Government Agencies (Besides the IRS) Can Impose Penalties In a Tax Audit Case
It's not just the IRS who cares about audits. Other government agencies including immigration, DMV, federal home loan agencies, and others have tax-related penalties or consequences.
Losing a tax audit--whether state or federal--is no fun. At the very least, you'll have to pay money to the IRS or state taxing authority--maybe a lot of it. In severe cases of tax fraud, criminal penalties can be imposed. But, if that's not bad enough, there can be other penalties imposed by agencies other than the IRS or state tax agency. In some cases, these can be worse than the tax penalties. Few people are aware of these potential penalties. These can include:
- Deportation: The federal immigration law provides that a noncitizen legal resident can be deported if he or she commits an "aggravated felony," which includes an offense involving fraud or deceit that result in a loss of over $10,000 to the victim. This law can be applied to foreign nationals convicted of criminal tax offenses. Take the case of Akio and Fusako Kawashima, Japanese nationals who legally resided in the United States. They failed to pay nearly $250,000 in taxes on income they earned from their Japanese-food restaurants. They pled guilty to willfully filing a false tax return, which is a felony, and received a four-month prison sentence. After they got out of prison they were deported by the Immigration and Nationalization Service. Immigration officials held that the couple had committed an offense involving fraud or deceit which resulted in a loss of more than $10,000 to the “victim”—the federal government itself—because they willfully filed a false tax return.
- No FHA Home Loans: The Federal Housing Administration (FHA) home loan program enables lower income people to obtain federally insured mortgages that have lower payments than conventional mortgages. However, any person who is delinquent in paying any federal taxes or is subject to a federal tax lien is ineligible to participate in the program.
- No Government Contracts: No government contract worth more than $5 million can be awarded to any service provider who has failed to file all federal tax returns during the previous three years, has been convicted of a tax crime, or owes any outstanding debt to the federal government.
- Driver's License Revocation: Several states revoke or suspend the driver's licenses of state tax scofflaws. These include California (top 500 tax evaders only), Massachusetts, Maryland, South Carolina.
- Denial of Vehicle Registration: Other states will refuse to register the car or other motor vehicle of a person who owes taxes to the state. These include Rhode Island, Connecticut, and South Carolina.
- Denial or Suspension of Professional Licenses: Many states will deny or suspend the professional licenses of residents who do not comply with state (and sometimes federal) tax laws. For example, Minnesota will suspend the license of any physician licensed in the state who fails to pay state taxes. State bar associations may also deny or revoke law licenses to tax evaders on the ground they have committed an act of "mortal turpitude."
- Lost Liquor License: Liquor licensees who fail to pay their state taxes may have their licenses revoked by their state liquor licensing agency.
- No Recreational Licenses: States may also deny recreational licenses to residents who are not current on their taxes. For example, Louisiana will suspend any hunting and fishing licenses held by a person who owes over $500 in state taxes.
- Public Shaming: Over half the states engage in public shaming of tax delinquents by making their names public on a tax-delinquency list. These include Pennsylvania, Oklahoma, Montana, Rhode Island, Massachusetts, Delaware, California, Minnesota, Washington, South Carolina, North Carolina, Maryland, the District of Columbia, Virginia, Hawaii, Kentucky, Georgia, Illinois, various Ohio counties, Louisiana, Colorado, Wisconsin, counties within Utah, and counties within Arkansas and Missouri. Who gets placed on these lists varies from state to state.
The federal and state governments have been looking for even more ways to punish those who don't pay their taxes. For example, Congress is currently considering passing a law requiring revocation of the passports of all those who owe $50,000 or more to the IRS.