01:00 AM EST on Thursday, January 26, 2006

It was the ultimate reality show, and by the time the program was over, its star -- Richard Hatch -- had lost.

A jury convicted him of tax evasion. Surprised? Neither am I.

After all, Hatch didn't have to be a legal scholar to know the rules: If you have income, you've got to report it -- and probably pay taxes on it, too.

It's right there, in that big bunch of federal tax laws known as the Internal Revenue Code: "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived . . .," the law says.

And if he still wasn't convinced, he need only have consulted U.S. Treasury Regulations. "Gross income means all income from whatever source derived, unless excluded by law," the rules say.

Yes, there are some exclusions, but this much is clear:

There is no exception for winnings from a TV game show.

You don't get to exclude the value of a car you win on a TV show.

You don't get to omit payments you receive for appearing on a radio show.

The jury essentially affirmed those principles yesterday. Hatch received $1 million for winning TV's Survivor series in August 2000. As the winner, he also received a new Pontiac Aztec car, valued at about $27,000. And for appearing on a Boston radio program, he was paid about $326,500.

Hatch is no dope. He knew that all this was gross income, subject to tax. And even if he didn't, his accountants told him so -- two of them.

But he tried to get away with it. When one accountant told him the facts, he tried another. When that accountant spelled out his obligation, he tried to skirt it. (He even had the gall to try to blame her.)

Tax avoidance is legal; tax evasion is a crime. Now Hatch has to pay the price.

It's not as if there were no records. On his Survivor winnings, for example, there was at least one Form 1099 that clearly showed the amount of income he had received. (And the form didn't indicate that tax had been withheld, either.)

The outfit responsible for the show sent one copy of the form to him, and another to the Internal Revenue Service, as required by law.

So it was only going to be a matter of time before the IRS caught up with him, said John E. Barrett Jr., a director of the Rhode Island Society of Certified Public Accountants.

"He deserved it," Barrett said of yesterday's conviction. "It was blatant. He had 1099s from two different years, and he just disregarded them . . . He knew what he was doing."

Patricia A. Thompson, head of the Rhode Island CPA group's federal and state tax committee, put it this way: "He won $1 million. He got $1 million. There was no withholding." So he had to report it on his tax return and calculate the tax due -- or else. "I think he got what he deserved," said Thompson, tax partner at Piccerelli Gilstein & Co. LLP, a CPA firm in Providence.

Maybe Hatch thought he could simply shirk his responsibilities. After all, if you strut your stuff on national TV, swaggering about on some South Sea island, bending the rules in front of millions of viewers, then walk away the big winner, maybe you figure you can dodge the tax law, too.

But reality caught up with him. Counting the original tax he owed, plus penalty and interest, Hatch probably now owes about $1.6 million in federal income taxes alone, Barrett estimated. (The court may levy additional financial penalties, said Barrett, a CPA and president of Barrett Valuation Services Inc. of Cranston.)

And don't forget Rhode Island. When I raised the Hatch case last year in a conversation with state Tax Administrator R. Gary Clark, he said that state tax authorities were well aware of the case and were waiting to see how it would be resolved at the federal level before taking any action at the state level.

So the state's been quietly watching these proceedings. Barrett estimated that Hatch may owe between $250,000 and $300,000 in Rhode Island income tax, penalty and interest.

Yesterday's conviction does not absolve Hatch of either his federal or state tax obligations, Barrett said. "He's still going to have to pay these taxes somehow . . . I don't know where he's going to get the money."

Maybe by selling the real estate he owns? Or how about those royalties he earned from his book? You know the one. He's pictured on the cover -- in the nude -- with the book's title placed strategically in front of him: 101 Survival Secrets: How to Make $1,000,000, Lose 100 Pounds, and Just Plain Live Happily.

Well, he won't be living happily now. This game has cost him. The problem is, it has also cost us, too -- in time and money spent to bring him to justice.

But maybe those expenses are worth it for the point this case drives home to others: "You'd better report the income . . . or Uncle Sam is going to come looking for you, and there are consequences . . .," Barrett said.

It's a message Hatch didn't get. Or maybe he got it, but didn't think it would apply to him. He took a big gamble, but he lost. But why take the chance in the first place?

For a tax course I took last year, I prepared a slide show that focused, in part, on the Hatch case.

On one of the slides, I included a picture of Bozo The Clown. "This is not Richard Hatch," I told the class, pointing to the picture. "But it might as well be."

Neil Downing is a Journal staff writer and author of The New IRAs and How to Make Them Work for You. Questions about your money matters? Call us at 1-401-277-7484 and leave a message, or e-mail:

moneyline@projo.com

Sorry, no personal replies; as many questions and issues as possible will appear here.