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Federal Tax Fraud
Federal tax fraud occurs when a taxpayer intentionally refuses to pay lawfully due taxes. This offense has both civil and criminal consequences under the Internal Revenue Code and the United States Code. The Internal Revenue Service (IRS) aggressively prosecutes tax fraud, because tax revenues are vital to the government’s ability to fund its operations and programs.
Types of Federal Tax Fraud
There are many ways that it can be proven that you intentionally filed a fraudulent tax return including:
- Not filing income tax returns
- Not reporting income
- Acquiring assets in the names of other people, corporations, trusts or other third parties
- Operation of a cash business without accurate bookkeeping
What Is Considered Federal Tax Fraud?
Federal tax fraud is an offense that, broadly defined, refers to the evasion of duly levied federal taxes or the misrepresentation of your income, assets and expenses to reduce or evade federal taxes.
There are two different categories of federal tax fraud: civil offenses and criminal offenses. Civil offenses are considered less severe, and typically involve a taxpayer or taxpaying organization making a mistake when filing their tax return. Criminal offenses are typically reserved for offenders who blatantly and seriously engage in unlawful and intentional tax avoidance.
Examples of Federal Tax Fraud
An individual responsible for administering the payroll fund for a large organization or business who, instead of remitting the due payroll taxes, fails to pay taxes, has committed tax fraud. Likewise, any business or organization which obscures or avoids the payment of any relevant import duties or similar is also engaging in federal tax avoidance.
A tax preparer or accountant who is in the business of submitting fraudulent income tax returns on behalf of their clients — the clients either knowingly or unwittingly being part of the scheme — is also an example of federal tax fraud.
Individuals or organizations that unlawfully hide assets and income through offshore accounts rather than domestic financial institutions to evade taxes are also committing federal tax fraud.
Finally, individuals or businesses who knowingly misreport their income, assets or operating costs when filing their annual tax return are guilty of federal tax fraud. If a discrepancy was made in error, civil action rather than criminal action may result.
Penalties for Federal Tax Fraud
If the IRS investigates or arrests you on a federal tax fraud violation, legal representation is crucial. Criminal penalties can result in long prison sentences, six-figure fines and interest on unpaid taxes that can accrue without limit. In addition, you can be made to fund your own prosecution.
Civil penalties include paying the lawful tax and associated penalties. Criminal convictions, on the other hand, are punishable by steep fines and significant terms of incarceration in federal prison.
A single count of federal tax fraud can result in imprisonment for up to five years, fines of up to $250,000 for individuals — or $500,000 for corporations — and due restitution.
Civil infractions may result in fines rather than jail time, given that intent is generally not a required element of a civil tax fraud case. These cases tend to be more prevalent than criminal cases, and are also often the result of an honest mistake. Individuals or businesses may negotiate with the IRS to have these penalties lessened on a case-by-case basis.
Federal Tax Fraud Statute of Limitations
Things can get a bit complicated when discussing the statute of limitations concerning federal tax fraud.
In general, the IRS has three years from the due date (not the date you filed) for the return in question to file charges. This period increases to six years if the problematic element of your disputed return is a large understatement of income, or if an overstatement of deductions or credits is the cause of the government’s suspicion.
However, the IRS can also take the position that any of these aggravating omissions were intentional, rather than a matter of miscalculation. If this position is adopted by the government, there is no statute of limitations applicable, and the IRS may continue with prosecution at any point in time. There is no statute of limitations governing civil tax fraud cases.
How Can a Federal Tax Fraud Lawyer Help?
If you are accused of federal tax fraud, it is highly advisable that you secure the services of an experienced criminal defense lawyer familiar with tax law and white collar crime. The costs associated with retaining a legal team familiar with tax law are significantly less than the potential costs associated with a conviction, particularly any fines or restitution called for by the court.
By partnering with a skilled attorney, you increase your chances of building a successful defense against the charges against you. If a defense is not advisable, in the opinion of your attorney, they may still be able to negotiate a favorable plea bargain for you and reduce your sentence.
Should I Hire a Federal Tax Fraud Attorney?
Federal income tax regulations and statutes consist of thousands of pages and are extremely complicated. You may have heard that tax loopholes exist, which serve to further complicate matters.
Federal tax fraud is a highly specialized area of law requiring extensive research and an attorney who is well-versed in federal tax law. The right attorney will also have a proven track record of cases in which they defended individuals charged with federal tax fraud.
A defense attorney experienced in criminal tax law can:
- Explain the charge you are facing.
- Tell you how the criminal justice system works.
- Analyze the alternatives available to you.
- Challenge the evidence against you.
These services will help you make informed and intelligent decisions about how to proceed.
What Does a Federal Tax Fraud Attorney Do?
In a criminal complaint, the government takes on the burden of proving, beyond a reasonable doubt, that you knowingly and intentionally committed tax fraud, which can be difficult. Your attorney will typically build your defense around proof that you did not intentionally or knowingly fail to pay the taxes, to establish reasonable doubt.
In federal tax fraud cases, the government may choose to take civil action rather than prosecute criminally. In a civil action lawsuit, the burden of proof is reduced to a preponderance of the evidence, usually equating to 49% versus 51%. Generally, your attorney will work to develop evidence to swing the preponderance of evidence to your favor and challenge the IRS’s evidence.
The IRS also may choose a strategy to show you simply underpaid your taxes, releasing you of a fraud allegation. Therefore, to defeat the government, your attorney will look for a valid reason why you did not pay the tax.