Articles Posted in Criminal Tax Cases

Under the Internal Revenue Code, a person who is convicted of felony tax evasion is defined as “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof…”. In addition to a felony conviction, one who is found guilty of felony criminal tax evasion shall be fined up to $100,000 for an individual and up to $500,000 for a corporation and/or face up to 5 years in prison. In addition to the fine and/or jail time, a felony-convicted taxpayer will also be responsible for the costs of prosecuting the case. The two basic types of evasion include: evasion of assessment and evasion of payment. The evasion of assessment includes failure to file or filing a false return. One common example we often see if where the IRS claims that not all of the taxpayers taxable income was included in their tax returns, based upon reviewing the taxpayers bank statements. Evasion of payment occurs after a tax is assessed and usually involves the concealment of assets available to pay taxes.

Under the Internal Revenue Code, a person who is convicted of misdemeanor tax evasion is defined as “[a]ny person required … to pay any estimated tax or tax, or required … to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations…”. In addition to a misdemeanor conviction, one who is found guilty of misdemeanor criminal tax evasion shall be fined up to $25,000 for an individual and up to $100,000 for a corporation and/or face up to 1 year in prison. In addition to the fine and/or jail time, a misdemeanor-convicted taxpayer will also be responsible for the costs of prosecuting the case.

Tax fraud and false statements, under the Internal Revenue Code include willful statements and representations on any tax return or other document that “is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.” Making fraudulent and false statements under the penalties of perjury are also actionable tax crimes.

Taxpayers who file their returns and pay the amount due have done a lot in avoiding a tax crime. Once a return is filed, even if it contains errors, the burden of proof is on the Internal Revenue Service to prove any criminal wrongdoing.

According to a recent report, even with fewer staff members and an increase in budget cuts, the IRS has investigated more tax fraud and tax evasion cases and has convicted more tax criminals in recent years. In 2012, the agency investigated 400 more tax cases and made 300 more tax convictions than 2011, and did so with 8 percent less staff. The IRS works to stop tax fraud, tax evasion, identity theft, and money laundering.

The IRS Criminal Investigation charges are often linked to other non-tax crimes. The IRS works with other government agencies to investigate drugs and fraud. However, only the IRS has the power to investigate criminal tax violations of the tax code.

New York readers might assume that alleged violations of federal or state tax laws automatically implicate certain felony charges or potential prison sentences. However, a recent story illustrates that even an individual facing charges of tax fraud or evasion might be able to argue for mitigating circumstances that can result in a lower sentence.

A New York physician recently benefited from this legal strategy. The 62-year-old taxpayer came under the investigation of the Internal Revenue Service because of his holdings in an offshore bank account — worth almost $1.5 million. The man had inherited the Swiss bank account in 2000 from his father, allegedly with an instruction to secrecy for purposes of tax evasion. Deception seems to have been the reason the account was not labeled in the family name, but rather under a pseudonym, called the Wanderlust Foundation.

Although the man was not responsible for setting up the account, IRS officials and federal prosecutors pointed out that the man could have listed the account on his tax returns at any time. Instead, he perpetuated the deception and evaded paying federal taxes amounting to at least $216,000. The penalties for tax fraud and evasion are severe, however.

Both the Internal Revenue Service and New York State take the evasion of paying taxesseriously and will conduct a criminal investigation if they believe that you are doing so. If either or both agencies are able to prove that you purposely did not pay taxes, you will face monetary penalties, as well as the possibility of prison.

You may be found guilty of committing tax fraud if you intentionally avoid paying tax by:

  • Under-reporting taxable income

The Internal Revenue Service has increased the scrutiny of overseas bank accounts and has rescinded amnesty for some individuals who disclosed their overseas accounts and were accepted into the program.

Taxpayers who have offshore accounts are required to file a Report of Foreign Bank and Financial Accounts (FBAR) annually with the Treasury. Taxpayers who do not file their FBARs can be fined for each year they fail to file.

Since 2009, the IRS has gone after taxpayers who hide money abroad in overseas accounts. The IRS has offered amnesties to taxpayers who confess that they have undisclosed accounts abroad. The IRS has repeatedly stated that in order to be accepted into the amnesty program, taxpayers must give themselves up to the IRS before they are discovered by the IRS. Once accepted into the amnesty program, the taxpayer no longer faces criminal prosecution. However, they will need to pay any interest, penalties and back taxes owed.

When the Internal Revenue investigates a taxpayer for a criminal matter, it is serious. They believe that the taxpayer is defrauding the system, and will work to prove that they are correct. The IRS will pursue a taxpayer for criminal charges if they believe that they are not reporting income, are under-reporting income, or are overstating deductions and expenses.

When the IRS opens a criminal investigation, the will work to prove that the taxpayer earned more money that they reported, and that the taxpayer knowingly did so. They will also work to prove that the taxpayer overstated deductions, expenses or credits as well. The IRS will reach out to the taxpayers’ employers, accountants, financial advisors, family members or anyone else who would be knowledgeable about the taxpayers’ finances.

The IRS has developed a system to prove their case against a taxpayer using direct methods, and once they do so, the taxpayer will be forced to pay all taxes in full, as well as interest and penalties on any incorrectly reported finances.