Tax Laws and Regulations for Gamblers

The New IRS Nonfiler

Enforcement Program

As we wrote in a column last year, the IRS Criminal Investigation Unit has been given a new responsibility, to investigate gamblers who do not file. It declared that among the types of cases that might be developed by the CIU are small business/self-employed fraud cases, abusive trust cases, and gaming cases. (A professional gambler is in fact a small business.) It further stated that the goal of the CIU is to put tax cases in context and, thereby, leverage the publicity from them, which means that it's looking to make examples out of gamblers who are not properly reporting their income. From this we can conclude that in the past, the IRS was not that concerned about unreported legal gambling winnings, as it was focusing on proceeds from illegal activities, primarily drug dealing. The IRS published information about its revised program for dealing with nonfilers on its website in April 2001. Below are excerpts from the website, which we found to be most interesting:

The IRS has implemented a multifunctional, comprehensive effort called the National Nonfiler Strategy. The overall goal of this strategy is to bring taxpayers back into compliance and keep them there. In addition to nonfilers, the IRS will reach out to individual taxpayers who are not legally required to file but are potentially entitled to refunds or credits.

Whether it's because of an inability to pay or severe procrastination, some citizens drop out of the tax system. The IRS has made attempts to make it easier for persons to voluntarily comply with the tax laws and to bring themselves current on any outstanding filings or tax due. Assistance is provided to those persons to resolve issues that caused them to drop out of the tax system and to bring them back into compliance.

The Criminal Investigation Unit's role is the enforcement of the tax laws for individuals who are not responsive to outreach efforts and who deliberately fail to comply with their obligation to file and pay taxes. The CIU has devoted resources to identify these individuals, and in the most flagrant cases, criminal prosecution is recommended. The CIU's ability to investigate and prosecute flagrant cases and generate publicity relating to these prosecutions is an important compliance tool.

The nonfiler statistics on the next page represent the CIU's efforts in obtaining prosecutions and convictions during the past three and a half fiscal years.

As you can see from the statistics, the numbers have been decreasing over the past few years, except for the incarceration rate. Once the Criminal Investigation Unit has had time to develop more of these cases, it is our opinion that these numbers will increase, as indicated by the number of convictions for the first half of this fiscal year being more than half of the convictions for the last fiscal year. These investigations do take time. All investigations that are initiated in one year are not necessarily recommended for prosecution, indictment, and/or conviction in the same year.

Additionally, the IRS warns on its website regarding nonfilers that unscrupulous promoters and their followers have long employed frivolous arguments concerning the legality of the income tax as a pretext to enrich themselves or evade their taxes. Their motivation is usually monetary, and not some legitimate purpose or belief. Anti-taxation groups have been around for a long time. They are small but vocal. In the past, organizations like Your Heritage Protection Society (YHPS), the Save a Patriot Society, the Pilot Connection, and the Freeman all attracted followers. Although the leadership of these movements used different arguments to gain followers, they all share one thing in common: They received substantial sentences in federal prisons for their activities. Their followers paid a high price for following bad advice. Some were prosecuted, and many more were involved in years of litigation and ultimately had to pay all taxes owed along with penalties and interest. We wrote about these groups back in 1999, and have summarized below the facts regarding the tax laws for your information:

o The United States Constitution, Article 1, Section 8, Clause 1, states, "The Congress shall have the power to lay and collect taxes, duties, imposts, and excises to pay the debts and provide for the common defense and general welfare of the United States."

o The Internal Revenue Service (IRS) was established on July 1, 1862, by an act of Congress.

o Congress has charged the IRS with the responsibility of administering and enforcing the Internal Revenue Code and related statutes. Congress enacts the law, the IRS enforces it.

o The courts have unanimously held that there are no Constitutional or legal grounds for failure to file tax returns or failure to pay taxes.

o The term voluntary compliance means that each of us is responsible for filing a tax return when required, and for determining and paying the correct amount of taxes.

o Failure to file required tax returns and failure to pay taxes may result in criminal and/or civil penalties.

o All United States citizens have the right to appeal their taxes through the U.S. court system. However, they do not have the right to violate and disobey the tax laws.

Persons who are considering involving themselves in these anti-taxation "programs" should consider the consequences. Tax evasion is a serious crime that's punishable by imprisonment, fines, and/or the imposition of civil penalties. During the last four fiscal years (1997, 1998, 1999, and 2000), there have been 2,249 convictions relating to tax- and finance-related crimes. Of those convicted, 80.9 percent were sentenced to prison time, home confinement, electronic monitoring, or a combination thereof.

If you are a nonfiler, either because you are a "tax protester" or have not gotten around to it, we recommend that you seek licensed professional help and get "clean" before the Criminal Investigation Unit makes a case against you. (By the way, these guys often carry guns and work undercover.)

Our business is now headquartered in Las Vegas. Our new mailing address is: RBS Tax Service, 8170 W. Cheyenne, Suite 109, Box 177, Las Vegas, NV 89129. We accept questions and comments regarding our columns by mail and E-mail: [email protected]. We are now accepting new clients; see our ad elsewhere in this issue or contact us at (800) 829-7171 or (702) 804-0439.