HOME : Tax Fraud Alerts : Nonfilers Enforcement Program

This page was revised on October 4, 2002,
to update the statistical data.

"Taxes are what we pay for a civilized society."
Oliver Wendell Holmes

Table of Contents
Introduction
Frivolous Nonfilers
IRS and Treasury Warn of Tax Scam
IRS Issues Press Release
Criminal Investigation’s Nonfiler initiative
Statistical Data
Beware of Employment Tax Schemes
Just the Facts
Arguments
Recent Cases

All citizens must comply with the requirements of the tax law to file returns and pay taxes. Fortunately, the vast majority of Americans recognize their civic duty and voluntarily comply with their tax filing obligation. Taxpayers who fail to file income tax returns and pay taxes pose a serious threat to tax administration and the American economy. Their actions undermine public confidence in the Service’s ability to administer the tax laws fairly and effectively.

Whether because of an inability to pay or severe procrastination, some citizens drop out of the tax system. The IRS has made attempts to make it easier for persons to voluntarily comply with the tax laws and to bring themselves current on any outstanding filings or tax due. Assistance is provided to those persons to resolve issues that caused them to drop out of the tax system and bring them back into compliance.

CI’s role is the enforcement of the tax laws for individuals who are not responsive to outreach efforts and who deliberately fail to comply with their obligation to file and pay taxes. CI has devoted resources to identify these individuals and in the most flagrant cases, criminal prosecution is recommended. CI‘s ability to investigate and prosecute flagrant cases and generate publicity relating to these prosecutions is an important compliance tool.

When the 16^th Amendment to the Constitution was ratified (February 3, 1913) giving Congress the power "to lay and collect taxes on incomes" citizens began arguing that it was not properly ratified and income taxes are illegal. Unfortunately, some citizens continue to raise such arguments in spite of the fact that they have no basis in law and the courts have repeatedly rejected their arguments as frivolous.

Unscrupulous promoters and their followers have long employed frivolous arguments concerning the legality of the income tax as pretexts to enrich themselves or evade their taxes. Their motivation is usually monetary, not some legitimate purpose or belief. Anti-taxation groups have been around for a long time. They are small but vocal. In the past, organizations like Your Heritage Protection Society (YHPA), The Save a Patriot Society, The Pilot Connection, and the Freeman all attracted followings. Though the leadership of these movements used different arguments to gain followers, they all share one thing in common; they received substantial sentences in a federal prison for their activities. Their followers paid a steep price for following bad advice. Some were prosecuted, many more were involved in years of litigation and ultimately had to pay all taxes owed along with penalties and interest.

The IRS and Treasury have issued a notice warning taxpayers that if they file returns under the theory that U.S. citizens and residents aren't subject to tax on their wages and other income earned or derived within the United States, they may be subject to penalties. 

"Taxpayers intending to use the court as a soapbox should consider the potential cost," says IRS Commissioner Charles O. Rossotti. Despite all the warnings and the history of frivolous arguments in the court system, some taxpayers insist on presenting frivolous arguments in court. The law allows the courts to impose a penalty of up to $25,000 when they come to any of three conclusions:

• a taxpayer instituted a proceeding primarily for delay,
• a position is frivolous or groundless, or
• a taxpayer unreasonably failed to pursue administrative remedies.

On June 27, 2001, the IRS issued Press Release IR-2001-59, "Day In Court" May be Costly for Frivolous Tax Case Filers. This release summarizes several cases where the taxpayer was fined or penalized for bringing frivolous suits before the Courts.

On April 3, 2002, the IRS issued Press Release IR-2002-42, IRS UPDATES WEB ITEM DEBUNKING FRIVOLOUS TAX ARGUMENTS. The release announces that the Internal Revenue Service has updated its Web site item that addresses false arguments about the legality of not paying taxes or filing returns. The revisions add several recent case citations and respond to one additional argument, making a total of 20 frivolous contentions that are addressed. The document is titled, "The Truth About Frivolous Tax Arguments" (This is a PDF file).

Department of Justice Issues Injunction

The Department of Justice has issued several injunctions against promoters of illegal tax plans or shelters that urge taxpayers to violate the tax laws.  We have put together a table of the most recent Department of Justice press releases on civil and criminal actions against promoters of schemes, scams and cons.  For all Department of Justice press releases, please visit their web site. 

Criminal Investigation’s Nonfiler Initiative

IRS has implemented a multi-functional, comprehensive effort called the National Nonfiler Strategy. The overall goal of this strategy is to bring taxpayers back into compliance and keep them there. In addition to nonfilers, the IRS will reach out to individual taxpayers who are not legally required to file but are potentially entitled to refunds or credits.

The following nonfiler statistics represent CI’s efforts in the past three full fiscal years:

Currently, the same arguments concerning the legality of the tax system are being used in an attempt to convince employers they do not have to withhold employment taxes. Employment tax evasion schemes have serious consequences not only for the employers but the employees as well. Employers are subject to both criminal and civil sanctions but employees also suffer because as a result of their employer’s actions they may not qualify for social security, Medicare, or unemployment benefits (or they may qualify for reduced benefits only). These programs provide important benefits to many citizens and will continue to grow as more citizens reach retirement age. The health of these programs depends on everyone paying their fair share.

• The United States Constitution, Article 1, Section 8, Clause 1, states "The Congress shall have the power to lay and collect taxes, duties, imposts and excises to pay the debts and provide for the common defense and general welfare of the United States."
• The Internal Revenue Service (IRS) was established on July 1, 1862, by an act of Congress.
• Congress has charged the IRS with the responsibility of administering and enforcing the Internal Revenue Code and related statutes. Congress enacts the law, IRS enforces it.
• The courts have unanimously held there are no Constitutional or legal grounds for failure to file tax returns or failure to pay taxes.
• The term voluntary compliance means that each of us is responsible for filing a tax return when required and for determining and paying the correct amount of tax.
• Failure to file required tax returns and failure to pay taxes may result in criminal and/or civil penalties.
• All United States citizens have the right to appeal their taxes through the U.S. court system. However, you do not have the right to violate and disobey the tax laws.

Persons who are considering involving themselves in these anti-taxation "programs" should consider the consequences. Tax evasion is a serious crime punishable by imprisonment, fines and the imposition of civil penalties. 

Complicated arguments against the American tax system are built by stringing together unrelated ideas plucked from widely conflicting court rulings, dictionary definitions, government regulations and other sources. Some of the most popular arguments include:

Constitutional Argument - Filing a Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy.

The Truth: The courts have consistently held that disclosure of the type of routine financial information required on a tax return does not incriminate an individual or violate the right to privacy.

Compensation Argument - Wages, tips and other compensation received for personal services are not income because there is allegedly no taxable gain when a person "exchanges" labor for money.

The Truth: The Internal Revenue Code defines gross income as income from whatever source derived and includes compensation for services.

Sixteenth Amendment Argument - The Constitutional Amendment establishing the basis for income tax was never properly ratified.

The Truth: The Sixteenth Amendment was properly ratified in 1913, and it states "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

Religious Arguments - Individuals invoke the Freedom of Religion clause of the First Amendment by taking a vow of poverty or by fraudulently claiming charitable contributions of 50% or more of their adjusted gross income.

The Truth: Taking a purported vow of poverty or claiming fraudulent contributions to filter income through a church is not legal. Many fraudulent religious organizations use funds for personal expenses.

Internal Revenue Code Arguments - (1) There is no Internal Revenue Code that imposes taxes; (2) only "individuals" are required to pay taxes; or (3) IRS can only assess taxes against people who file returns.

The Truth: The tax law is found in Title 26 of the United States Code. The requirement to file an income tax return is not voluntary and it is clearly set forth in the Internal Revenue Code (IRC) Sections 6011(a), 6012(a), et seq., and 6072(a).  Our system of taxation allows taxpayers to determine the correct amount of tax and complete the appropriate forms "voluntarily" rather than have the government do it for them.  However, any taxpayer whose income falls below the statutory amount, does not have to file a return.

Forming a Trust Argument: - Forming a business trust to hold your income and assets will avoid taxes. A family estate trust will allow you to reduce or eliminate your tax liability.

The Truth: Although there are legitimate trusts and legitimate reasons why individuals establish trusts, establishing a trust, foreign or domestic, for the sole purpose of hiding your income and assets from taxation is illegal and will not absolve you of your tax liability. The underlying claims for many "untaxing" trust packages rely on other frivolous arguments--arguments that have subjected promoters, as well as willing participants, to criminal penalties. See IRS Publication 2193, "Should Your Financial Portfolio Include 'Too Good To Be Trusts?'"

Some American citizens use these and other clever arguments advocating non-compliance with the tax laws. Don’t be misled. Inspect their promotional material carefully. Aside from being false and misleading, you will notice that it often contains elaborate disclaimers such as "this report is offered as vehicle for discussion and debate and for general informational purposes only. It does not constitute legal or professional advice and should not be relied on as a substitute for proper research and inquiries into original sources of authority." You will also find that many of these "tax experts" don’t even follow their own advice but choose to pay their own taxes.

The IRS is will: (1) Assist taxpayers who have been misled to correct their returns, and (2) Vigorously pursue prosecution and prison sentences for individuals who violate the tax laws.

Recent Cases
The following case summaries are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted.

On September 5, 2002 in San Francisco, CA, Dr. Donald Ernest Wishart was sentenced to 8 years in federal prison, and ordered restitution in the amount of $876,857.34, as well as a three-year period of supervised release and 100 hours of community service. Dr. Wishart was convicted on tax violations, mail fraud, and obstruction of justice. During the trial, the evidence showed that Dr. Wishart traveled to north-central Montana to attend a two-day seminar conducted by the Montana Freemen in December 1995. At the end of the seminar, in exchange for approximately $100, Dr. Wishart received four fraudulent financial instruments styled "Comptroller Warrants" purportedly totaling over $7 million. Wishart submitted the Freemen warrants for payment to Bay View Federal Bank and at least two government agencies, including the IRS, knowing they were worthless. The Court further found that, following his submission of the Freemen warrant to the IRS, Dr. Wishart sought to impede IRS agents in their collection efforts by sending the agents lien documents threatening financial harm totaling $200 million. This activity was the basis for Dr. Wishart’s obstruction violation. The tax charges stemmed from Dr. Wishart’s failure to file income tax returns for the years 1995 through 1998.

On July 22, 2002, Noel Reese Bagwell, Jr., an attorney from Clarksville, TN, pled guilty to 3 counts of failure to file personal income tax returns for tax years 1994, 1995 and 1996, years in which he had gross income of approximately $1,282,718, resulting in a total tax loss of approximately $57,357. Bagwell has a history of failure to file and pay taxes dating back to tax year 1988.  Bagwell is scheduled for sentencing on October 11, 2002.

On July 9, 2002, Richard Dean Rice, of Reno, Nevada was sentenced to three years probation and ordered to pay $26,269 in restitution to the IRS for his guilty plea to failing to timely file and pay federal income taxes. Rice, a machinery salesman, worked for two different companies, neither of which withheld any taxes from his earnings because he worked as an independent contractor.

From 1994 through 1998, Rice earned approximately $216,240. In addition to the three years probation and money owed in restitution, Rice was also ordered to serve 200 hours of community service.

On June 17, 2002, Paul Louis Eichel of Nashville, Tennessee was sentenced to serve 10 months followed by three years of supervised released.

Eichel pled guilty to failing to file IRS Form 8300, Report of Cash Payments over $10,000 Received in a Trade or Business. According to court records, Eichel caused J&W Holdings, Inc., doing business as 701 Club, to fail to file the information return with IRS in connection with a series of related transactions involving the receipt of $111,500. Eichel received the money from September 20, 1997 through February 20, 1998 in several separate payments according to court testimony. The payments were to pay for the purchase of an interest in an adult strip club known as the 701 club, for renovations to the club and to launder money through the business.

During sentencing the judge gave Eichel a two-level sentencing enhancement, finding that Eichel knew the money he received was from some illegal source.

In Detroit, Michigan, on May 2, 2002, Paul Soyk of Sterling Heights, Michigan was convicted after a three-day trial in federal court. Soyk, a CPA who also has a Master of Taxation degree willfully attempted to remove himself from the taxing system, based on the false argument that he determined that there was no known legal duty requiring him to pay taxes.

Soyk was employed at Advanced Resources of Michigan from 1996-1999. In order to stop his employer from withholding federal income tax, Soyk presented Forms W-4, Employee's Withholding Allowing Certificates, falsely claiming "exempt" status. During this time, Soyk failed to file income tax returns and failed to pay at least $25,000 in federal income taxes due and owing to the Internal Revenue Service.

Soyk is scheduled to be sentenced on September 16, 2002.

On April 29, 2002, in Little Rock, Arkansas, Ernest Clyde Swisher, a Missouri attorney, was sentenced to 36 months in federal prison for failing to file federal income tax returns for 1995, 1996 and 1997. Swisher received nearly $1.4 million in the three year period.

In January 2002, a jury deliberated approximately one hour after four days of trial. During the trial, Swisher and his attorney argued numerous "tax-protest" defenses, including that there was no statutory requirement to file income taxes. During the sentencing hearing, the Judge expressed that it is important that the public recognize the failure of "tax-protester" arguments and that the maximum sentence that he imposed should reflect as much.

On March 21, 2002, Dr. Sakiliba Mines and her husband, Charles Mines, were each sentenced to 21 months in prison following their jury trial on failing to file and filing false income tax returns. Trial evidence demonstrated that Dr. and Mr. Mines willfully failed to file income tax returns for 1990-95 and 1998 even though both drew regular paychecks from Dr. Mines family medical practice, Dupont Medical Associates, in Washington, DC.

Dr. and Mr. Mines, both of Silver Spring, Maryland, did not timely file their 1996 federal income tax return, but filed the return only after federal agents executed a search warrant at their place of business. Evidence presented at trial showed the 1996 return to be inaccurate. The tax return filed for the 1997 tax years was false in several material aspects. Only Mr. Mines was charged with the falsity on the 1997 return because the primary unreported income involved a separate business he operated.

On March 21, 2002, Dr. Joseph Fanfan, Jr., pled guilty to failing to file federal income tax returns for 1994, 1995, 1996 and 1997. According to the indictment charged on October 11, 2001, Dr. Fanfan earned gross income of approximately $150,956, $199,306, $221,005 and $266,452 in 1994-1997, respectively.  Dr. Fanfan was sentenced on July 26, 2002, receiving 60 months probation.

David E. Kenner, whose law offices are in Encino, California, pleaded guilty on February 25, 2002, in a California courtroom. Kenner admitted he earned $4,085,539 in gross income in 1994 but failed to file his return for that year. Kenner also failed to file his return even after he was advised he was under criminal investigation. Kenner finally filed his return on December 2, 1997. On April 29, 2002, Kenner was ordered to participate in a 9-month home detention program that includes electronic monitoring and placed on probation for three years. Also, Kenner was ordered to participate in a psychological/psychiatric counseling or treatment program and to pay $1,500 to the Government for the costs of prosecution.

From the official court transcript of the Sentencing Proceedings for Katina Kefalos before the Honorable Algenon L. Marbley, United States District Judge on Friday, March 8, 2002:

Court: Ms. Kefalos, please come forward to be sentenced. Please bring Ms. Kefalos forward.

Defendant: Are you ordering the strawman or the natural woman Katina Kefalos to cross the bar?

Court: Ms. Kefalos, please come forward to be sentenced.

Defendant: Are you ordering me to cross the bar?

Court: Please come forward to be sentenced, Ms. Kefalos.

Defendant: Is that an order for the natural woman to cross the bar?

Court: That is an order for Katina Kefalos, the defendant, to come forward. Whether you are the strawperson, the natural woman, strawman, whomever, you are ordered to come forward. If you don't come forward, Ms. Kefalos, I will have the marshals bring you. It's your option.

In what the Court called an "abundance of caution" and after many examples of Ms. Kefalos' obstruction was laid before the Court, Judge Marbley continued the March 8, 2002, sentencing hearing until March 22, 2002. On that date, Ms. Kefalos was sentenced to 27 months in prison for evading payment of $12,990.67.

Ms. Kefalos did not file an income tax return for tax year 1996 after receiving commissions totaling $52,000 for her sales of real estate. She structured the manner in which she received the commissions in an effort to conceal the existence of these funds from the IRS.

The sentence was more severe than customary because of what the judge called her "obstructive behavior". This behavior included filing liens against the Clerk of the Court, one of her attorneys, and against the law firm in which he was a partner. Ms. Kefalos either directly or constructively, because of her refusal to cooperate, dismissed several Court appointed attorneys. And continued to engage in, what the court termed, "a pattern and practice of filing spurious papers".

Norbert F. Voelkel and Angelika Voelkel were sentenced on March 14, 2002 for failing to file federal income tax returns. Norbert was sentenced to 2 years probation, 100 hours of community service and fined $5,000. Angelika was sentenced to 1 year and 1 day in federal prison and also fined $5,000.

Norbert Voelkel was employed since 1981 as a professor of medicine with the University of Colorado Health Science Center. He received gross income of approximately $106,238, $117,033 and $117,194 for 1994, 1995 and 1996 respectively. During these same years, Angelika Voelkel owned and operated her own medical practice, Functional Capacity Evaluation Associates, P.C. Functional Capacity provided physical, occupational and rehabilitative medicine to patients. Through her solely owned corporation, she received gross income of approximately $211,054, $330,634 and $289,196 for 1994, 1995 and 1996, respectively.

The Voelkel's three-year pattern of failing to tile coincided with their purchase of land in August 1994 and construction of a $500,000 resort home in New Mexico.

Houston Attorney Sentenced to Jail for Failure to Supply Information

On February 1, 2002, Clement Chijioke Anozie was sentenced to seven months imprisonment to be followed by one year of supervised release for failure to supply information in violation of Title 26 United States Code 7203. According to the plea agreement signed and filed with the court on October 18, 2001, Anozie pled guilty to a one count criminal information charging him with willful failure to supply information. Anozie was hand served an Internal Revenue Service summons which required him to supply corporate books and records, including client settlement sheets, for his professional corporation Clement Anozie, P.C., a subchapter S corporation. As the plea agreement indicated, Anozie provided only some of the summonsed client information that was in his possession. Anozie was also ordered to pay restitution to the Internal Revenue Service in the amount of $37,037.

Software Engineer to Serve 18 Months

January 8, 2002, in Wilton, New Hampshire, Richard V. Richelo, Jr. was sentenced to 18 months in prison for willfully failing to file individual income tax returns for 1994 and 1995. Richelo was convicted in August 2001 after a two-day trial. The evidence at trial established that Richelo had not filed a federal income tax return for many years. Richelo was a self-employed software engineer, doing business as Marksman Workstations Services. He earned approximately $116,000 in 1994 and $98,000 in 1995.

Richelo testified that after studying the tax code, he believed he was not required to file income tax returns because the compensation he received did not constitute income under the Internal Revenue Code. Magistrate Judge James Muirhead ruled that Richelo's compensation did indeed constitute income. The judge further noted that the argument Richelo used has been consistently rejected by courts across the country.

On November 28, 2001, in Miami, Florida, Gail Greer Lyle, a resident of Washington, DC, was sentenced to one year in prison for willfully failing to file federal tax returns.  Lyle had previously pled guilty to three counts of willfully failing to file federal tax returns for 1993, 1994 and 1995. During those three years, Lyle was a resident of Dade County, Florida, and was the Vice-President and Assistant Treasurer of CDS Holdings, Inc.

CDS Holdings, Inc. is a foreign-owned company that was developing a residential real estate project in Western Miami-Dade County.  Lyle earned in excess of $287,000 during the three-year period, for which she owed a federal income tax in excess of $79,000. Formerly Lyle had been appointed by the Treasurer of the State of California as the Executive Director of the California Commission of State Finance.

On November 26, 2001, James R. Shomaker of Dixon, Illinois was sentenced to four months in prison on his conviction for tax evasion.  Shomaker owns and operates a trucking firm in Dixon, Illinois, known as the Tiger Line. In the plea agreement, Shomaker admitted that he had evaded payment of Heavy Vehicle Use Taxes (HVUT) which he owed. Under federal law, owners of vehicles weighing 55,000 pounds or more must pay HVUT of up to $550 per year for each heavy vehicle they own. These persons are also required to file an IRS Form 2290, Heavy Vehicle Use Tax Return. In the plea agreement, Shomaker admitted that he had avoided paying HVUT by re-titling his trucks each year with the Illinois Secretary of State's Office. Specifically, Shomaker acknowledged that each year he changed the name of the titles on his trucks either from Tiger Line to James Shomaker or from James Shomaker to the Tiger Line. By constantly re-titling his vehicles, Shomaker avoided the legal requirement that owners of heavy vehicles must show proof of payment of their HVUT before they can get their state vehicle registrations. In the plea agreement, Shomaker admitted that he evaded paying HVUT for the 11-year period beginning in 1988 and ending in 1999.

In addition to the four months in prison, Shomaker was also sentenced to serve four months of electronically monitored home confinement following his release from prison, ordered to serve three years of supervised release and ordered to pay a $2,000 fine.

Author of "The Great Snow Job" Convicted of Tax Evasion

On October 15, 2001, Barrie Leslie Konicov was sentenced to 87 months in prison followed by three years supervised release. In addition, the judge ordered Konicov to file correct tax returns and pay all tax deficiencies, along with paying the cost of prosecution, which totaled $11,311.81. In his press release, United States Attorney Phillip J. Green stated, "At this time, when citizens are uniting, all taxpayers need to pay their fair share. It is these collected taxes that fund the Federal agencies that are currently called upon to serve the safety and security needs of each and everyone. This verdict and sentence should send a strong message to those people who are engaged in similar activities and I urge them to comply with the Federal tax laws."

On June 22, 2001, Konicov, of Amado, Arizona, was convicted on one count of conspiracy to defraud the United States by impeding, impairing, obstructing, and defeating the lawful governmental functions of the IRS. He was also convicted on three counts of willfully failing to file Federal income tax returns for the years 1994, 1995, and 1996. Konicov is the founder of De-Taxing America and author of a book entitled, "The Great Snow Job."

According to evidence presented in court, Konicov accumulated and deposited more than $3.9 million into a number of bank accounts and sham trusts. The money deposited was obtained through the De-Taxing America program and sham trust packages that were sold throughout the U.S. to over 1,000 people.

Owner of Vitamin Company Sentenced to 18 Months for Tax Evasion

October 1, 2001, Kansas City, Missouri, Nicholas J. Kohler, owner of Dankurt Laboratories, was sentenced to 18 months in federal prison for income tax evasion. He must also pay a $4,000 fine and spend three years under supervision, after his release from prison.

Kohler operated his vitamin and mineral manufacturing business as a sole proprietorship and admitted he knew that his gross income required him to file an individual income tax return, and he knew he owed income tax on his business income.

In his guilty plea, Kohler admitted he received about $192,000 in gross receipts from his business in 1994, yet filed no income tax return and paid no income tax for that year. Kohler also admitted taking a number of other steps to conceal his income, including concealing income in bank accounts of others, buying a house and a vehicle in the names of other people, and transferring his assets to a purported trust. Kohler also agreed to file all delinquent individual income tax returns.

Virginia Lawyer sentenced to prison

On July 25, 2001, the United States Attorney's Office in the Eastern District of Virginia announced that Rickey G. Young, age 47, a Martinsville Attorney, was sentenced to serve 18 months in prison followed by one year of supervised release, after a jury found him guilty on February 1, 2001. Young willfully failed to file income tax returns for 1993, 1994, 1995, 1996 and 1997.  Young was also sentenced to serve a six-month term of imprisonment for contempt of court.

For more significant cases, see archive file.