Can Richard Hatch survive his latest challenge from the IRS?

Can Richard Hatch survive his latest challenge from the IRS?

by Julia Duncan, December 2009

He may have been able to outwit his fellow island dwellers while under the scrutiny of the ever-seeing TV cameras, but when it comes to real life and the ever-seeing IRS, Richard Hatch of "Survivor" fame isn't faring quite as well. After failing to report the big bucks he'd earned on his 2000 and 2001 tax returns, the seemingly unbeatable reality show star is being charged with two felony counts. The potential consequences of his little slip-up? Hatch is facing a maximum of five years in prison for each count, as well as a $250,000 fine. Ouch. Even his fans are scratching their heads and wondering, "What was he thinking?"

The timing couldn't have been better as far as the IRS is concerned. Tax time is just around the corner, and to anyone contemplating cheating on their tax returns, one look at Richard Hatch's predicament should scare the fear of the auditor into you. And in case you think all the fuss is just because of Hatch's high profile status, let's review a little information about how income tax works.

Again, you gotta shake your head and wonder: Did [Richard Hatch] really think [the IRS] wouldn't notice a missing million dollars?

The law is pretty unambiguous when it comes to income taxes. We've got the legal foundation spelled out in the Constitution's 16th amendment: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." Hmmm...what part of "whatever source derived" didn't Richard Hatch understand?

From the mandate for income taxes given in the Constitution, out sprung the much loved tax code and Treasury department regulations. We all know that the whole system is a confusing mess, but even here, there's not much muddying of the waters when it comes to income tax and game show awards. The law specifically says that "Gross income includes amounts received as prizes and awards... including [but are not limited to] amounts received from radio and television giveaway shows, door prizes, and awards in contests of all types...."

Even non-cash prizes are taxable. When Oprah gave away Pontiacs to audience members last year, the winners learned quickly that with prizes, "free" isn't really "free." Each audience member had to pay income tax on the car they were given, and some were even concerned that in order to scrape together the necessary moolah to pay off the IRS bill, they might have to sell their "no-cost" gift. The old saying is pretty true: No such thing as a free lunch.

Last but not least, the IRS has a nice little slip net to catch those who don't find the law a compelling enough reason to pay their taxes. Ever thought much about your W-2 form or 1099s? Your employer and others who have paid you a substantial amount of money fill these things out and send you a copy to help in filing your tax return. But you aren't the only one who receives a copy, and that's where the IRS can zero in on fraudulent returns.

Anyone who fills out a W-2 or a 1099 related to you forwards a copy of it along to the IRS so that the massive tax policing agency will be able to double check the records you send in against its own. They use a computer system process called document matching, and they pay attention when the amount you've reported doesn't match up with the amount they have listed in their digital files. So when Hatch filed his tax return in 2002 and didn't include the million dollars won from surviving "Survivor," the IRS checked his records against the forms they received from the Survivor Entertainment Group. And guess what? They noticed that the amounts were ever so slightly different. Again, you gotta shake your head and wonder: "Did he really think they wouldn't notice a missing million dollars?"

The moral of the story is pretty simple. Honesty is the best policy, especially when it comes to dealing with the IRS. Instead of the worry-free money and lack of legal trouble he could have enjoyed on another tropical vacation, Richard will now be facing the consequences of illegal money hoarding and a possible "vacation" in jail. If he's found guilty, he'll lose way more moolah than taxes would have taken. Makes you wonder if he's kicking himself yet. As Richard Hatch plays the ultimate reality game, we'll see in the days to come if his survival skills are up to the challenges of real life. Popcorn, anyone?