It’s rare for the Internal Revenue Service to seek criminal charges against taxpayers for allegedly failing to file returns, but the agency typically limits such actions to high-profile cases such as Baltimore Police Commissioner Darryl De Sousa’s.
De Sousa was charged with three misdemeanor counts of failure to file federal tax returns in 2013, 2014 and 2015. Mayor Catherine Pugh placed him on paid leave Friday pending the case’s resolution.
Glen Frost, managing partner of Frost & Associates LLC, which has law offices in Maryland and Washington, D.C., said because the IRS has limited resources, it’s uncommon for the agency to pursue charges against taxpayers for misdemeanors, such as failure to file tax returns. It’s more common for the agency to pursue felony charges against people for crimes like tax evasion.
“The IRS likes to make examples out of notable public figures and obviously that’s where you see these failure-to-file cases,” Frost said. “Most criminal tax violations they charge are felonies, but failure to file is a misdemeanor count. It’s rare, I’ll say, but it happens.”
The IRS processed more than 150 million returns in 2017 through November, according to IRS records. It’s unclear how many people were required to file and did not.
In the 2017 fiscal year (Oct. 1, 2016, to Sept. 30, 2017), the IRS launched 1,188 investigations into legal source tax crimes, which include failure to file.
People who fail to file taxes can avoid criminal charges by entering the IRS’ Voluntary Disclosure Program.
“It’s the IRS’ policy to not refer that case to criminal investigation,” Frost said.
If taxpayers don’t disclose that they failed to file, the IRS can find out about the crime through a number of channels, such as tipsters or agency audits. Typically, the IRS would first conduct an administrative investigation to determine if an individual was obligated to file taxes and didn’t file on time, Frost said. The case would then be referred to the tax division of the U.S. Department of Justice, and that division would recommend charges and refer the case to a local office.
Usually, the subject of an investigation is contacted and interviewed prior to being charged.
“There’s typically back and forth prior to the indictment,” Frost said.
In De Sousa’s case, attorney Steven Silverman said De Sousa did not learn about the charges until after they were filed, and federal authorities did not give him a chance to explain or file missing returns.
The IRS typically focuses on high-profile cases where there’s a pattern of criminal conduct, Frost said, so it makes sense that the IRS would target someone like De Sousa, who failed to file taxes for three years.
“What’s very interesting is the current turmoil going through the Baltimore City Police Deprtment,” Frost said. “There’s already a lot of eyes on the Baltimore City Police Department from the U.S. attorney’s office anyway.”