2. An NBA Player Deducts

His Fines

A professional basketball player became an amateur tax lawyer when in 2010 he received a $87,000-plus interest bill concerning his 2007 taxes, as well as a letter saying he was not allowed to deduct $172,000 in "fitness fees" and $12,000 in NBA fines from his 2007 tax return. The player challenged the IRS' ruling, claiming that the fitness fees were ordinary and necessary for his job as a professional athlete and that the fines were an ordinary and necessary employee business expense. Eventually he settled with the IRS, and though not a complete victory, he paid a fraction of what he originally owed.

#1. A Drug Dealer Deducts

His Drugs

Back in 1975, a drug dealer was busted and charged with drug trafficking. When the IRS found out about his drug related income, they came after him for $17,000 in back taxes on the unreported income. So, the dealer filed a tax return that listed his taxable net income and a list of drug-related business deductions. When the IRS denied the deductions, the drug dealer fought back and eventually ended up in Tax Court. He claimed that he established a business in his home, which would've qualified him for a home office deduction, and he named several purchases - including his drugs - as necessary business expenses. Impressed with his honesty, the judge allowed him to deduct these expenses. Tax law has since been changed to disallow business deductions that deal with the trafficking of illegal substances.

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Source: Fulton, Dennis. “The 7 Most Insane Ways People Legally Avoided Paying Taxes.” Cracked. Demand Media Inc., 15 April 2012. Web. 15 January 2016. <http://www.cracked.com/article_19772_the-7-most-insane-ways-people-legally-avoided-paying-taxes.html>