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."
What are the criminal penalties
for willfully making or subscribing to a false tax return?
3. What is the difference between a
Special Agent, Revenue Agent, and Revenue Officer?
(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.
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
See my section on IRS abuse
for more information about Revenue Officers.
4. Can the IRS seize my
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.
What occupations are at risk for greater-than-normal IRS
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
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
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
The percentage of non-filers in the U.S. is around 30% and
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
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