April 01, 2017

The Legal Consequences of Noncompliance with Federal Tax Laws

Allen D. Madison

Reprinted with permission from The Tax Lawyer, Fall 2016 (70:1), at 367–402. Copyright © 2016 American Bar Association. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

This Article addresses the legal consequences a taxpayer should consider when deciding whether to comply with the basic requirements of the federal income tax laws. A taxpayer considering noncompliance should consider the government’s authority to assert criminal liability, impose civil tax penalties, and forcibly collect any unpaid tax. Although there are numerous criminal tax offenses, the potential offenses that may affect a taxpayer’s decision whether to comply are the failure to file and failure to pay misdemeanors, tax perjury felony, and attempted tax evasion felony. Similarly, the civil tax penalties that are intended to deter basic noncompliance are the failure to file addition to tax, failure to pay addition to tax, and civil fraud penalty. The remaining penalties (over 100 of them) target various types of behavior engaged in by people other than the taxpayer or that occur after a taxpayer has already decided to file a tax return. Thus, a taxpayer deciding whether to file a tax return or attempt to defraud the government need only consider these three. A taxpayer must also consider that the government is authorized, after satisfying certain procedural requirements, to forcibly collect the tax the taxpayer owes.

 

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