Many people are afraid of the IRS, but most of that fear is based on misinformation or just plain irrational.
The IRS works mostly on a reporting system that relies on most of the public to snitch on each other. There are two forms that might be sent to the government.
The first is form W2. If you have a regular, full-time job, your employer probably withholds taxes, social security and medicare, and sends it to the government. At the end of the year, they’ll send you a W2 form. They also send a copy of this to the IRS.
If you are an “independent contractor” or you have bank accounts or investment accounts, your “income” or interest will likely be reported on a 1099 to the IRS.
You can always walk into the IRS (or even go online) and get a “transcript”, which is all the information that has been reported to the IRS. If you ever file, it’s usually a good idea to check that first. If there’s anything that wasn’t reported, the IRS won’t assume it’s taxable. That’s not being sneaky, anything that is reported can be disputed because it’s likely not taxable, but that’s for another lesson.
The IRS isn’t quick to respond, but if they have a lot of this information and you don’t file, they might just file for you. This is called a substitute return. They don’t give you any deductions other that the standard deduction, and they will send you a bill. This isn’t really a bill, it’s a “notice of deficiency”. This can be disputed, but that’s for another lesson.
If you don’t refute their assessment, they’ll attempt to collect it. They might levy bank accounts and put liens on property. This can all be stopped, but the lesson here is that you won’t go to jail.
In fact, there is even a non-collection status, where they will file a generic lien, but will stop all attempts to collect from you. That means that your bank accounts will be left alone. They also only have 10 years from the time of the assessment to collect, so after 10 years, the lien just goes away.
Simply not filing will not land you in jail, even though this is a fear that many people have. What they are afraid of is a law called “willful failure to file.” This can be found in section 7203 of the internal revenue code (title 26). It says:
Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year”.
That might sound scary, but it’s really not. The most important part is something you never would have seen if I didn’t show it to you. It says any person, and you’re probably thinking, “that could be me!” But could it? This is why it’s so important to learn legalese. In section 7343, we find a very specific definition of the word person.
The term “person” as used in this chapter includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.
Does that sound like it’s talking about you? If not, section 7203 about not filing does not apply to you. It only applies to “persons” as defined in 7343.
So what do people go to jail for?
Wesley Snipes is always the first person that comes to mind when people don’t believe this. In fact, you can read his indictment online and it is clearly charging him as an officer of several corporations.
Other people go to jail for putting fraudulent information in their returns, making up deductions or dependents to try to get more money back.
On top of that, there are over 100 million Americans who don’t file, who according the rules of “everyone has to file” should be filing. And yet, the IRS only prosecutes just over 1,000 people per year. The truth is that most of this is not criminal, and many of these people, if they aren’t properly fighting the IRS, are just getting notices and levies for money they would have paid to the IRS anyway.
around, and I will show you why the income tax is a scam and you should refuse to pay it.
Dan Taxation Is Theft Behrman