WASHINGTON -- Charter Hughes was known around Santa Barbara, Calif., as an adept tax attorney, but he had an unusual strategy for his own federal return: He just didn't file one.
When Internal Revenue Service agents caught up with Hughes in 1994, he owed $38,727 in back taxes. Hughes pleaded guilty to federal charges, was sentenced to 36 months' probation and again is practicing tax law.
Although the IRS has a reputation as a pit bull when it comes to pursuing tax cheaters, about 6.5 million Americans -- including a large number of professionals such as Hughes -- ignore the federal tax collector every year.
"People tend to only think of the subculture -- drug dealers -- but it goes far beyond that," said Frederick Daily, a San Francisco tax attorney. "It goes from the butcher to the baker to the banker. It is an amazing cross section of America."
How can so many Americans avoid filing tax returns without running afoul of the IRS for years at a time? Tax officials acknowledge that they don't have the resources to round up all the scofflaws. Moreover, the agency's outdated computers have hobbled efforts to smoke out more nonfilers.
Federal prosecutors also complain that legal penalties for not filing a tax return are too weak to intimidate would-be scofflaws.
Evading taxes by falsifying a return is a federal felony, which carries a maximum sentence of five years in prison, as well as civil penalties of up to 47.5 percent of back taxes owed and accrued interest.
For nonfilers, the maximum sentence is one year in prison.
IRS Commissioner Margaret Milner Richardson insists that her agency is doing an effective job of collecting taxes and that the nation's system of voluntary compliance -- the government collects an estimated 86 cents of every dollar owed -- is the envy of the world.
Although the IRS has recently put greater emphasis on identifying and catching nonfilers, the problem seems to be growing for a variety of reasons, including an increase in the underground economy, the economic squeeze on the American middle class and a renewed tax protest movement.
The IRS has files on 6.5 million individuals and businesses who the agency knows do not file returns. But it is clearly missing many others who operate in a booming underground economy that includes nannies, tree trimmers and musicians -- not to mention the illegal sector of drug dealers, prostitutes, car thieves and other criminals.
