Tax Compliance And Non-Filers
A federal focus on bringing taxpayers into compliance
By Special Agent Janet Oakes
Public Information Officer
IRS Criminal Investigation Division
St. Paul Field Office
Overview - Non-Filer Enforcement
Our country’s tax system is built on voluntary compliance. One area the Internal Revenue Service is focusing on includes those individuals who are furthest from compliance - the non-filers. Taxpayers who fail to file income tax returns, and effectively stop paying income tax, pose a serious threat to tax administration and voluntary compliance. Their actions undermine public confidence in the ability to administer the tax laws fairly and effectively.
The Criminal Investigation Division’s (CID) role in IRS non-filer strategies is in enforcement. It is understood that there are those who will not respond to outreach efforts and simply refuse to comply with the law. For individuals who deliberately fail to comply with their obligation to file and pay taxes, CID has devoted resources to identify these individuals and in the most egregious cases, criminal prosecution is recommended to the United States Attorney's office.
Historically, IRS-CID has been involved in projects aimed at identifying and prosecuting the egregious non-filers in a variety of occupations and industries. A recent area of emphasis has been to identify professionals in the state of Wisconsin who are receiving income as an independent contractor and failing to report this income on their individual income tax returns.
An independent contractor is not considered an employee, and therefore does not receive a Form W-2 for their work. Instead, independent contractors receive a Form 1099-MISC, “Miscellaneous Income,” from the trade or business for which they performed services if their work totals more than $600 in a year. These Forms 1099 are also filed with the IRS. Comparing the income reported to the IRS on the Form 1099 to the individual tax return of the independent contractor performing the work gives IRS CID a starting point to identify those potentially egregious cases of high earnings that have no record of filing a federal income tax return.
Doctor Pleaded Guilty to Failing to File
Milwaukee resident Gerald Kipnis pleaded guilty and was recently sentenced in April 2007 for failing to file his required income tax returns to the IRS for tax years 2002 and 2003. According to the plea agreement filed in United States District Court in the Eastern District of Wisconsin, Kipnis, who is a medical doctor specializing in psychiatry, began working in the year 2000 as an independent contractor for a medical staffing business, Staff Care, Inc., headquartered in Irving, Texas. Under his arrangement with Staff Care, Kipnis was sent to various clinics or hospitals throughout the country where he was paid by Staff Care for providing psychiatric services. During 2002 and 2003, Kipnis provided services at the Rice Medical Center and St. Michael’s Hospital, both in Stevens Point, Wisconsin. Because Kipnis was employed as an independent contractor, Staff Care did not withhold payroll taxes from the compensation it paid Kipnis. Staff Care did provide Kipnis with a Form 1099 after the end of each tax year summarizing his compensation. Although he received substantial income for his services, Kipnis did not file federal income tax returns with the IRS for these years. As outlined in the plea agreement, Kipnis had not filed a tax return since 1997, despite having total gross income of $589,409 during those years. Kipnis was sentenced to probation, with conditions of 12 months home confinement and ordered to cooperate with the IRS and submit all delinquent tax returns and pay all back taxes and interest.
Non-filing is an issue that cuts across all economic and social boundaries, each case creating a unique impact on our economy and the honest taxpayers who do file and pay their taxes each year. If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing IRS Form 3949-A. You may fill out Form 3949-A online, print it and mail it to: Internal Revenue Service, Fresno, CA 93888.
Further information about the IRS is at www.irs.gov.