Falling behind on tax filing obligations is more common than many realize. Whether caused by unexpected life events, financial stress, or uncertainty about requirements, millions of individuals each year fail to file their federal or state income tax returns. However, while it may seem like a personal or financial oversight, failing to file required tax returns can lead to serious legal consequences.
Under federal law, willfully failing to file a return is a criminal offense, and in certain cases, such as when income is concealed or false information is provided, more serious felony charges may apply. State authorities, including the Maryland Comptroller, also pursue enforcement through penalties, liens, and even criminal prosecution under Maryland law.
The Internal Revenue Service (IRS) recognizes that some taxpayers want to come back into compliance before an audit or investigation begins. For these individuals, the IRS offers the Voluntary Disclosure Practice, a formal procedure that allows taxpayers to file previously unsubmitted returns, pay the tax, interest, and penalties owed, and potentially avoid criminal prosecution.
In the article, our Baltimore, MD IRS tax lawyer will explain what happens when you do not file, how the IRS and Maryland identify and pursue non-filers, what options exist to come back into compliance, and why it is important to act before the government initiates contact.
What Happens If You Do Not File?
Failing to file a required tax return is not just a civil issue. If you do not file a required tax return, you may face more than just late fees. Under federal and Maryland law, failing to file can lead to criminal charges, substantial fines, and civil penalties.
Under 26 U.S.C. § 7203 (Willful Failure to File Return, Supply Information, Or Pay Tax), any person who is required to file a return or pay estimated tax, and willfully fails to do so, may be guilty of a misdemeanor. Upon conviction, the penalties can include: a fine of up to $25,000 for individuals (or $100,000 for corporations), up to 1 year in prison per violation, or both, plus the costs of prosecution. However, in Cheek v. United States, 498 U.S. 192, 199, 111 S. Ct. 604, 609 (1991), the U.S. Supreme Court has held that to establish a willful failure to file, the government must prove the taxpayer voluntarily and intentionally violated a known legal duty, not simply that the person was negligent or mistaken.
If the government can prove that you willfully attempted to avoid paying taxes, that is, you knew the law required you to file or report income and deliberately chose not to, they may bring felony charges under 26 U.S.C. § 7201 (Attempt to Evade or Defeat Tax). This statute imposes up to 5 years in prison, a fine of up to $100,000 for individuals ($500,000 for corporations), or both, plus prosecution costs.
As an example, consider this: according to IRS press releases in 2023, a security guard from Germantown, Maryland, was convicted on six counts of federal tax evasion after a jury trial. He failed to file tax returns for nearly a decade, from 2011 through 2020, despite earning over $1.6 million during that time. In addition, he submitted false W-4 forms to multiple employers instructing them to withhold little or no federal income tax. According to trial evidence, the security guard made regular cash withdrawals and attempted to shield his income from IRS detection. The IRS estimated the tax loss at over $330,000. He was sentenced to 24 months in federal prison, ordered to pay approximately $219,167 in restitution, and placed on three years of supervised release following incarceration. Finally, this case shows how even wage-earning individuals, not just high-profile business owners, can face felony prosecution and prison time for willfully failing to file and pay taxes.
Maryland imposes both civil and criminal penalties for failing to file tax returns, with consequences varying by the type of tax involved. As for civil penalties, under Md. Code Ann., Tax-Gen. § 13-701, if a taxpayer fails to pay tax when due, the Comptroller is required to assess a penalty of up to 10% of the unpaid tax, unless a higher rate is specified for particular types of tax such as alcoholic beverage or tobacco taxes, which may be subject to a penalty of up to 25%. As for criminal penalties, under Md. Code Ann., Tax-Gen. § 13-1001 (Willful Failure to File Return), a person who willfully fails to file certain Maryland tax returns, including income, sales, and corporate tax returns, may be guilty of a misdemeanor. For example, a person who fails to file a Maryland income tax return under Title 10 of the Tax-General Article may face a fine of up to $10,000, imprisonment for up to 5 years, or both, even for a first offense. Similar penalties apply to sales and use tax returns under Title 11.
To illustrate how serious the consequences of unreported income and tax evasion can be, even when the income comes from sources outside typical employment, consider the following real case prosecuted in Maryland. According to the IRS Criminal Investigation Annual Report (2024), in December 2023, Elliott Dennis Kleinman of Bel Air, Maryland, was sentenced to 42 months in federal prison and three years of supervised release for conspiracy to commit wire fraud and tax evasion. Kleinman, who worked as a facility manager for a manufacturing business, received over $1 million in illegal kickbacks between 2017 and 2019 but failed to report the income on his tax returns. This resulted in a tax loss of approximately $291,143 to the U.S. government. In addition to prison time, he was ordered to pay $19.3 million in restitution and forfeit over $2 million in criminal proceeds. This case shows that failing to report income and committing tax fraud, even through a side scheme, can lead to years in prison, massive fines, and long-term financial consequences.
Finally, failing to file taxes is not just a bureaucratic mistake, it can be a criminal offense. Both the IRS and the Maryland Comptroller have the authority to impose steep fines, collect unpaid taxes by force, and in willful cases, bring criminal charges that may result in jail time. The good news? Federal law offers a way to come clean before things escalate. However, the key is acting before you are caught. In the next section, we will explain how the IRS identifies non-filers and what steps you can take to fix the problem before it becomes much worse.
The IRS Is Watching: How They Find Non-Filers?
Many people who have not filed taxes for years believe they have gone unnoticed by the IRS. But in reality, the IRS has advanced systems that flag missing tax returns quickly, even if you never receive a phone call or visit from an agent. The IRS receives copies of your income documents, such as W‑2s from employers, 1099s from contractors or financial institutions, and even Form 1099‑K for online payments, directly from third parties each year. These are submitted electronically through systems like IRIS and FIRE. The IRS uses an automated matching system to compare third-party income documents, such as W‑2s and 1099s, to the tax returns filed by individuals. If a mismatch is detected, the return is automatically flagged for follow-up under the IRS’s Automated Underreporter Program.
After the IRS flags you, you may receive a notice (CP59 or CP516). These letters inform you that a required tax return has not been received. If you ignore the notices, the IRS may escalate your case. Next, the IRS may file a Substitute for Return (SFR). This means that when you do not file, the IRS can create a return on your behalf based only on the income reported by third parties, without deductions, credits, or exemptions. These “Substitute for Returns” often result in much higher taxes owed than if you had filed yourself. After that, collection and enforcement follow. Once an SFR is processed, the IRS treats the tax as due and enforceable. That means they can levy your bank accounts, garnish your wages, file federal tax liens, and even refer your case to Criminal Investigation if they suspect willful evasion.
Under 26 U.S.C. § 6103, the Maryland Comptroller’s Office also receives copies of federal tax data. Maryland does not just follow the IRS’s lead, the state Comptroller’s Office employs its own electronic systems and legal tools to enforce tax compliance. Maryland’s Revenue Administration Division (RAD) uses sophisticated automated systems, including the legacy SMART system and the new COMPASS platform, to flag potential issues in tax returns and to stop suspicious refunds before they are issued. If Maryland’s system detects discrepancies, for example, by receiving federal tax data from IRS audits or wage and income reports, it compares that information with what you reported on your Maryland return. If there is a difference (for example, your federal income changed but your state return was not updated), the Comptroller may send you a notice explaining the change and how it affects your Maryland taxes. This notice outlines what additional amount is due and gives you a chance to respond or provide documentation. If you filed a federal return with a Maryland address but did not file a state return, you may also receive a notice asking you to clarify whether a Maryland return was required. Failing to respond can lead to an official assessment that includes penalties and interest.
Finally, the IRS and Maryland’s tax enforcement do not rely on guesswork. They use matching systems and third-party reports to identify who earned income but did not file. If you are missing one or more years of returns, the government may already have your information and could be building a case against you. Therefore, the sooner you file, the more options you will have. Ignoring IRS or Maryland notices only increases the risk of forced assessments, penalties, and even criminal referrals.
The Path To Redemption: IRS Domestic Voluntary Disclosure Practice
If you have missed filing one or more tax returns, especially for years where you earned income, you may still have a chance to fix the problem before facing criminal or financial consequences. The IRS offers a structured way for taxpayers to voluntarily come forward: it is called the Voluntary Disclosure Practice. The IRS Voluntary Disclosure Practice gives taxpayers who willfully failed to file, report, or pay taxes a chance to come forward and avoid criminal prosecution, provided they act before the IRS initiates an audit or criminal investigation. Taxpayers whose failure was non‑willful must consider other options, like filing late returns or amending past returns. If your failure to file was non-willful, meaning you did not intend to hide income or commit fraud, you might qualify for a different program: the Streamlined Filing Compliance Procedures. These are easier to complete and typically result in lower penalties.
In contrast, a voluntary disclosure must be truthful, timely, and complete, supported by full co‑operation with IRS Criminal Investigation in identifying tax liabilities, advisors, and all facts, followed by payment arrangements for tax, interest, and applicable civil penalties, and submitted through Form 14457 (Voluntary Disclosure Practice Preclearance Request and Application to participate in the Voluntary Disclosure Practice) for IRS-CI review. An important condition is that your disclosure must occur before the IRS has begun either a civil audit or criminal investigation, or received credible third-party information, or executed a subpoena or search warrant. Unfortunately, a valid voluntary disclosure can reduce your chances of criminal charges, though it does not guarantee immunity from prosecution. All of this means that you must come forward before the IRS: initiates a civil audit or criminal investigation, notifies you that it intends to do so, receives information about your noncompliance from third parties (such as a whistleblower or another government agency), or uncovers your noncompliance through an enforcement action like a search warrant or subpoena.
If your disclosure meets the timing and truthfulness criteria, you may submit it using IRS Form 14457, which includes two parts. Part I (Preclearance) is used to request initial approval to enter the program. The IRS uses this form to determine whether your income came from legal sources and whether you are eligible based on timeliness. If precleared, you must then submit Part II (Voluntary Disclosure Application) within 45 days. This section requires a signed narrative under penalty of perjury, detailing all the facts of your noncompliance, including any advisors who helped you, and confirming that your actions were willful. You must also agree to cooperate fully with the IRS and arrange to pay all tax, interest, and applicable civil penalties.
If the IRS determines that your submission is truthful and complete, you will receive a Preliminary Acceptance Letter, and your case will be forwarded for civil resolution. However, if you fail to submit the required information, or if the IRS finds that your disclosure was incomplete or false, your application can be rejected or revoked.
It is important to know that the Voluntary Disclosure Practice is not open to everyone. You cannot use the program if your income came from illegal sources, even if those activities are legal under state law but illegal federally, like certain marijuana-related businesses. Also, if the IRS has already started investigating you, you are no longer eligible to apply.
Given these risks, it is critical to understand how aggressively the IRS is pursuing noncompliant taxpayers. For example, according to the IRS Criminal Investigation Annual Report (2024), IRS-CI initiated more than 2,667 criminal investigations, obtained 1,571 convictions, and reclaimed its 90% conviction rate. The agency’s investigative work identified over $9.1 billion in fraud from tax and financial crimes, obtained court orders totaling $1.7 billion in restitution to the IRS and seized criminal assets totaling approximately $1.2 billion. Furthermore, the IRS continues to target high-income non-filers, those earning $100,000 or more, through automated data systems, information sharing with states, and analytics. Finally, IRS enforcement efforts have become more aggressive and data-driven in recent years.
Additionally, resolving your tax issues can bring many practical benefits. First, according to the IRS, filing overdue tax returns, even if you cannot pay in full, can help you avoid interest and penalties. Filing now limits the growth of late-payment penalties and daily interest charges that would otherwise accrue on your balance. Second, if you are owed a refund or qualify for credits like the Earned Income Tax Credit, you must file within three years of the return’s due date to receive it. Third, self-employed individuals risk losing credit toward Social Security retirement or disability benefits if they do not report income on filed tax returns. Fourth, you may be denied mortgage financing, business loans, or student financial aid if you have not filed required tax returns, since lenders and agencies usually request copies of recent IRS filings. Fifth, if you fail to file, the IRS may prepare a “Substitute for Return” using only third-party data, which often excludes deductions and exemptions. These assessments can result in higher tax bills than necessary and trigger enforcement actions. Sixth, unresolved balances can lead to bank levies, wage garnishment, and tax liens. Voluntarily filing and entering into a payment arrangement can pause or prevent these actions. Furthermore, being delinquent can prevent you from receiving business loans; block you from renewing professional licenses; lead to rejection in immigration and visa applications; disqualify you from government contracts or security clearances.
Maryland offers a standing Voluntary Disclosure Agreement program through the Comptroller’s Office. This program allows individuals and businesses to voluntarily report and pay past-due Maryland tax liabilities before being contacted by the state about them. In return, eligible taxpayers can receive penalty waivers, confidentiality, and a clear resolution process. The program is only available to taxpayers who have not already been contacted by the Comptroller’s Office regarding the liability and who are not under audit. Detailed information, including eligibility, required steps, lookback periods (typically 4 years), and payment plan options, is available through the Comptroller’s official guidance and website.
In conclusion, the Voluntary Disclosure Practice is a discretionary enforcement policy, not a legal right. The IRS is not required to accept your disclosure, and you cannot appeal if your application is denied or revoked. Acceptance depends entirely on the facts of your case and the IRS’s judgment. In short, if you willfully failed to comply with tax laws and the IRS has not contacted you yet, the Voluntary Disclosure Practice may offer a path to come forward, fix the problem, and reduce the risk of criminal prosecution, but only if you act before they do.
Take Action Before It Is Too Late And Get Trusted Help
If you have missed filing your tax returns, the most important thing to know is that you still have options, but only if you act before the IRS or Maryland contacts you. Ignoring the problem can lead to steep penalties, garnished wages, tax liens, or even criminal charges in serious cases. The good news is that both the IRS and the Maryland Comptroller offer ways to come forward voluntarily, fix the issue, and avoid the worst consequences. The sooner you take action, by filing, seeking help, or entering a disclosure program, the more control you will have over the outcome. If you are unsure where to begin, contact a trusted tax attorney at Crepeau Mourges for confidential guidance and experienced support.
References:
Cheek v. United States, 498 U.S. 192, 199, 111 S. Ct. 604, 609 (1991).
Comptroller of Maryland, The Comptroller of Maryland’s Voluntary Disclosure Agreement Program, https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/instructions/vda-program.pdf?utm_source=chatgpt.com (last visited June 19, 2025).
Internal Revenue Service Criminal Investigation, 2024 Annual Report (2025), https://www.irs.gov/pub/irs-pdf/p3583.pdf.
Internal Revenue Service, IRS Criminal Investigation releases FY24 Annual Report; details agency’s global reach, billion-dollar impact (Dec. 5, 2024), https://www.irs.gov/newsroom/irs-criminal-investigation-releases-fy24-annual-report-details-agencys-global-reach-billion-dollar-impact.
Internal Revenue Service, IRS Criminal Investigation Voluntary Disclosure Practice, https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosure-practice?utm_source=chatgpt.com (updated May 17, 2025).
Internal Revenue Service, IRS launches new effort aimed at high-income non-filers; 125,000 cases focused on high earners, including millionaires, who failed to file tax returns with financial activity topping $100 billion (Feb. 29, 2024), https://www.irs.gov/newsroom/irs-launches-new-effort-aimed-at-high-income-non-filers-125000-cases-focused-on-high-earners-including-millionaires-who-failed-to-file-tax-returns-with-financial-activity-topping-100-billion.
Internal Revenue Service, Levy, https://www.irs.gov/businesses/small-businesses-self-employed/levy (updated March 13, 2025).
Internal Revenue Service, Maryland Security Guard Sentenced To Two Years In Prison For Tax Evasion, (Sep. 5, 2023), https://www.irs.gov/compliance/criminal-investigation/maryland-security-guard-sentenced-to-two-years-in-prison-for-tax-evasion.
Internal Revenue Service, Notices For Past Due Tax Returns, https://www.irs.gov/businesses/small-businesses-self-employed/notices-for-past-due-tax-returns (updated October 8, 2024).
Internal Revenue Service, Streamlined Filing Compliance Procedures, https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures (updated July 9, 2024).
Internal Revenue Service, Understanding A Federal Tax Lien, https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien (updated February 18, 2025).
I.R.S., Internal Revenue Manual § 4.19.3.2 (Oct. 02, 2024), https://www.irs.gov/irm/part4/irm_04-019-003r.
I.R.S., Internal Revenue Manual § 5.18.1 (Jun. 27, 2023), https://www.irs.gov/irm/part5/irm_05-018-001r.
I.R.S., Internal Revenue Manual § 9.5.11.9 (Feb. 24, 2025), https://www.irs.gov/irm/part9/irm_09-005-011.
Md. Code Ann., Tax-Gen. § 2-102 (LexisNexis 2025).
Md. Code Ann., Tax-Gen. § 13-1001 (LexisNexis 2025).
Office of Legislative Audits, Audit Report (Jan. 22, 2024), https://dls.maryland.gov/pubs/prod/NoPblTabPDF/RAD24.pdf?utm_source=chatgpt.com.
26 U.S.C.S. § 6103 (LexisNexis 2025).
26 U.S.C.S. § 7201 (LexisNexis 2025).
26 U.S.C.S. § 7203 (LexisNexis 2025).
