IRS Criminal Prosecution for Not Filing an Income Tax Return

Regardless of what some commentators may tell you, it is not only lawful, but also Constitutional to pay taxes. With the exception of people who make less than the federal exemption amount, everyone must file a tax return with the federal government. Intentionally failing to file a tax return can result in stiff penalties including up to one year in prison and $100,000 in fines along with the prosecution costs.

Over the past three years, more than half of the cases that the IRS investigated for failure to file taxes resulted in prosecution. Out of those prosecuted, 78 percent were indicted and served an average of 40 months in prison along with paying all withheld taxes, interest, and prosecution fees. There are some common ways in which an investigation is commenced.

Whistle Blowers

The first and most common trigger the IRS uses for locating people who are not filing a tax return in the whistle blower program. The whistle blower program offers people who report non-filers a percentage of the collected taxes and fees once the prosecution is complete. However, the reward is only guaranteed if the amount is over $2 million. Common whistle blowers include business accountants and employees.

Random Audit

An IRS investigation into non-filing begins with random audit programs. The IRS will typically find a tax form such as a W-2 from an employer or business that does not have any matching income reporting. The person listed is researched and their identity found. Once the person is located, the IRS makes every attempt to contact the individual and assist them with their tax filings.

Some other things that have shown up in IRS random audits leading to prosecution included fraudulent EIN codes, businesses who accept funds under the table and are unregistered with the IRS, and couples who are running an unregistered business using their home.

Associations

One area that the IRS now specifically targets on a regular basis are political or financial organizations that claim they have ways of helping people avoid filing. Labeled by the IRS as frivolous tax arguments, the propagators of these arguments are hunted down and prosecuted on a regular basis. There are numerous people who are members of these associations whom the IRS considers suspicious and immediately investigates for tax related crimes such as not filing a tax return.

Solution

Regardless of the harsh penalties, the IRS does not seek prosecution for all of the people whom they discover have not filed taxes. Instead, the IRS first seeks to educate non-filers and assist them in mending their non-taxpaying ways. Keeping that in mind, if you receive a notice from the IRS requesting that you file the missing returns, it is in your best interest to respond accordingly. Failure to respond could result in fines, interest on taxes owed, and a waiving of all credits and deductions on your previous filings.

The penalties for refusal to file taxes are harsh. If the IRS prevails, you will lose your freedom, your career, and will be held accountable for repaying extensive IRS fees and back-owed taxes. On top of everything else, your case will be published on the IRS website for the world to see. If the IRS confronts you about filing your taxes, comply and end the matter in its entirety as quickly as possible.

Willie Nelson and Wesley Snipes

Look At Willie Nelson and Wesley Snipes.  Both had high profile cases with the IRS and both suffered serious consequences.

Willie Nelson did not pay over $6.5 million in income taxes; he ended up with penalties totaling over $10 million.  Since he could not come up with the money to pay, the IRS seized most of his property and sold it for his back taxes.

Wesley Snipes tax problems took place in 2008.  In April of that year, he was sentenced to three years in prison for failure to file income tax returns.  He was sentenced to misdemeanors but only narrowly escaped more serious felony charges because he was able to convince the court that he got caught up in believing the wrong advisors who said that income taxes were illegal.

Case Studies: IRS Criminal Prosecution for Not Filing an Income Tax Return

Case Study 1: Whistleblowers

In this case study, John, a business accountant, reported Sarah, a non-filer, to the IRS. Sarah’s failure to file a tax return triggered an investigation. The IRS prosecuted Sarah, resulting in 40 months of prison time for her along with hefty fines and prosecution fees.

Case Study 2: Random Audit

Mark, a self-employed individual, caught the attention of the IRS through a random audit. The IRS discovered unreported income on Mark’s tax forms and promptly contacted him to rectify the situation. By cooperating with the IRS, Mark avoided penalties and legal action.

Case Study 3: Associations

The IRS targeted a financial organization claiming to help individuals avoid filing taxes. John, a member of the association, became a subject of investigation. The IRS prosecuted John for non-filing, leading to severe penalties and legal consequences.

Case Study 4: Willie Nelson and Wesley Snipes

Willie Nelson and Wesley Snipes serve as cautionary examples. Willie’s failure to pay over $6.5 million in taxes resulted in property seizures and penalties exceeding $10 million. Wesley narrowly avoided more serious charges by convincing the court of his reliance on wrong advisors who claimed income taxes were illegal.