There are several types of tax fraud that can be committed by either an individual, business or the tax preparer. Sometimes, tax fraud is committed unintentionally or through negligence without the person meaning to commit the crime. However, it can still be punishable by time spent in jail, fines or probation depending on the overall circumstances surrounding the charges and fraud committed.
According to the IRS, about 17 percent of people who file taxes don’t properly comply with the tax codes that are set forth by the service each year. About 75 percent of those people are individuals who find some way to commit tax fraud. In short, tax fraud is a willing attempt to avoid paying taxes or evade and defraud the IRS. There are a few scenarios that comprise tax fraud. One of the most common ways that people commit fraud is by not filing a tax return. Most people file a return at the beginning of each year. For many, they will receive a refund of some kind. Even those who have to pay taxes still file a return. Those who see that they have to pay a significant amount of money to the IRS are usually among the people who don’t file a return at all. Another way that tax fraud is committed is if someone doesn’t pay taxes that are owed. Most states and the federal government have some kind of plan in place to make it as easy as possible for people to pay taxes that are owed. Many people are able to have taxes owed taken from any refund that they get with any money that is left over being electronically deposited into a bank account or mailed in the form of a check.
Sometimes, a person might fail to report all of the income that is earned in order to pay less in taxes or to get a larger refund back. Businesses sometimes do this as well so that they don’t have to pay out as much in taxes from company profits. Tax preparers sometimes create a false tax return for customers in order to get more money for the customer or to get more money for themselves since they have the software to complete multiple returns.
When someone files a tax return or pays taxes, that person needs to understand that the IRS already knows that tax codes and laws can be confusing and can be difficult at times to understand. If the IRS detects an issue that is clearly a mistake or an error that wasn’t intentionally made, then a notice will be sent so that the person or business can correct that information. However, if the IRS sees a drastic change in the information that someone files from one year to the next, then it raises red flags for the IRS, which is when charges of tax fraud could come into play. Even if the mistake wasn’t done on purpose, there could still be a minimal fine to pay.
There are some common issues that the IRS will pay attention to when looking for tax fraud. One is a significant change in income from one year to the next. If someone loses a job, then the income will decrease. However, the IRS will usually want proof of a job loss or unemployment received. A benefit is that most documents pertaining to unemployment payments are sent to the IRS. Overstating deductions or a drastic change in deductions is another issue that is commonly seen. The birth of a child or a child leaving home to go to college isn’t a big deal. When you add a large number of people on your deductions or when there are several types of deductions made that haven’t been made in the past, the IRS will begin to scrutinize the details. Some people will use other children who don’t live in the home as a deduction to get more money. They will report that they earn less money than they do or claim personal expenses as business expenses to get a larger deduction.
An attorney can help if you’ve been charged with tax fraud. You need to keep all documents related to the tax return filed and information from the previous year to show any mistakes that have been made. Most attorneys can seek a judgment that involves payments over a certain length of time instead of jail for tax fraud unless there is a willing attempt or a large amount of money involved.
Facing an allegation of tax fraud or even an allegation of non-payment of taxes can wreak havoc in your personal and professional life. There are a number of ways to go about resolving a tax debt. One of those ways is to make an IRS offer in compromise.
What’s an offer in compromise?
An offer in compromise is an agreement between a taxpayer and the IRS. It allows the taxpayer to settle a tax debt for less than what they owe. The taxpayer and the IRS come to an agreement that allows the debtor to pay an agreed upon amount in exchange for giving the taxpayer a clean slate.
Requirements to qualify
Not everyone qualifies to make an offer in compromise. If you don’t meet basic requirements, the IRS isn’t even going to consider your offer. First, if the IRS thinks that there’s a chance they can collect the tax debt, they’re not going to agree to compromise. If it’s simply a matter of garnishing or executing on assets that you don’t want to voluntarily pay, they’re going to conclude that it’s worth the trouble to try and collect the total amount of the debt.
The IRS looks at your reasonable collection potential. That’s the amount that they think you can pay. They base this amount on your income and assets. They make allowances for what they consider reasonable living expenses. If the IRS believes they can’t collect the full amount of your debt, they’ll consider whether you meet the other eligibility requirements.
In addition to having a reasonable collection potential that’s less than what you owe, you may not be in an active bankruptcy proceeding when you file for an offer in compromise. You must also file all of your federal tax returns by the time that you make the offer. Business applicants must make the required federal deposits. If you meet all of these qualifications, you may qualify to make an offer.
How to file
A taxpayer initiates an offer in compromise by filing specific forms with the IRS. In most cases, there are several forms that you may need to file:
Form 656 – Offer in Compromise
Form 433-A – Collection Information Statement for Wage Earners and Self-Employed Individuals
Form 433-B – Collection Information Statement for Businesses
Supporting documentation like relevant account statements
You may not need both Form 433-A and Form 433-B. What you need in your case depends on the exact circumstance of your income. You must also pay an application fee of $168 in most cases.
What’s the purpose?
There are multiple reasons that the IRS considers making an offer in compromise. First, the IRS believes that it’s better to get something than nothing. On behalf of all of the taxpayers, if they can’t collect the entire debt, they think it’s better to at least collect part of it.
In addition to collecting something on behalf of taxpayers, another reason that the IRS allows taxpayers to make an offer in compromise is to return taxpayers to the paying public rather than having them continue in the ranks of non-paying debtors. The IRS believes that their system for an IRS offer in compromise is in the best interests of the public and administration of government.
What if it’s not clear what I owe? Do I need to hire an IRS tax fraud lawyer?
If there’s doubt as to the amount of your tax liability, the procedures might be a little bit different. For example, you don’t need to pay the filing fee if you dispute the amount of your tax liability. One of the reasons that the IRS may agree to an offer in compromise is to resolve a dispute about the amount of your tax liability.
Working with a tax fraud attorney
When you’re making an offer in compromise, you want to make sure that the process is smooth and successful. There’s a great deal of tedious paperwork that must be accurate. You also want to make sure that you understand the impact that an offer in compromise might have on criminal or civil proceedings that might relate to the non-payment of taxes. Your attorney can help you understand all of your options and help you prepare your case.
How does a John Doe Summons work?
The John Doe Summons is authorized by Internal Revenue Code Section 7609(f) and comes from the IRS. It is issued when the name of an offending taxpayer is unknown, and is not required to name anyone. This type of IRS summons became famous during 2008 when it was employed to penetrate secrecy laws in Switzerland. As a result, UBS divulged the names of roughly 4,500 Swiss bank accounts owners to the IRS. The modern day heavy enforcement of foreign bank account reporting regulations resulted from that single John Doe summons. It also gave birth to the Internal Revenue Service’s Offshore Voluntary Disclosure Program (OVDP), as well as a multitude of criminal tax fraud prosecutions and criminal prosecutions for willful non-filing Foreign Bank Account Reports (FBARs) on Form TDF 90-22.1
Some clients of Wegelin & Co., Switzerland’s oldest bank who had not been filing FBARs for their accounts there. A John Doe summons helped the IRS to procure their information in 2013.
Unlike other IRS summons which the IRS needs no approval to issue, a federal district court judge must approve a John Doe Summons before the IRS can issue it. The judge’s approval is based on these criteria:
The summons must be connected to the investigation of a specific person or a specific group or class of persons,
there exists reasonable basis tobelievie that such person or group or class of persons may fail or may have failed to comply with any provision of the tax law, and
information desired from the examining the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) cannot be obtained from other sources.
A John Doe summons was also used by the IRS in the case of Belize Bank. In the fall of 2015, the IRS convinced a Miami federal district court judge to approve a summons to Belize Bank to get information about some account holders who were U.S. persons. The end goal is to use the Belize Bank records won by way of the John Doe summons to target those account holders who failed to report income as the law requires or to file FBARs.
Interestingly the issuing of a John Doe summons by the IRS changes the statute of limitations. Usually the statute of limitations on the IRS assessing additional tax is six years in situations when a person didn’t report foreign income according to tax laws. Nonetheless, if a John Doe summons isn’t resolved within a 6 month period, an extension is available to the IRS. Internal Revenue Code Section 7609(e)(2) states that the statute of limitations can be extended for a time period beginning on the date which is 6 months after the service date on the summons and ending on the date when the summons is finally resolved.
In the UBS case, the statute of limitations was suspended for almost two more years. You can learn how the IRS calculated that extension by clicking here.
In light of this provision, if you are a target of a John Doe summons, you may think the statute of limitations has expired. Alas, you may be under pressure for longer than you first believed.
Tax evasion is a very serious offense and is also referred to as tax fraud. It is never a good idea to try to avoid paying the taxes that you owe because you can find yourself convicted of a felony and in jail for up to five years. In addition, you could end up paying a fine of up to $250,000 as an individual taxpayer or $500,000 as a corporation. If you are found guilty of willful failure to file a tax return or pay the tax that is due, you could be facing a misdemeanor conviction that carries a prison sentence of up to one year. You could also be forced to pay fines totaling up to $100,000 as an individual and $200,000 as a corporation. According to reports from the IRS, about 17 percent of individual taxpayers fail to follow the tax code in one way or another. This is a fairly high percentage of the population that is susceptible for investigation for tax fraud.
There are many cases in which a taxpayer’s failure to obey the tax code is merely a mistake and not a willful violation. The IRS has well-tested programs to figure out which types of violations are genuine mistakes and the ones that merit criminal prosecution. You do not want to find yourself in the latter category because the government is fairly aggressive at investigating and prosecuting tax fraud. This is because the government wants to deter as many taxpayers as possible from being tempted to avoid reporting income or underpaying their taxes.
If you are engaged in overstating the number of exemptions or deductions that you are entitled to take, this could be a red flag for the IRS that you are trying to evade paying taxes. In addition, if you earn your income mostly in cash, this is another typical situation in which the IRS has found that taxpayers are tempted to go without reporting their income to the government. Tax fraud and evasion are investigated by the law enforcement department of the IRS, the IRS Criminal Investigation (CI).
Aside from getting together all of your documents, the first thing that you should do when faced with an investigation for tax evasion is to contact a licensed attorney. Yo should work with a tax evasion lawyer who regularly handles these types of cases and will be able to explain all the complexities to you of how the IRS works. The more information that you can discuss with your tax attorney, the better. You want to be fully informed of the process that the IRS will put you through and the potential pitfalls along the way. Whether you own a business or file taxes as an individual, the consequences of being convicted of tax evasion are severe. This can follow you around for the rest of your professional and personal life if not dealt with in a proactive way.
Do not be afraid of speaking with a tax evasion attorney to discuss your outcomes. Even if you think you will be convicted of tax evasion, it is better to have an experienced representative negotiating on your behalf with the IRS. Anything that you say to the IRS could be used against you, which is why it is preferable to streamline all of your communications through an attorney. Do not make the mistake of thinking that this problem will simply go away on its own no matter how badly you want it to. The sooner you get a plan in place to deal with your tax evasion charge, the quicker your life will get back to normal.
In many tax audits done by the IRS, the agency is only interested in collecting taxes owed, interest, and with penalties. The IRS can impose a negligence penalty, along with a late filing penalty, and charge interest on all the above. In a tax audit, even if the IRS suspect you’ve committed tax fraud, they can impose a civil tax fraud penalty. This penalty is typically equal to 75 percent of the tax you owe, plus interest on the penalty.
Based on the degree of fraud involved, the IRS auditor may ask a tax fraud specialist to look at your case and see if it should be sent for criminal prosecution. Normally, this specialist has experience and will seek advice of the IRS’ tax fraud attorney for help if it appears necessary.
The penalties for tax fraud are severe. You could get up to 5 years in jail, plus fines of $500,000, in addition to the expense of prosecution for each tax offense. Once the criminal tax case is completed by the IRS criminal unit, it will be referred back to the IRS Examination Division in which the taxes are assessed. The IRS can add the civil tax fraud penalty on top of the criminal tax fraud penalties. It’s important to know that tax statements from civil or criminal tax fraud cannot be discharged through bankruptcy. The civil fraud penalty is dischargeable in a Chapter 7 bankruptcy.
Tax fraud is defined as intentional wrongdoing. To be accused of tax fraud, you have to have an intentional violation. Mere carelessness isn’t tax fraud. The IRS looks for certain things when assessing whether fraud occurred, such as: understatement of income, inadequate records, failure to file, hiding assets, dealing in cash, failure to make estimated cash payments, failure to cooperate with authorities, failure to make payments.
If you have any of these problems and are audited by the IRS, you might need a tax fraud attorney. Actions you take during a tax audit can transform a normal tax audit into a tax fraud case. By way of instance, lying or giving false answers to IRS investigators, delaying the investigation, or other actions to mislead IRS agents can indicate fraud.
Experienced tax fraud attorneys can help you navigate an IRS tax audit, and help you formulate a plan.
Is Tax Fraud a crime?
Tax fraud is a frequent charge which could result from genuine mistakes in reporting tax information to the IRS. Tax offenses are a few of the most frequent white collar offenses, which affects business professionals and ordinary Americans. Underreporting income, failing to file taxes, or overstating deductions are grounds for audits. If the IRS finds cause to further afield following someone falsifies their tax accounts – then the IRS will heavily investigate.
Do you need an attorney for a tax fraud case?
If you understand tax laws and the legal system, then you might not need an attorney in a tax fraud case. There isn’t a requirement that you hire an attorney for any crime that you’ve been charged with whether it involves tax fraud or a misdemeanor. However, tax fraud is an area where you want to have the expertise of an attorney who can fight for the freedoms that you have and who can offer advice on a plea bargain if one is given. An attorney can give you advice about the evidence that is presented against you and battle against the prosecution if there isn’t a substantial amount of evidence to prove that you committed the crime. If you are seeking an appeal, then an attorney would be beneficial to have in your corner as it’s sometimes difficult to know how to prepare the paperwork after losing in court. It’s important to understand that the IRS often has several attorneys working for it, which means that these attorneys will usually be prepared to offer all of the documents possible against you to prove their case in court. Without the assistance of an attorney, you stand a greater chance at not winning that case.
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