If you have received notice that you are being audited by the IRS, it’s important to talk to a tax attorney right away. In most cases, all the IRS wants to do is determine whether you owe back taxes and then collect. But there are some situations in which the agency will investigate people because they believe criminal tax fraud has been committed. Once fraud charges are brought against you, there’s more than a 90 percent chance of being convicted.
There are multiple ways that you might have avoided paying your taxes. You might have failed to report every source of income you have, or you might have taken tax exemptions you shouldn’t have. In addition, even if you didn’t willingly commit tax fraud, an audit is still a stressful situation. Unless you have impeccable documentation ready, you might not have all of the records and receipts the IRS requires to clear your name.
The economy has seen multiple sudden downturns over the past few decades. Investors and employees alike have found themselves suddenly bereft of assets and income. For business owners and contractors, difficult economic times might mean choosing between paying your taxes and putting food on the table. A lot of people choose to spend their money on the more immediate problem and save the IRS for another day.
If you willingly failed to pay your fair share of taxes, you might be brought up on fraud charges. That even goes for cases in which you acted out of desperation due to unforeseen financial consequences. You need to talk to a lawyer about what potential consequences you might be facing. They will review your financial records and explain what you can do about the audit, what the stakes are for your particular case, and what options you have to reduce the potential for criminal and civil penalties.
When the economy goes through turbulent times, the IRS takes notice. They know that people usually choose to pay their bills above their taxes. Economic strain means that tax gaps become larger. These gaps are between the amount that individuals need to pay versus the amount they actually pay. In order to recover the lost revenue, the IRS will open more proceedings and audits with a greater number of individuals. They will use all of their available resources to gather evidence against you and seek the biggest tax penalty possible.
Tax evasion is a type of tax fraud that involves illegally underpaying your taxes as an individual, business, or estate. The most common means of committing tax evasion is to choose to omit parts of your income that you don’t want to pay taxes on. It’s also common for people to commit fraud by saying that their personal expenses were actually expenses for their business, which makes them tax deductible.
In addition, people might be audited or brought up on criminal charges if they don’t file a tax return despite knowing they owe taxes. If you have already paid all of your taxes or don’t earn an income, you’re not required to file a tax return. But returns and payments are both required for those who have back taxes due.
Whether an investigation is of the criminal or civil variety, there will be an audit involved. During the audit, the IRS will look at your bank statements, reported income, expense receipts, and other important financial information. They will also go over the requirements for any tax exemptions you claimed to make sure that you actually meet them. If they start civil proceedings and then discover that the individual willfully committed fraud, they might also begin building a criminal case.
Even civil consequences for tax fraud can be serious. You might need to pay a penalty of up to 75 percent of the taxes you still owe, plus interest. The IRS can go through your records for years and dredge up back taxes for decades. Civil fraud penalties don’t have any statute of limitations, and the government uses this to their advantage. With criminal situations, the limitation is five years.
If there is evidence that someone failed to report at least 25 percent of their income, the IRS can look at six prior years of tax returns instead of three. If there’s proof that the underpayment was willful, there is no longer any limitation on how far back the IRS can investigate.
You might have criminal charges filed against you up to six years after the alleged fraud occurred. For every count of tax evasion, you might face a prison sentence of up to five years. Every year of proven tax evasion is a new count. So if the IRS proves criminal tax evasion for three years, you could be looking at fifteen years in prison.
You may have the opportunity to reduce your charges to a single count of tax evasion in exchange for not going to trial. Your attorney will be able to advise you about whether this is the best course of action. Never give any statements or do any interviews without your attorney present to help guide you.
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