Posted on: Thursday, April 2, 2009
Tax cheaters, IRS is out to get you
By Michelle Singletary
Hard economic times can bring out the worst in people.
As the April 15 tax deadline approaches, you may be thinking of not filing a return if you owe additional money to the Internal Revenue Service. Or you may be tempted to file a fraudulent return to boost your refund by taking deductions you know you aren't entitled to claim.
It seems so obvious to say that if required, you should file your tax return every year and not cheat. Except there are people who do take the chance of betting that the IRS won't catch up to them. But when and if the IRS discovers what you are doing, the result is not very pretty.
Aside from the penalties, do you want that mental anguish of wondering if you're going to be caught?
So let me lay out the financial consequences of failing to file and failure to pay what you owe, and see if this doesn't put a little scare in you:
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty typically stops accruing after five months. But you can incur additional penalties if fraud is involved, said IRS spokesman Eric Smith. If you cannot pay any or part of the taxes you owe, at least file your return. You can work out a payment plan with the IRS. You can apply online by going to www.irs.gov. Use the pull-down menu under "I need to ..." on the right side of the IRS home page. Select "Set Up a Payment Plan."
You will have to pay a failure-to-pay penalty of 1/2 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. You can cut this penalty in half by setting up a payment plan, Smith said.
The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after you get notice that the IRS intends to levy certain assets.
The two most common accuracy-related penalties are the "substantial understatement" penalty and the "negligence or disregard of rules or regulations" penalty. If you are guilty of either one of these, you pay a flat 20 percent based on the related tax due.
If you lie on your return to reduce what you owe (or to get a refund), a penalty of 75 percent of the underpayment due to civil fraud will be added to your tax.
I think of people who don't file their returns or who file fraudulent returns as being similar to Christopher Walken's character Nick in the "The Deer Hunter." He played Russian roulette for money, winning lots of times before he lost his life. The IRS won't kill you, but the penalties piled onto what you originally owed may feel like a financial death.
For the gamblers out there, consider these recent cases profiled by the IRS:
A Maryland man was sentenced to three years in prison for filing a false tax return and also was ordered to pay $231,560 in restitution. Wayne Eric Matthews, of Bowie, Md., was sentenced in March. He was found guilty of claiming that a trust he oversaw was due a refund.
A Lexington, Miss., physician was sentenced to 27 months in prison for filing false federal tax returns. Calvin Ramsey was ordered to pay $232,117 in restitution to the IRS. He was found guilty of failing to report substantial gross receipts from his business for the years 2000 and 2001. Just because the IRS doesn't catch you right away doesn't mean you won't get caught. Ramsey wasn't indicted until 2007, which goes to show that the IRS takes a long view when it comes to finding tax cheats.
A Missouri pathologist was sentenced in February to 18 months in prison for failing to file tax returns for the years 2002 and 2003. Miles J. Jones was fined $20,000, and ordered to pay $79,225 in restitution to the IRS. Jones pleaded guilty to the two violations.
In Boston, Christopher Ranieri was sentenced in February to 12 months in prison and ordered to pay $33,438 in restitution for failing to file for tax years 2005 and 2006. Ranieri's arrest was part of a larger investigation of the local chapters of the Hells Angels motorcycle club, the IRS said.
It's been a longstanding policy of the IRS not to pursue criminal prosecution when individuals voluntarily come forward and file a return for missing years before a criminal case is built, according to Smith.
But with a growing federal budget deficit, I wouldn't count on that good will for long.
