Not Filing Your Taxes Can Result in Prison Time

The IRS knows that a number of you who play winning poker do not file tax returns. The IRS restructuring, mandated by Congress a few years ago, resulted in the IRS Criminal Investigation Unit being given the responsibility of investigating gamblers who do not file or file but understate their gambling winnings. The goal of the CIU is to put tax cases in context, and thereby leverage the publicity from these cases, which means it is looking to make examples out of gamblers who are not properly reporting their income. 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.

Your reason for not filing may be severe procrastination or deliberate, because you believe you will not be caught, or you may have been taken in by the unscrupulous promoters and their followers who have long employed frivolous arguments concerning the legality of the income tax as pretexts to enrich themselves or evade their taxes. The motivation of these promoters is usually monetary. Anti-taxation groups have been around for a long time. They are small, but vocal. In the past, organizations like Your Heritage Protection Society (YHPA), the Save a Patriot Society, the Pilot Connection, and the Freeman all attracted followings. Although the leadership of these movements used different arguments to gain followers, they all had one thing in common: They received substantial sentences in a federal prison for their activities. Their followers paid a steep 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.

If you have not filed for a number of years and it appears the IRS does not know you exist, you may want to consider "coming in from the cold" now before they find you. You will be in a much better position if you voluntarily file for the years you missed in order to get current, rather than be discovered by the Criminal Investigation Unit. To help you get motivated to file before they catch up with you, we have listed below a number of cases in which the taxpayer received a sentence of jail time for nonfiling. All of these cases occurred in 2002, and are on the IRS web site if you would like to read the details of each. We have omitted the name and residence of the taxpayer, out of common courtesy.

Case No. 1 - Construction Company Owner Sentenced in Michigan: On Oct. 3, 2002, he was sentenced to 12 months in prison followed by 12 months of supervised release. The taxpayer was arrested without incident on April 23, 2002, following a grand jury indictment on four counts of willfully failing to file a 1995, 1996, 1997, and 1998 federal tax return. The taxpayer was a licensed builder. Although having a gross income of approximately $598,000, he had not filed a federal income tax return since 1992. On June 20, 2002, the taxpayer pleaded guilty to one count of willfully failing to file a federal tax return.

Case No. 2 - Heir to the DuPont Family Fortune Sentenced: The taxpayer was sentenced on Sept. 27, 2002, to 12 months in prison and one year of supervised release after pleading guilty last June to two counts of willfully failing to file income tax returns. The taxpayer had not filed any federal tax returns since 1983. After learning of the criminal investigation that led to the charges against him, the taxpayer filed his returns for the tax years 1996 through 1999 in April 2002. Based on those returns, the taxpayer's total taxable income for those years was $982,809. The tax on that income, which the taxpayer has now paid, was $319,085.

Case No. 3 - CPA With Master of Taxation Degree Sentenced: On Sept. 16, 2002, the taxpayer was sentenced to five months in prison, followed by five months of home confinement and two years of supervised release, after being convicted on four counts of tax evasion for the years 1996 through 1999.

Case No. 4 - Doctor Sentenced to Eight Years: On Sept. 5, 2002, the taxpayer was sentenced to eight years in federal prison - and ordered to make restitution in the amount of $876,857.34 - as well as a three-year period of supervised release and 100 hours of community service. The taxpayer was convicted on tax violations, mail fraud, and obstruction of justice. The tax charges stemmed from the taxpayer's failure to file income tax returns for the years 1995 through 1998.

Case No. 5 - Attorney Sentenced: On April 29, 2002, a taxpayer attorney was sentenced to 36 months in federal prison for failing to file federal income tax returns for 1995, 1996, and 1997. He received nearly $1.4 million in the three-year period. In January 2002, a jury deliberated for approximately one hour after four days of trial. During the trial, the taxpayer and his attorney argued numerous "tax-protest" defenses, including that there was no statutory requirement to file income taxes. During the sentencing hearing, the judge expressed that it is important that the public recognize the failure of "tax-protester" arguments, and that the maximum sentence he imposed should reflect as much.

Case No. 6 - Physician and Husband Sentenced: On March 21, 2002, a doctor and her husband were each sentenced to 21 months in prison following their jury trial on failing to file and filing false income tax returns. Trial evidence demonstrated that they willfully failed to file income tax returns for 1990-1995 and 1998, even though both drew regular paychecks from the family medical practice.

There are several other cases published on the IRS web site. We hope that after reading these cases, you will be motivated to file your delinquent return(s). As always, we advise that you seek professional help.

If you have any questions regarding tax regulations as they apply to gaming that you would like to see answered in Card Player, please mail us your questions or e-mail us. We will keep your identity confidential. If you would like to utilize our professional services or order our book, The Tax Guide for Gamblers, please call (800) 829-7271. For more information, see our ad elsewhere in this publication.