While tax issues are common among all classes of taxpayers, there have been concerns raised in recent years that audits and criminal tax investigations for failure to file tax returns and Spies Evasion have been targeted disproportionately at poorer citizens. In testimony before Congress in April of 2019, IRS Commissioner Charles Rettig indicated that the agency was aware of this issue and planned to begin conducting more audits on wealthier taxpayers in the near future. This past February, the IRS put this plan into action with a new effort aimed at making sure higher income individuals are properly reporting and paying their taxes. Below, the skilled tax law attorneys at the Law Offices of David W. Klasing walk you through what this new directive could mean for you.
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How the New Effort Aimed at High-Income Non-Filers Will Unfold
In February 2020, the IRS issued a press release detailing how this program aimed at high-income taxpayers who are not filing returns will be conducted. The visits will be targeting those who make more than $100,000 per year who did not file proper tax returns in previous years. There will be in-person visits to the taxpayer’s home or business, but it is unclear if they will be in equal in scope and severity to an official audit. The primary goal of the visits will be to inform these taxpayers of their outstanding obligations and bring them into compliance.
Over 800 visits will occur over the first two months of this program, with thousands more due to happen in the following months. The audits will focus first and foremost on the most egregious offenders, such as those who have been contacted multiple times before by the IRS about their failure to file and have not complied with attempts to collect past due revenue.
What to Do if You Have Failed to File a Tax Return in Prior Years
You do not want to wait for IRS enforcement officers to come knocking on your door before addressing your failure to file tax returns in previous years. You are going to be more likely to face severe civil and criminal penalties if the IRS has to come to you rather than your stepping up to make things right. Remember, non-filing is a crime (misdemeanor for federal purposes and a felony for California purposes) that could result in your facing up to one year in prison if convicted for each count (each non filed tax year is equal to a count). With a 5 years statute of limitations, this could equate to a 5-year jail sentence on its own.
Moreover, if any Spies Evasion factors are present the misdemeanor charges can be ramped up to felonies under federal law and punished at up 3 to 5 years in jail per count. Spies Evasion, simply stated, is non filing coupled with actions by the taxpayer aimed at hiding the noncompliance. The Court in Spies stated: We “think the affirmative willful attempt may be inferred from conduct such as [1] keeping a double set of books, [2] making false entries of alterations, [3] or false invoices or documents, [4] destruction of books or records, [5] concealment of assets or covering up sources of income, [6] handling of one’s affairs to avoid making the records usual in transactions of the kind, and [7] any conduct, the likely effect of which would be to mislead or to conceal.” Spies v. United States, 317 U.S. 492, 499 (1943).
Because of the criminal tax exposure that is involved, it is essential, if you have failed to file tax returns in past years, that you contact an experienced tax attorney like those at the Law Offices of David W. Klasing right away so we can work to get the issue resolved and mitigate any potential damage that could occur. High-income households should be especially alert right now with the launch of this new program.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including Spies Evasion in most circumstances) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney-Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
Worth with a Tax Attorney to Correct Unfiled Tax Returns
A tax attorney can work with the IRS so that you can correct your past failure to file without facing the most severe potential penalties. The law imposes a penalty of 5% of the amount of tax owed each month the return is delinquent, capping off at 25% of the total amount. An attorney can help work out a reasonable payment plan while you pay back the money that you owe and the fines that have been assessed. We can also work to ensure that the IRS understands you are cooperating and there will be no need to file criminal charges. In very limited circumstances, if we can show that your failure to file was the result of a reasonable mistake or misunderstanding and not due to willful neglect, you may not have any penalty applied.
As noted above, the IRS is focusing these in-person visits on individuals who have previously received notices from them and have failed to respond. If you fall into this category, you need to work especially quickly to retain a tax attorney because the IRS may already be planning to pay a visit to your home or office. The IRS does not look kindly upon those who not only fail to file their tax returns in the first place, but also ignore repeated attempts by the agency to contact them to inform them of their obligations and work things out. Your tax attorney will want to reach out right away and try to mitigate any damage that your non-responsiveness may have done.
If you are singled out for one of these home visits, you need legal representation immediately. If the IRS takes the time to come to your home this likely means they are considering severe penalties if your noncompliance continues. The good news is that the press release states that the primary goal of these visits is to ensure compliance, not to charge people criminally. This means that you may avert some of the worse outcomes that you could face if a tax lawyer can work to get you into compliance and paying back the money you owe as swiftly as possible.
If You are a High-Income Individual Who Has Failed to File Tax Returns, Contact Our Attorneys Right Away
The IRS is making it clear that high-income taxpayers out of compliance with their filing requirements will be a major focus for them this year. Failure to file can be a criminal offense resulting in jail time if you do not act quickly to get it remedied. If you fall into this high-income category, meaning you make over $100,000 and have failed to file a tax return in at least one year, you should contact an experienced tax attorney like those at The Offices of David W. Klasing right away. We can work to mitigate any damage and get you back on track. Call us now at (800) 681-1295.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
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