The Non-Filer Program
While most common tax fraud schemes involve taxpayers either underreporting their income or claiming fraudulent tax refunds, there are others who intentionally fail to file a tax return. Because of the large number of taxpayers that the IRS regulates, sometimes the agency simply cannot detect each and every individual who fails to file a return and this sometimes allows the crime to go unpunished.
In response to the recent surge in taxpayers failing to file their tax returns, the IRS implemented the Non-Filer Program that is designed to bring non-compliant taxpayers back into the tax system. The program also targets those who file non-processable returns–e.g. illegible writing– and employ frivolous arguments against their rightful tax liability.
In January of 2012 the IRS initiated an open-ended Offshore Voluntary Disclosure Program to encourage noncompliant taxpayers to re-enter the tax system. Program participants are penalized for back taxes at a higher rate, but coming forward voluntarily is advantageous for an individual who has concealed funds in offshore accounts. By submitting a voluntary disclosure, an individual no longer risks future detection of the funds by the IRS that could result in possible criminal tax prosecution.
Pop singer and actress Lauryn Hill, made news recently on charges of criminal tax evasion. She is charged with willfully failing to file federal income tax returns. Prosecutors allege that during the years 2005 to 2007 Hill did not file a tax return nor pay income taxes from the over $1.5 million in royalties she earned from music recordings and film appearances.
Her defense was that had “withdrawn from society” during that period and therefore was not obligated to pay any income taxes.
Unfortunately for Hill, tax liability is a unilateral requirement for all income-earning citizens— whether or not they have “withdrawn” from society. She pled guilty on charges of tax evasion and if convicted, she faces up to one year in prison for each of the years that she failed to file her tax returns and up to $100,000 in fines.
Employment Tax Evasion
A Texas man and his wife were recently convicted of conspiracy to attempt to evade federal income taxes, as well as five counts of attempting to evade the federal taxes.
If you had to read that twice, you are not alone in your confusion surrounding the area of conspiracy law. Basically, this couple was charged with the underlying crime of attempting to evade federal income tax. They were charged with five counts because each tax-filing year in which they attempted to evade the tax constitutes a separate and distinct offense.
By corroborating with each other and planning the tax evasion beforehand, they triggered the conspiratorial statutory language of “conspired with another in furtherance of a scheme.” By showing actual knowledge of and participation in the scheme to evade the tax, the prosecution was able to successfully convict them on a charge of conspiracy to attempt to evade federal income taxes along with the underlying tax evasion charges.
In the year 2000 the couple stopped filing tax returns and instructed their employers not withhold any income taxes from their paychecks. Instead, they had the checks issued to the Office of the Patriarch of the Gathering of the House of Israel, a business the couple created as an illegitimate tax shelter, using an invalid Employer Identification Number.
The Employer Identification Number is a number assigned by the IRS to employers for identification, for employee tax withholding purposes. Basically the couple was attempting to pose as an organization that would take over the responsibility of withholding employment taxes and turning them over to the government. In reality, they were keeping the withheld tax funds with no intention of submitting them to the Internal Revenue Service. In this way, they tried to get paid “under the table” while appearing to be in compliance with employment tax law.
The couple had a history of regularly refusing to provide their social security numbers to employers, as part of their efforts to avoid detection and evade assessment of the employment tax. This no doubt caused their varied employers grief, and employers who may have been complicit in the couple’s scheme could quite possibly be exposed to criminal liability.
The man was sentenced to 40 months in prison, his wife to 36 months, and the couple was ordered to jointly pay over $570,000 in restitution to the IRS.