Usually, tax evasion fraud involves a taxpayer taking steps to pay less than what is owed in taxes or avoid paying taxes at all. Income tax fraud entails the acts of lying about tax credits, circumstances that make the taxpayer eligible for deductions, or what was earned. However, some tax fraud charges don’t actually involve money at all. Any attempts by an individual, a corporation, or a trust to avoid filing returns in a timely manner, employ offshore tax evasion strategies, misrepresent deductions, or underreport income culminates in tax evasion charges.
The government, through the Internal Revenue Service (IRS) takes tax fraud and tax evasion very seriously. The penalty for any of these charges can have serious repercussions for the culprits including (but not limited to) hefty fines, prison time, and years of increased scrutiny by the Internal Revenue Service.
What’s The Difference between Tax Evasion and Tax Fraud?
Tax evasion involves a deliberate act to misrepresent your taxable income to the Internal Revenue Service. Ideal examples of actions which could result in charges of tax evasion include failing to file tax returns while you have taxable income in a bid to avoid detection, deliberately overstating deductions or expenses, and failing to declare all your income.
Tax fraud encompasses all tax issues an individual or entity may lead to problems with the tax collector. Tax evasion is a section of tax fraud. Tax evasion charges are often filed against individuals operating illegal enterprises, but anyone who refuses to pay taxes or file tax returns may be charged with a serious crime.
Tax Fraud Doesn’t Always Involve Money
If there are any errors in your returns, even if it doesn’t mean that you owe money to the IRS, you can still be charged with tax fraud. For instance, you will be charged with tax fraud if you file your returns under the wrong Social Security number. The IRS can also add non-monetary charges to cases involving money. Lying to an IRS investigator during an audit is a criminal offense, and you can be sued for it.
How Does The IRS Catch Tax Fraud?
The IRS is drawn to fraudulent activities when their computer systems flag unusual factors. The IRS agent, after being notified by the computer systems, turns his/her attention to the unusual activity to see if there is any reason to prompt further action. If there is something legitimately wrong with the flagged returns, the agent will initiate an investigation in the form of an audit. Sometimes, the IRS relies on external tips to instigate an audit.
The Cost of Tax Evasion
About 3% of taxpayers in the United States, according to government estimates, do not file their taxes at all. Though failing to file your taxes can lead to both civil and criminal penalties, this is usually contingent to the amount of tax you owe. For instance, if you do not owe any taxes, the repercussions of failing to pay your taxes or file your returns will be less serious. However, if you fail to file your returns in a year that you owe large amounts in taxes attracts serious penalties. For every year a taxpayer fails to file their returns, the penalty can include a prison sentence of up to 12 months or a fine of up to $25,000.
However, incarceration is rare when it comes to tax evasion. The burden falls squarely on the IRS. They can pursue a felony conviction if they can successfully demonstrate that a taxpayer willfully did not file in an attempt to circumvent taxation. In this case, the taxpayer may end up going to prison for up to five years and parting with up to $100,000 in fines. The threat is very real.
The tax code is a complex document, and the IRS knows it. Sometimes, honest mistakes and acts of negligence can appear criminal. The IRS is sympathetic to taxpayers and doesn’t pursue criminal charges for late returns. The tax collector levies a 5 percent ‘late filing fee’ penalty up to a maximum of 25 percent of the total tax due each month the return is late. If you have a habit of filing your returns early before the IRS catches up with you, you should expect some leniency if you ever happen to be late.
A Tax Lawyer Can Help
The tax code and the events surrounding tax fraud are complicated, not to mention that the facts of each case are unique. If you happen to find yourself in crosshairs with the IRS, we can help. At Spodek Law Group, we have a long history of providing exceptional legal defense for both individual and corporate tax crimes throughout the United States. Our tax fraud lawyers can explain the numerous options available if you are audited, investigated or charged with tax evasion. Our rates are reasonable, and we are available 24/7.