Frequently Asked Questions

1. I haven't filed a federal tax return for the past 5 years.  Is it possible that I could be prosecuted in federal court and go to jail?

• Yes, it does happen, but most failure-to-file cases are resolved administratively by applying large fines and penalties which oftentimes exceed 100% of the amount of the tax that you owe.
   

• Failing to file a tax return is considered a misdemeanor.  The punishment is up to one year in jail and a $25,000 fine for each year of not filing.  Generally, this type of punishment is reserved for taxpayers who have not filed for 3 or more years and have a total tax of more than $75,000. 
   

• If you have not filed tax returns for three years or more and owe more than $75,000 in federal income tax, the IRS has the option of converting your misdemeanor failure-to-file case to a felony.  The IRS does this by proving that you, the taxpayer, willfully and intentionally did not file tax returns for the sole purpose of personal gain.  Now your case has been upgraded to Income Tax Evasion (IRC 7201) which is a felony.  The punishment for this crime is a fine of $100,000, five years in jail or both.
  
  Please note: It is very important that you read my section on "Re-entering the Tax System."

2.  What are the criminal penalties for willfully making or subscribing to a false tax return?

• This is a felony.  The punishment is up to 3 years in jail and a $100,000 fine.
   

3.  What is the difference between a Special Agent, Revenue Agent, and Revenue Officer?

• Special Agents (S.A.'s) work for the Criminal Investigation Division.  They are federal law enforcement officers and they collect evidence and conduct interviews with taxpayers and witnesses involved in criminal tax cases such as tax evasion, fraudulent tax returns, large failure-to-file cases, money laundering, and false documents or statements submitted to the IRS under the penalties of perjury.
  
  Most really good S.A.'s are former Revenue Agents and they have years of experience in interviewing taxpayers and collecting enough evidence to warrant a referral to the Department of Justice for a criminal prosecution.  If you are contacted by an S.A., you are going to be a witness against someone else, or you are the target of a criminal investigation.  If you are the target, the S.A. will begin the conversation by reading your 5th Amendment Rights.  Please note: you will never be interviewed by one S.A. They always travel in pairs.  One S.A. will lead the interrogation; the other will be the witness and provide protection for the lead S.A.
  
  If you are the target, you should terminate the meeting, take the agent's card, and indicate that you will have your attorney contact him in a few days.  Do not discuss any tax or financial matters with a S.A.  CAUTION: most criminal cases are "made" during the first 20 minutes of conversation with the taxpayer.
   

• Revenue Agents (R.A.'s) are the pride and joy of the Internal Revenue Service.  They hold many positions because they are infinitely more qualified than all other employees. They primarily work for the Examination Division and they conduct audits on all types of businesses including corporations, partnerships, trusts, and estates. R.A.'s have a degree in accounting and are highly trained in all aspects of auditing, tax law, research, and report writing.  Most Revenue Agents stay 5 to 6 years and then move on to the private sector where they easily earn salaries exceeding six figures.
  
  Revenue agents are true professionals and they stand by their work.  Their reports are thoroughly researched and taxpayers are provided a complete explanation of their adjustments along with work papers and exhibits.
   

• Revenue Officers (R.O.'s) work for the Collection Division and are oftentimes referred to as bad-debt collectors or bounty hunters.  The requirements for entry-level positions are very low.  Promotions are few and far between and morale is generally low. There are no high-paying jobs in the private sector for former R.O.'s so they usually hang around until retirement.  They have a thankless job and are a necessary evil in the collection process.  They generally prefer easy targets such as unsophisticated taxpayers who try to go it alone without proper representation.
  
  See my section on IRS abuse for more information about Revenue Officers.

4.  Can the IRS seize my home?

• Yes, but the seizure must be approved by the IRS District Director and a Federal Magistrate.  The IRS hates this kind of publicity and will do almost anything to avoid bad press.  However, if you have two homes or own a rental property and owe a lot of tax, you can kiss your second home and/or your rental property good-bye.

5.  Do I have to let the IRS enter my home?

• No, no, and hell no.  IRS employees cannot enter your home without your express permission.  You may have to give up your office-in-the-home deduction, but this is a small price to pay for your privacy.  The only exception to this rule is if you are served a search warrant by a Special Agent or other law enforcement officer.
   

• Remember, all IRS employees are extremely observant and are skilled in interview techniques.  Every word you say and all observations will be written down as soon as they leave your residence.
   

6.  What occupations are at risk for greater-than-normal IRS scrutiny?

• The IRS is always concerned about segments of the population that cheat on their tax returns.  Why spend valuable audit resources on taxpayers who always comply with the regulations when they can collect huge sums of money from taxpayers who almost never comply with the regulations?
   

• Number one on the IRS most-wanted list is anyone who is self-employed in the following occupations: car dealers, bar & restaurant owners, apparel shop owners, hair dressers and nail salon owners, telemarketers, all salespersons, doctors, lawyers, non-degreed ministers, adult entertainers, private detectives, home repair service providers, and practical nurses.
   

7.  What percentage of the population refuses to file tax returns and gets away with it?

• There are many people who participate in the underground economy that uses cash, gold coins, diamonds, drugs, or other merchandise to purchase products and services for their "normal business."  All of their assets are in corporation names or other disguised entities.  It doesn't take rocket science to figure out that people who go to great lengths to avoid receiving W-2's and 1099's have no tax return problems.
   

• If you throw in the illegal immigrant problem, and the fact that most transient workers provide bogus SSN's to their employers, the percentage of non-filers in the United States is around 30%.
  
  The percentage of non-filers in the U.S. is around 30% and growing.

8.  Who has access to my federal income tax returns?

• Unfortunately your tax returns and related files are shared with employees of at least a dozen other federal agencies, and almost every state revenue department in the United States.  Security is reasonably good at the IRS, but is less secure at other federal agencies and almost nonexistent at the city, county, and state level.
   

• Most state employees are underpaid and many low-level employees can make more than their annual salary by providing copies of federal and state tax returns to private detectives, divorce attorneys, and bad-debt collectors.
   

• If you are a business owner, you may not be aware that various city and county governments require CPA's and bookkeepers to attach your personal and business tax returns to verify sales, inventory, and equipment reported on property tax returns and business licenses.  Needless to say, the city and county government employees are good friends with all private detectives and part-time police officers.
   

• Any unscrupulous attorney or CPA familiar with IRS procedures can send a bogus Power of Attorney form to the IRS and order copies of your previous tax returns.  This is illegal, and a few professionals have been prosecuted, but this is very hard to detect.

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