Each year for the 30 years that I've been writing about taxes, the US Internal Revenue Service sends out a barrage of press releases during the three months prior to the annual income tax filing date of April
15th.

Many of these press notices are announcements about successful prosecutions of tax evaders -- all carefully timed to coincide with the first three months of the year when folks are working on their taxes or having them done by their accountants. Because tax prosecutions are relatively rare, an unquestioning news media dutifully picks up the press releases and runs them with large headlines.

The purpose of this annual exercise, of course, is to remind the rest of us that cheating on our taxes can result in some time in Club Fed.

Criminal prosecutions for tax evasion are only worthwhile to the IRS because of this publicity value. They take a long time and usually cost the IRS far more in time and effort than the added penalties that can be
collected. In addition, in a criminal prosecution the IRS has to be able to prove to a jury that the accused taxpayer knowingly and wilfully failed to pay taxes that were owed. First, that means they must offer
solid proof to a jury of other taxpayers that the accused taxpayer understood the law and what the law required of him. Second, they have to show that the taxpayer's failure to comply with the law was intentional and not due to a mistake or a result of having bad advice.

With the massive complexity of the US tax code, you can guess that making this case is not always easy. So the IRS picks the easy ones.

By contrast, if the IRS limits its efforts to pursuing civil tax cases (which impose no jail time), a jury is not required and the burden of proof generally shifts to the taxpayer, forcing him to prove that he has paid the correct amount of taxes. Penalties of up to 75% of the tax that should have been paid can be added to the amount of taxes the IRS claims is due, then interest is piled on top of that. So, from a practical point of view, the IRS prefers to focus on civil penalties and interest, rather than to pursue criminal prosecutions.

But the IRS continues to put a few people in jail each year just to remind the rest of us they can do that if they want to -- and if they can prove it.

Vernon K. Jacobs, CPA, CLU
E-mail: jacobs@offshorepress.com
Web site: http://www.offshorepress.com/