Tax Fraud and Crimes

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What exactly is tax fraud? Although the need to file a tax return is referred to as “voluntary compliance” – individuals must know the laws and must file when required to do so. Tax Fraud occurs when individuals working and earning income knowingly and intentionally fail to file their income tax return or falsify information on a tax return.

Failing to state the correct amount of earned income, overstating deductions and exemptions and falsifying documents are all possible elements of tax fraud and are punishable in both criminal and civil jurisdictions.

The process of concealing or transferring income and reporting personal expenses as business expenses are also examples of tax fraud and are actual violations of the law.

How IRS Criminal Investigations Work

IRS Criminal Investigations ("CI") is the law enforcement branch of the IRS. CI’s are conducted for American taxpayers who willfully, knowingly and intentionally violate their legal requirement to file their tax returns and pay their taxes every year.

The General Tax Fraud Program is the largest Criminal Investigation enforcement program within the IRS. The General Tax Fraud Program encompasses CI’s ranging from tax evasion to money laundering crimes.

CI’s are conducted for individuals and business across all industries and locations within the United States. Of the CI’s completed, General Tax Fraud cases require the most substantial amount of CI's resources and investigation efforts to ensure taxpayer compliance with IRS rules and regulations.

Criminal investigations look at the stated amount of income, place and duration of stated employment, and payment of excise taxes.

Tax Crimes and IRS Charges

Criminal Investigations can charge individuals with a number of crimes, all of which fall into four major crime categories:

  • Legal Source Tax Crimes
  • Illegal Source Financial Crimes
  • Narcotics-Related Financial Crimes
  • Counterterrorism Financing

Many of the crimes within the jurisdiction of CI have criminal and civil liabilities attached. Crimes that individuals can be charged with include (but are not limited to):

  • Tax Evasion
  • Attempt to Defeat Tax
  • Tax Evasion Avoidance/li>
  • Additional Tax Due
  • Willful Failure to Pay
  • Willful Failure to Keep Records
  • Fraudulent Statement to Employer, etc.

What Happens When the IRS Catches Offenders?

If an individual is caught cheating on their taxes, they will have to deal with the civil and possible criminal consequences. Civil penalties include assessing interest of taxes due for the entire period of time for which they are outstanding, and unlike criminal penalties, civil penalties can accrue indefinitely.

Individuals who under-report their income by 25% or more are within the fraud provisions of the IRS rules, and as such, the IRS will be able to go back for 6 years (as opposed to the normal 3-year statute of limitations) to charge the individual with an underpayment tax penalty.

If the IRS substantiates a claim of willful intent to evade paying taxes, they could go back as far as they wish, without any limitation and assess penalties, fines and interest on all unpaid taxes from the beginning of the taxpayers adult life

How Tax Crime Prosecutions Should be Handled

Individual taxpayers being prosecuted for tax evasion penalties and crimes should immediately seek the assistance of an experienced tax attorney who can help them understand the severity of the charges and available options.

Often times, an agreement can be reached out of court that allows the individual to pay fines and penalties in lieu of going to jail.

Tax Crime Convictions

If attempts to reach a plea bargain fail and the case goes to trial, there is a substantial likelihood that those charged with significant tax crimes will end up serving jail time.

Federal Sentencing Guidelines establish the length of time for convicted tax criminals, but many in-court and out-of-court factors may also play a part in determining the punishment upon conviction.

Penalties for Tax Fraud and Evasion

Consequences for not filing a tax return can include both criminal and civil penalties.

Criminal Consequences: Criminal charges may be brought against an individual within six years of the date that the tax return should have been filed. Additionally, non-filers can be fined up to $25,000 per year and may also be put in prison for one year for each year of non-filing.

Civil Consequences: Civil penalties include assessing interest of taxes due for the entire period of time for which they are outstanding. While criminal consequences are limited to 6 years, civil penalties can accrue indefinitely.

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