A person or company can be guilty of tax evasion if they attempt to avoid paying the total amount of taxes they owe the government. This could involve not reporting all income, failing to file tax returns by the due date, misrepresentation of tax deductions, inflating or falsely claiming donations to charity, underreporting the value of an estate as well as paying employees in cash to avoid paying payroll taxes and more. The penalties associated with tax evasion can be severe.
The Internal Revenue Service (IRS) estimates that three percent of individuals in the United States do not file any type of tax return. A person who does this can be given both civil and criminal penalties. It is often determined by the amount of tax a person owes the government. Should a person not owe any taxes, the penalties for not filing a tax return are not serious. Should a person not file a tax return in a year where they owed taxes, and especially if they owed significant taxes, they could be charged with a criminal act. Each year a person or company does not file a return when they are legally required, they could experience a fine of as much as $25,000 and incarceration for up to twelve months. Should the IRS be able to prove a person or business intentionally did not file a return to evade taxation; they can be charged with committing a felony. If the IRS can prove these charges, a conviction could involve as much as $100,00 and up to five years in prison.
Avoiding Penalties For Tax Evasion
The punishments the IRS can give are meant to deter companies and individuals from committing tax evasion. When it has been proven someone has committed this type of tax crime, they may be given a chance to avoid the most serious penalties. This could simply involve filing a late or amended tax return. The IRS has a history of being lenient toward people and companies who file a late or amended tax return on their own. Should the IRS be forced to compel a person or company to file these types of returns, they could be given any or all the penalties associated with committing tax evasion.
A person or company will be notified by the IRS if they are suspected of committing tax evasion. They will be contacted by letter, telephone call or a personal visit. In some situations, an IRS agent can give penalties right way or notify the Criminal Investigation Division (CID) of the IRS to immediately start an investigation. The CID knows how to perform a thorough tax investigation. It has the legal authority to contact a person’s friends, neighbors, employers, coworkers as well as spouse and more concerning the alleged tax evasion. They can also legally tap a phone to track money going to an offshore account. Their goal will always be to prove a person or company had more income than was declared and they knowingly tried to evade paying their tax obligation on it.
When the IRS suspects a company or individual of committing tax evasion, they will carry out an investigation to identify if the allegations are valid. They will try and determine the correctness of any tax return that has been submitted to them. They will obtain any and all tax returns associated with the person or company. Once a person has been contacted by the IRS, they may be asked to provide records, books, papers and other documentation that could prove the tax return they submitted is correct. The IRS does not have the legal authority to prosecute crimes. It can only give monetary penalties and demand a person or company pay their tax obligation. This IRS annually performs random audits to determine rates of noncompliance.
The best way for a person or company to avoid punishment for tax evasion is by coming forward and admitting their mistake to the IRS. They can them willfully provide amended tax returns. This will assure them the IRS won’t try and build a case for criminal charges. When this is done, the fines are often lower. Should someone be in a very difficult situation, they may need the help of an experienced tax attorney to obtain the best possible outcome.