What is IRS Criminal Tax Evasion?

July 13, 2017

Fortunately, your chances of the IRS charging you with tax evasion or criminal tax evasion are minimal. The IRS initiates criminal tax evasion investigations against less than 2% of all the taxpayers in America. Out of that number, only around 20% face fines or criminal charges. However, it’s important to be aware of the activities and behavior that could be considered criminal tax evasion by the IRS.

Tax Fraud vs Negligence

Years ago, it was almost as if the IRS was just waiting, ready to strike unsuspecting taxpayers for the slightest hint of errors on their tax returns. Today, the IRS has grown more tolerant of honest mistakes made by taxpayers.

If circumstances are not totally clear cut, the IRS will often err on the side of giving taxpayers the benefit of the doubt. Making a miscalculation in the amount of your Earned Income Tax Credit is something that can cost a significant amount, but typically, the IRS does not consider this to be a form of tax fraud. On the other hand, if you try to hide $800,000 of your income by keeping a double set of books, you could be charged with tax fraud and will need an experienced New York City tax attorney on your side.

Evidence of Fraud According to the IRS

There are four elements of tax fraud that the IRS recognizes: failing to submit documents like tax returns, submitting documents that are false or altered, misrepresenting facts, and deception.  These matters are dealt with extensively in the IRS Tax Crimes Handbook.

Many elements of tax fraud need to happen together in order to trigger fraud charges from the IRS. That said, any single element that is especially blatant can generate the charges.

For example, the IRS does not consider failing to file a tax return for a single year an element of tax fraud. However, if you never file a tax return, this could lead to the IRS launching a criminal investigation.

Avoid Being Evasive

Typically, if you suspect that the IRS disallows a specific type of conduct, you should not be doing it. Be honest and forthright in all your returns and in any correspondence with the IRS. If you do pursue this type of disallowed or criminal conduct, the IRS might cite you for tax fraud or tax evasion. If this happens, and the IRS knocks on your door, there is no point in being surprised because you earned it.

Possible Criminal Prosecution

The Internal Revenue Service is a bureau of the U.S. Treasury Department.  As such, charges of violations of the provisions of the Internal Revenue Code pertaining to tax fraud and tax evasion are heard in federal, not state, court.  Jurisdiction of the preliminary tax proceedings are heard in U.S. District Court and the charges in criminal in nature.  Examples of charges that might be filed against an individual for income tax fraud or tax evasion include a count for corrupt endeavor to obstruct the due administration of the Internal Revenue Code under 26 U.S.C. section 7212(a); and making and subscribing a false tax return in violation of 26 U.S.C. section 7206(1).  Other, similar, charges may apply depending on the unique circumstances of a case.

In order to determine the severity of the charges, and their implication on the amount of possible prison time, several factors come into play.  Chief among them are the Federal Sentencing Guidelines, which established a uniform sentencing policy for those that plead to or are convicted of felonies and serious (Class A) misdemeanors in federal courts. Two factors which influence the base level offense, and thus the potential sentence for an individual are both the offense level and the individual’s prior criminal history.  Other factors can also come into play which can either modify the potential sentence upwards or downwards.

Modification of the Base Level Offense

Acceptance of responsibility is one such downward modifier.  For instance, as the guidelines make clear, if a defendant clearly demonstrates acceptance of responsibility for an offense, the offense level can be decreased by two levels.  That is to say that a defendant is not entitled to a downward adjustment for acceptance of responsibility as a matter of right.  Rather, as the U.S. Second Circuit has held, the defendant has the burden of demonstrating that he qualifies for such a reduction.  Significantly, and as that same Court has held, evidence of acceptance of responsibility may be outweighed by conduct of the defendant that is inconsistent with such acceptance of responsibility.  Accordingly, even though a defendant may both verbally and in open court accept responsibility for his or her actions, a subsequently filed letter with the Court may act to negate a prior acceptance of responsibility for criminal tax evasion when that letter is not repudiated prior to sentencing.

Conversely, the means by which the alleged criminal tax evasion was carried out may act as an enhancement of the federal sentencing guidelines and actually increase a potential sentence.  An example of  an enhancement is the use of sophisticated means to commit the crime consistent with U.S.S.G. section 2T1.1(b)(2). Ironically, it should be recognized that it doesn’t take much for a tax crime to be found to have been committed by sophisticated means.  As the U.S. Ninth Circuit Court concluded in a relevant case, conduct such as hiding assets or transactions, or both, through the use of fictitious entities corporate shells, or offshore financial accounts ordinarily indicates sophisticated means.

Experienced Criminal  Tax Evasion Attorneys in New York

It’ s possible to make a mistake or even be charged with criminal tax evasion when you shouldn’t have been. In these types of cases, it’s crucial that you have an experienced tax law attorney on your side. If you need a powerful tax defense or assistance navigating tax laws, the attorneys at Mackay, Caswell & Callahan, P.C. have the knowledge and determination you need on your side.

For a consultation, fill out our online contact form or call to speak with a tax attorney at one of our offices by calling 844-MCC-4TAX (622-4829). We have offices in Albany, New York City, Rochester, Syracuse, Utica and Watertown, so whether it’s a New York City tax attorney or a Syracuse tax attorney you need, a New York tax attorney stands ready to help.

Don’t attempt to navigate the criminal tax evasion tax laws alone. Let our New York tax attorneys help you.

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