Not Filing a Tax Return Can Be a Crime

(Previously published in the La Quinta Chamber of Commerce’s “The Gem” Magazine OCT2015)

Each year many law-abiding citizens end up breaking the law. I’m not talking about getting the occasional traffic ticket. I’m talking about not filing a tax return.

You read that right. Not filing a tax return is a criminal offense. It is also a criminal offense to not to pay your estimated taxes on time. Internal Revenue Code (IRC) Section 7203 states the penalty is $25000 for individuals and one year in jail for each year not filed. The penalty rises is $100,000 for corporations or limited liability companies. IRC Section 7201 reads if the failure to file is to evade or defeat the payment of tax, the criminal offense shall be deemed a felony, subject to a $100,000 fine ($500,000 for corporations or limited liability companies) and five (5) years in jail for each year not filed.

Look around you. One in ten people you know have not filed a tax return. Many of these same people have not filed several years of tax returns. Who are these people? Doctors, lawyers, accountants, business owners, single mothers, government employees. They come into my office every week.

Now that I have your attention, what can you do?

If you’re lucky enough to be the other nine people, then nothing. You may not like your tax situation (I can help you with that) but as you read it could be worse.

If you’re one of the ten, you have some options.

  1. You are looking for a Tax Attorney, CPA or an Enrolled Agent that specializes in these types of problems. I don’t mean a professional that files past years’ tax returns. Your professional must do more than input your information into a computer program. Tax laws change every year. Your professional must know the laws that apply to the year in question. Your professional must specifically handle the planning, preparation, filing and the consequences of submitting past years’ tax returns;
  2. You need to file these returns as possible. Any year not filed is an open year and the clock on the statute of limitations is stopped;
  3. You are going to need your tax records to create the information that gets reported on the tax return. For individuals, this could be W2s and 1099s. Your tax professional can get this information for you. For businesses, start with your bank statements and expand from there. If you don’t have bank statements, you tax professional will have some other options.
  4. You will need to review the results of each return prepared to develop a plan of action to handle the potential for audit and collection actions.
  5. You will need to file these returns in separate envelopes in separate certified mailings (E-filing in not an option for past years.) If you haven’t filed for more than six years, you will need to file the most recent six years (criminal statute of limitations) and review the rest as needed.
  6. It takes about 45-60 days for the returns to be processed into the IRS computer system. This is when the clock starts running on all related statute of limitations: audit (or examination), assessment of tax, collection, referral for criminal charges.

Joseph M. Tames is an Enrolled Agent (a federally-licensed tax practitioner.) He has over 20 years’ experience, specializing in tax audits, appeals, protests, collections and bankruptcy options. For the latest in tax planning and defense, please call him at 760-851-5999. You can also reach him by email at jtames@askmytaxmanjoe.com or visit his website at www.askmytaxmanjoe.com.