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This section should be of particular interest to taxpayers who have not filed federal tax returns for three years or more and owe more than $75,000 in tax (i.e., pure tax ― no interest, no penalties).

Rule No. 1

Under no circumstances should you attempt to re-enter the tax system on your own.  Tax evasion, failing to file a timely tax return, and perjury are very serious tax crimes and one mistake can send you to federal prison for a very long time.  Your voluntary admission of a tax crime is similar to Pandora's Box: once the lid has been opened there is nothing you can do to get it closed again.  The biggest mistake that most people make is hiring advisors that do not specialize in failure-to-file cases and have little or no knowledge of the IRS/Criminal Investigation Division (IRS/CID) procedures and criminal-tax violations.

Rule No. 2

Under no circumstance should you assume the IRS/CID and the U.S. Attorney's Office (USAO) will grant you immunity from prosecution simply because you volunteered to come forward, bare your soul, and beg for forgiveness.

The IRS terminated its guaranteed non-prosecution policy for voluntary disclosure of tax crimes in 1961.  If you have not filed federal tax returns for three years or more and owe more than $75,000 in back taxes it is highly likely you are going to receive a visit from the IRS/CID six to eighteen months after you file your delinquent tax returns.  The "reward" you get for filing true and correct delinquent tax returns is that you may be able to avoid additional perjury charges.  But you will have to pay a very large tax liability which will include interest and a whopping 75% civil tax fraud penalty.  Your full disclosure will be appreciated, and under current IRS guidelines you "may" avoid criminal prosecution only if you pay the entire amount due.

Rule No. 3

You must hire the best tax advisors money can buy.  Preferably you will want someone with at least 20 years experience handling failure-to-file cases before the IRS, and preferably this same person will have experience as a former IRS Special Agent.

The "Unofficial" IRS Policy
on Voluntary Disclosures of Tax Crimes

If the taxpayer has given the IRS everything it needs to prosecute him, and he has not fully paid the tax, the IRS will, of course, recommend prosecution!  A crime is a crime is a crime.  If the taxpayer is lucky, the USAO may recommend that the judge reduce his sentence 10 or 12 months due to full disclosure and cooperation.

You have to remember the IRS is in the business of assessing tax, collecting tax, and prosecuting those taxpayers who don't comply with the law.  Each year the IRS/CID reports the number of criminal investigations and prosecutions to congress; generally, they average about 3,000 and 2,000, respectively.

The important thing to notice is that the number of criminal prosecutions is quite high given the amount of time and effort it takes to present a criminal case in federal court.  How does the IRS get these high numbers?  Answer: Most criminal-tax prosecutions are the result of voluntary disclosure of tax crimes and perjury violations.  When the taxpayer "bellies up" and gives the Special Agent everything he needs ― why go to court?  These types of cases are usually plea bargained in the USAO.  The IRS gets its felony conviction and the taxpayer avoids the publicity of a jury trial.

All IRS/CID agents are keenly aware of the number of prosecutions needed each year.  The unwritten rule for a successful Special Agent: don't get bogged down with a time-consuming case where the taxpayer knows his rights and is stonewalling at every point and turn.  Believe me, the Special Agent will try to find a way to get rid of this type case and have it returned to the Audit Division for final resolution.  Remember, most criminal-tax cases require at least some cooperation from the taxpayerIf the taxpayer is not cooperating, it is highly likely the Special Agent will get rid of this case and move onto the easy ones.

Conclusion: If you try to re-enter the tax system on your own, submit tax returns signed under the penalties of perjury, owe more than $75,000 in tax, and willingly participate in interviews with IRS Special Agents, there is a high probability that you are going to be "rewarded" with a felony conviction.  If you go one step further and hire a professional advisor who is unfamiliar with the internal procedures of the IRS/CID and has no experience in tax-crime cases, your chance of avoiding prosecution has not changed one iota.  The worst thing you can do is hire a "general practice" attorney.  You have to hire a specialist at all costs.

Your only option for successful re-entry to the tax system is to hire an expert that handles failure-to-file cases every day of the week, has worked for the IRS/CID as a Special Agent, and has a thorough understanding of how the IRS/CID works and how their agents think.

As long as the IRS continues to have the option of prosecuting taxpayers who voluntarily disclose their tax crimes and fully pay the tax, penalties, and interest, there really is no incentive (no reward) for full disclosure, full payment, and full cooperation.  The bottom line: the more you help the IRS, the more likely the IRS will recommend prosecution!