As the year wraps up, it’s time to start thinking about taxes. Everyone’s favorite chore, right? Unpleasant though it may be, paying taxes is the law.
Preparing and filing your taxes can be a nerve-wracking experience. Most people are busy with work, household chores, and other daily tasks. When tax season rolls around, getting that return in the mail on time can be a hassle.
If you’re like most people, you also worry about the consequences of making a mistake. What will happen if you’re audited? Could you end up in jail over a miscalculation? Similarly, business owners sometimes struggle to keep track of their various tax obligations, including withholding state and federal taxes from their employees’ compensation.
However, it is becoming increasingly common for people with financial means to find “off shore” locations to park their money to avoid having to report the existence of the funds or the interest income on their investments. It is also becoming more common for the United States government to target these very types of accounts held in foreign banks.
Tax Fraud and Tax Evasion Defined
Tax fraud and tax evasion are serious crimes that can result in severe penalties. “Tax fraud” is a general term that describes various violations under the federal Internal Revenue Code.
An individual commits tax fraud when he intentionally defrauds the government by failing to pay taxes. Federal prosecutors must prove that an accused intentionally withheld lawfully-owed taxes, which is a high burden of proof. Because it’s generally very difficult to prove that a person intended to commit fraud – as opposed to simply making a mistake – the IRS pursues most tax fraud cases in civil court. Individuals found liable for civil tax fraud must pay fines, but they don’t face any criminal charges or jail time.
Tax evasion is a type of tax fraud and involves an accused deliberately falsifying or misrepresenting his income to the IRS. Examples of tax evasion include:
- Failure to declare all taxable income
- Deliberately overstating deductions
- Lying about expenses
- Failure to file a tax return
A tax fraud or tax evasion conviction can change an accused’s life forever and have a devastating impact on his ability to earn a living and pursue certain careers. Because these are considered “white collar crimes,” convictions immediately raise a red flag for potential employers. Individuals convicted of tax fraud and tax evasion face up to five years in prison and fines ranging between $100,000 and $250,000 (corporations can be fined up to $500,000) per offense. In many cases, prosecutors will stack charges for several different crimes within the Internal Revenue Code.
The Difference between Fraud and a Mistake
The IRS uses special agents, trained in both accounting and law enforcement, to investigate suspected cases of tax fraud and tax evasion. These federal agents work within an internal IRS division known as the IRS Criminal Investigation Division. Once a CID agent is involved in a case, the investigation has gone far beyond a typical IRS audit.
To charge an individual with criminal tax fraud or tax evasion, the IRS (through the CID) must have substantial evidence that the person has intentionally defrauded the government. To assemble this evidence, CID agents engage in a comprehensive investigation that includes a detailed examination of financial records and other important documents. They also interview the suspect as well as his family members, friends, business partners, and anyone else who may have information about the alleged fraud. These agents look for telltale signs of intentional fraud, including:
- Hidden accounts
- Concealed assets
- Failure to pay taxes
- Unusual record-keeping practices
- Participation in other illegal activities
- Using cash for transactions
- Lying to the IRS or being evasive
Just because someone has not paid the taxes he owes, however, does not mean he has committed tax fraud. Careless tax return preparation and errors may expose an individual to civil fines, but they won’t lead to criminal charges. In many cases, criminal tax fraud cases turn on whether the accused can successfully prove that his actions were the result of a mistake – not intentional fraud.
Indiana Criminal Defense
If you’re facing criminal tax fraud or tax evasion charges, you need an attorney who specializes in criminal defense. These are serious charges. Don’t wait to speak to an attorney. Call Razumich Law, P.C. today at 317-989-1129 for a free consultation.