Loopholes – The lure and the danger of outwitting the legal system

By Dorothy Bunce:

Everyone has heard a story of ways to use legal loopholes to get out of a jam. Legal loopholes can let criminals walk free or get out of jail early, can let multi-millionaires pay little or no taxes, and can provide big business with government bailouts while the regular working person gets nothing.

Oh, wouldn’t it be great to find a legal loophole that would help someone like you! To be one of the privileged few to outsmart the system. The internet is full of supposedly helpful hints on ways to obtain the benefits of loopholes, providing benefits such as paying no income tax (by becoming a self-ordained minister or setting up a sovereign nation), paying less income tax (by taking deductions or using tax credits), getting power or cable for free, borrowing money without repaying it.

Unfortunately, a large number of the loopholes you see described online are either scams or urban myths. Taking what you think is a loophole could create a legal nightmare for you, leaving you facing a massive amount of debt or even sending you to prison.

So how is the ordinary person to know what is or isn’t legitimate? When is something a deal and when is it a scam? After all, you probably don’t have a lawyer on retainer that you can call and ask every time you have a question about a legal loophole.

Let’s start with what your Mom always said. Mom usually gave you pretty good advice, although you might not have appreciated it at the time. Mom told you “if it sounds too good to be true, it probably is.” A loophole that sounds too good to be true probably isn’t legal.

Next, does it smell funny?  If it involves lying, taking something that belongs to someone else, or breaking any of the 10 Commandments, it smells. Legitimate loopholes don’t stink up a room.

Is it simple? Loopholes are, by their very nature, complicated. Something that is easy to do (such as forming your own church) probably isn’t a legitimate loophole.

Is the person explaining the loophole qualified to say that it is in fact, a loophole? Is this person a lawyer, a CPA, or other professional that has a license to say that something is a loophole and if they are wrong, be held financially accountable for the cost of any mistake?

Is the person explaining the loophole asking you for money? Is this person likely to make any money as a result of the advice being offered? Is this person trying to sell you a book, forms to “do it yourself,” or other materials which are explained as being necessary to make the loophole work. Be very cautious of someone who is unqualified and in a position to make money off of offering you advice for which they have no credentials other than what comes out of their mouth.

Is the loophole “unknown?” Very few loopholes are secrets for very long, except for those loopholes that are untested and can get you into trouble.

One good way to check out whether a loophole is legitimate is on the legal website AVVO. Lawyers, doctors, and dentists from all over the US give away answers to simple questions for free on this site in exchange for media exposure. It is fairly common for a question to receive several answers from qualified professionals in any of these fields.

In recent days, several people who bought into illegal tax schemes have been sentenced to years of time in federal prison. While the federal penal system is sometimes described as a “country club prison,” it really isn’t a place anyone actually wants to join.

If you are smart enough to think you can outwit the legal system, be smart enough to check out the advice you receive before you act. No loophole is worth risking a prison sentence.

Dorothy Bunce is a Nevada attorney who answers legal questions on www.avvo.com on a daily basis.