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Federal Tax Evasion Defense
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IRS Criminal Investigation at Your Door? What Tax Evasion Really Means
When IRS Criminal Investigation shows up, its not about an audit anymore. Its about prison. Federal tax evasion under 26 USC 7201 carrys up to 5 years in federal prison per count. And they dont just charge one count—they charge every year you allegedly evaded taxes. Three years of tax evasion? Thats 15 years potential exposure.
Look, most people think tax problems mean dealing with auditors and paying penalties. Thats civil tax. Criminal tax evasion is different. IRS-CI has a 90%+ conviction rate. They dont open cases they cant win. If your under criminal investigation, this is serious.
If your reading this, something has happened. Maybe IRS-CI agents showed up. Maybe your accountant got a grand jury subpoena. Maybe you learned theres an investigation. Whatever triggered this, you need to understand what tax evasion really means, how its prosecuted, and what you can do to protect yourself.
Understanding Tax Evasion vs. Tax Fraud vs. Tax Mistakes
Not every tax problem is criminal. Understanding the distinctions matters.
Tax Evasion (26 USC 7201)
Tax evasion is the willful attempt to defeat or evade any tax. The key word is “willful”—you have to intentionally try to cheat. Prosecutors must prove:
- Tax deficiency existed – You owed taxes
- Willfulness – You knew you owed and intentionally tried to evade
- Affirmative act – You did something to evade (hiding income, false deductions, etc.)
Penalty: Up to 5 years per count, $250,000 fine, plus costs of prosecution.
Tax Fraud (26 USC 7206)
Filing a false return. Making false statements under penalty of perjury. This is different from evasion—its about lying on tax documents. Penalty: Up to 3 years per count.
Failure to File (26 USC 7203)
Simply not filing returns is a misdemeanor—up to 1 year per year not filed. But it can escalate to felony evasion if prosecutors show willful intent to evade.
Civil vs. Criminal
Most tax disputes are civil—audits, penalties, back taxes. Criminal prosecution requires that “willfulness” element. The IRS has to prove you intentionally cheated, not that you made mistakes or took aggressive positions.
IRS Criminal Investigation: How Cases Develop
IRS-CI is different from regular IRS. These are federal agents with guns and badges. They investigate, they build cases, they arrest people. Understanding their process helps you understand your situation.
How Investigations Start
Criminal tax cases typically start through:
Referrals from civil auditors – If an auditor sees “badges of fraud,” they refer to CI. Information from informants – Including disgruntled employees, ex-spouses, business partners. Parallel investigations – Drug cases, money laundering, other federal crimes often uncover tax issues. Currency transaction reports – Banks report large cash transactions; patterns trigger scrutiny.
The Investigation Phase
IRS-CI investigations are thorough and slow. They analyze years of financial records. Interview witnesses. Issue subpoenas. Build comprehensive cases. By the time agents contact you, they’ve often been investigating for months or years.
The 90%+ Conviction Rate
Heres the scary number: IRS-CI has a conviction rate over 90%. They dont bring cases they might loose. If you’ve been contacted by criminal investigators, the evidence against you is likely substantial.
Penalties and Sentencing
Tax evasion penalties are significant—but often less then other federal fraud charges.
Prison Time
Tax Evasion (7201): Up to 5 years per count
False Returns (7206): Up to 3 years per count
Failure to File (7203): Up to 1 year per count
Multiple years, multiple counts add up. Three years of evasion = potential 15 years.
Financial Penalties
Fines up to $250,000 for individuals. Plus costs of prosecution. Plus you still owe all the back taxes with interest and civil penalties on top. Criminal conviction doesnt make the tax debt go away.
Restitution
Courts order full restitution of taxes evaded. Non-dischargeable in bankruptcy. This debt follows you forever.
Collateral Consequences
Professional license issues. Government contracting bars. Security clearance revocations. Immigration consequences for non-citizens. The stigma of being a “tax cheat” is significant.
Defense Strategies
Despite IRS-CI’s conviction rate, tax evasion cases can be defended.
Lack of Willfulness
This is the primary defense. Tax law is incredibly complex. Mistakes happen. Aggressive positions get taken. If you relied on professional advice—even if that advice was wrong—that negates willfulness. Good faith reliance on accountants or lawyers is a powerful defense.
No Tax Deficiency
Sometimes IRS calculations are wrong. If you didnt actually owe the taxes they claim you evaded, there’s no crime. Defense accountants analyze whether a deficiency actually existed.
Statute of Limitations
Tax evasion has a 6-year statute of limitations (3 years for failure to file). Cases involving older years may be time-barred.
Constitutional Challenges
Fourth Amendment (illegal search) and Fifth Amendment (self-incrimination) issues arise in tax cases. Improperly obtained evidence can sometimes be suppressed.
Current Enforcement 2024-2025
IRS-CI enforcement priorities have shifted:
Cryptocurrency – Major focus on unreported crypto gains. Offshore accounts – FBAR violations, undisclosed foreign accounts. COVID-19 fraud – PPP, EIDL, employee retention credit fraud. Refund fraud – Identity theft tax refund schemes. Employment tax fraud – Payroll tax evasion schemes.
Act Now
If IRS-CI is investigating you, time matters. The pre-indictment phase is when defense can be most effective. Voluntary disclosure programs, cooperation strategies, and pre-charge negotiation all require acting before indictment.
Call a federal tax defense attorney today. Not a regular tax lawyer—someone who handles criminal tax cases. The civil penalties are bad enough. You dont want to add federal prison to that.