Scott Michel Discusses Tax Crime Penalties and Remedies

In a special supplement for The Washington Post Magazine, Scott D. Michel discusses the penalties U.S. taxpayers may face if they fail to file returns or pay their taxes to the Internal Revenue Service, and the programs in place to help taxpayers come into compliance.  For the full article, please visit The Washington Post's website (subscription required).

Excerpt taken from the article. 

"Any situation where someone has the intent to evade or cheat and acts in that direction is illegal," says Scott D. Michel, a tax crimes attorney at Caplin & Drysdale.  "If the IRS sees enough badges of fraud and evidence of intent, they can turn it into a criminal case.  But even if they don't, there could be significant―and in some cases catastrophic―financial consequences."

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"Failure to file returns can itself be a criminal offense, and it's better to get the returns in and deal with the collection side of the IRS," Michel says.  He notes you may qualify for a payment program or extension, but that you should hire a qualified tax preparer and fully disclose your financial situation to receive the proper advice.  Being truthful to the tax preparer can guard against future accusations of wrongful conduct if the return is inaccurate.

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Delinquent taxpayers who come forward should file complete and accurate returns, Michel says.  The IRS Fresh Start initiative has a variety of programs to help settle an IRS tax debt and avoid liens.

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"In a voluntary disclosure, while there can be civil penalties in some circumstances, the amounts of these penalties are often below―and in some cases, far below―what the law would allow the IRS to impose," Michel says.  Consult with an attorney if penalties are involved, he adds.

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Of course, the IRS can't nab every offender, but it can make life very unpleasant for those who are caught, Michel says.  "My colleagues and I have seen every kind of tax fraud imaginable in 30-plus years of practice.  The U.S. has a remarkable system of voluntary compliance, but some people still are motivated to cheat," he says.  "Aside from being unquestionably illegal, cheating is not worth the hassle, the cost in some cases, or even going to jail.  Pay the tax and move on."