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The Legal Consequences of Noncompliance with Federal Tax Laws

36 Pages Posted: 10 Feb 2017  

Allen D. Madison

University of South Dakota Law School

Date Written: 2016

Abstract

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.

In the study of tax controversy, it is unusual to group these topics — collection, penalties, and criminal liability — together under the umbrella of noncompliance. Prior to this Article, a taxpayer inquiring about these considerations and their impact would not have found these topics presented together with the purpose of responding to the inquiry. The Code disperses these topics throughout its procedural subtitle. Treasury regulations are organized by Code provision, so they are of no help either. Moreover, secondary sources organize tax controversy chronologically based on events that may occur in the process. Although tax controversy events rarely flow chronologically, the decisions and determinations that taxpayers and the government make flow sequentially. The first decision a taxpayer makes is whether to comply with the tax laws. Thus, it makes sense to discuss criminal liability, penalties, and collection before the discussing the decision to file a return or the procedures for determining a deficiency.

Keywords: Noncompliance, Penalties, Tax, Evasion, Collection, Consequences, Enforcement, Willfulness, Disclosure

JEL Classification: H1, H2, H10, H11, H13, H19, H20, H24, H26, H29, H31, K00, K3, K4, K10, K14, K19, K23, K34, K39, K40

Suggested Citation

Madison, Allen D., The Legal Consequences of Noncompliance with Federal Tax Laws (2016). Tax Lawyer, Vol. 70, No. 1, p. 367, 2016. Available at SSRN: https://ssrn.com/abstract=2914617

Allen D. Madison (Contact Author)

University of South Dakota Law School ( email )

414 E. Clark Street
Vermillion, SD 57069
United States

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