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Unfiled taxes, part 2: non-filer investigations

Let's continue the discussion we began last week about unfiled tax returns. In part one of this post, we noted some of the consequences that can result from not filing your return on time. The IRS could file a substitute return for you, which includes a Notice of Deficiency. If you don't resolve the matter, a collection action could follow.

But there is an even more serious potential consequence for failure to file taxes. You could face a non-filer investigation, in which the Criminal Investigation division of the IRS seeks to determine whether there was willful tax evasion or fraud.

In this post, we will look at a couple of examples of delinquency investigations that led to criminal prosecutions.

In one case earlier this year, the proprietor of a unlicensed car dealership in Minnesota was sentenced to two years in prison after hiding income from the IRS. The man's sentence also included an order to pay nearly $97,000 in restitution.

The man had agreed in 2008 to pay nearly $100,000 in back taxes to the IRS. Four years later, he still owed the taxes. But he did not file income tax returns in 2012 and 2013, and he hid the cash income he made from his car dealership. He hid the income by opening bank accounts under someone else's name and using cashier's checks.

In another case earlier this year, a business owner in New Hampshire received a one-year prison sentence for tax evasion after failing to file federal income tax returns for himself or his business for three years. The man's sentence also included three years of supervised release.

As in the Minnesota case we mentioned earlier, the man took active steps to try to hide business income. He did this by having payments made in the name of a third party and by diverting a considerable amount of business revenue to his personal use.

These are only two examples of prosecutions that followed non-filer investigations. Such investigations are always serious, raising the prospect of prison time and hefty restitution orders. If you are concerned about the consequences of your unfiled returns, it is therefore important to get counsel from a knowledgeable tax attorney.

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