IRS Is Getting Tough on Delinquent Taxpayers
Six months ago, the Internal Revenue Service was offering a carrot to non-filers: “If you come in voluntarily, we will help you file. And we promise not to prosecute--assuming, of course, that you have filed an honest return.”
Now, the nation’s tax authorities are pulling out the stick: Not only are they starting to prosecute non-filers in record numbers, they are attempting to “upgrade” charges and get weightier convictions and heavier penalties for delinquent taxpayers, says Ellen Murphy, director of public affairs for the IRS in Washington.
“It is only fair to those of us who meet our obligations each year to know that those who don’t are going to have to pay for it,” Murphy says.
The number of criminal prosecutions is still minuscule when compared to the total number of non-filers, Murphy acknowledges. But, in percentage terms, they are skyrocketing.
Last year, the Justice Department prosecuted a sum total of 130 such cases--an all-time high. This year, it expects to prosecute 200--a 54% increase.
Prosecutions will probably increase by even larger amounts in coming years because the 2,000 revenue agents who recently were assigned to the non-filer program will be able to ferret out more errant taxpayers, says Richard Vofkuil, regional commissioner of the IRS’ Southwest division and the head of the non-filer task force.
Those 2,000 agents are now working on civil non-filer cases. But as they uncover information indicating that criminal investigations may be warranted, more staffers will be reassigned to the criminal indictment effort, he says.
Moreover, where the bulk of these cases would normally be tried as misdemeanors, the IRS and Justice Department are making a “concerted effort” to compile enough documentation to obtain felony indictments, Murphy says. (That requires evidence of “willful” failure to file.)
The difference is pivotal to anyone at risk. Felony convictions require judges to levy heavier penalties--including jail time, probation and fines. In addition, felony convictions follow you, because they often must be disclosed to prospective employers and lenders for years afterward.
The good news for the roughly 10 million individuals who have not filed one or several tax returns is that you probably still have time to take advantage of the carrot.
If you have not yet been contacted by the IRS, you can still get into the voluntary compliance program, Vofkuil says.
You may even be able to take advantage of the voluntary program if the IRS has contacted you in a preliminary way, such as sending out a computer notice that states it is missing a return. Those who are already subject to more serious scrutiny can also take steps to minimize their tax problems, experts say.
What should you do if you have failed to file one or more returns?
The answer depends, to some extent, on how many returns you have missed, how much you owe and whether you have received any communication from the IRS about it.
If you simply failed to file one return, the best advice is to get it in, says Robert G. Nath, principal at Odin, Feldman & Pittleman in Fairfax, Va.
It does not matter whether you have the money to pay any tax due. You need to file to limit your penalties--and your chance of being prosecuted, he says.
However, if you have failed to file several returns and have a significant amount of tax due, you would be wise to contact a tax professional--either an accountant or an attorney. The reasons are twofold: Your tax problem will be more difficult to solve, and there is a better chance that you will become a target of serious enforcement procedures, such as a criminal investigation.
What do you do if the IRS has contacted you?
If the contact is just a letter or phone call saying that the IRS has not received a particular return and would like to get a copy, you should consider it “a wake-up call” to send that return filed in a hurry, Nath says.
However, if you are asked to come in for an interview, you need to consider the contact far more serious, says Bernard Oster, partner at Cohen, Primiani & Foster in Los Angeles.
Before you open your mouth, you should find out the names and titles of the IRS employees you will be talking to, Oster says. If you are talking to a revenue agent or a revenue officer, you are still dealing with the IRS’ civil compliance section. Chances are, they just want you to file and pay.
But if you are being interviewed by a “special agent,” you are dealing with the IRS’ criminal unit, he notes. Similarly, if an IRS agent shows up at your door and reads you your rights, you have got a criminal tax problem.
“At that point, you need to suture your lips together and go see a criminal attorney,” Nath says.
Too many taxpayers fail to exercise their right to remain silent and end up hanging themselves with their own words, tax attorneys add. If you are dealing with a criminal investigation--or feel threatened in a civil investigation--seek out professional guidance. You do have rights. Finding an attorney or tax specialist who can help you exercise them is well worth the money.
