I'm in the US ARMED FORCES My wife is an illegal immigrant and resides in the U.S what is the penalty for her when I apply for her green card? Does she need to leave the country?

If she entered US without inspection, she must return to her home country while you file a waiver and petition for spouse visa. Interview will take place at the US consulate. If she entered US with a visa but overstayed, you can file a waiver and petition for immigrant visa to USCIS . In both cases, you would need an experienced immigration attorney.