Nonfiling of Federal Income Tax Returns
1991; American Institute of Certified Public Accountants; Volume: 172; Issue: 4 Linguagem: Inglês
ISSN
0021-8448
Autores Tópico(s)Fiscal Policy and Economic Growth
ResumoTo tax professionals, the very idea of not filing a federal income tax return is heresy. Unfortunately, though many people do fail to file and CPAs should be ready to take action when a new or existing client comes to them with a confession. It's hard to know exactly how many nonfilers exist. In 1989, the Internal Revenue Service identified 1.7 million nonfilers for 1988 returns and eventually assessed $2.5 billion in taxes, penalties and interest. Clearly, an important part of the $100 billion underground economy is made up of nonfiler's liabilities. The IRS itself sometimes unwittingly conspires with nonfilers. Its matching program classifies potential nonfiling cases according to expected revenue, the higher the priority. And, despite computer matching, the IRS sometimes simply doesn't know who hasn't filed and it cannot fully police the reporting system. Still, the service claims a high matching rate for 1099s and W-2s. THE PENALTIES Willful failure to file is a misdemeanor punishable by a maximum fine of $25,000 or one year in prison, or both, plus prosecution costs (Internal Revenue Code section 7203). Each year's failure is considered separately. Willful failure to any tax is similarly punishable under section 7203, as is willful failure to supply any information the IRS requests. Failure to file a return can, in theory, also rise to a felony--attempted evasion--which carries a maximum fine of $100,000, or five years in prison, or both (plus prosecution costs) (IRC section 7201). Most failures to file are prosecuted under section 7203, but prosecutions for evasion based on failure to file are not unknown. Despite these possible penalties, when the IRS catches a nonfiler, compliance usually is the most it seeks. Some nonfilers are prosecuted (fewer than 1,000 in 1989, according to IRS statistics), but nonfiling is only a misdemeanor. Federal prosecutors often have higher priorities, and prosecuting nonfilers is costly. Prosecutors usually are reluctant to proceed when there are fewer than three years of neglected returns at issue. WHO ARE THE NONFILERS? Experience teaches that nonfilers come in all ages, income groups and occupations. They are computer salespeople and corporate consultants, civil servnats and retired military. Indeed, they are lawyers and even accountants. Some generalizations about nonfilers are possible. * They are overwhelming male. * Some traumatic event triggers the act--a divorce, a business disaster, a personal crisis (such as drugs, alcohol or other illness) or a combination of causes. * They have an astounding capacity for denial, taking quick and easy refuge in self-deluding excuses. know I should have filed, but there's no harm--the government owes me money, I didn't have the money to pay or I'm getting my records together, are some of their claims. Excuses are limited by the perso's imagination. Sometimes nonfiler miss filing one year and promise themselves to make it up in the future. One year leads inexorably to another and then to a third. By that time they may be too scared to file or they may reason that if the IRS hasn't caught up with them by then, it never will do so. As a result, most nonfilers fear the IRS, but not enough to come forward. At some time, however, many nonfilers do come forward. Again, it's an event that triggers the desire or tips the balance in favor of seeking help. The catalyst can be as ordinary as an inquiry from the IRS based on a W-2 or a 1099. Other times, the catalyst can be an informant or an information exchange between state and federal government. Audits of related returns (such as corporate returns) can alert the IRS. The trigger also can be a marriage or divorce or a good or bad business year. It can be an attractive business deal or a bank loan request the nonfiler believes will lead to discovery. …
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