What to Do When You are Charged with Tax Evasion

They say that the only guarantees in life are death and taxes. Most people do not look forward to either. And while death is a one-time event, tax season comes every spring. Filing your taxes can be complicated, confusing, and rushed. If you’re being accused of tax fraud, you need to take the situation seriously and secure a Los Angeles criminal defense attorney straight away. 

It’s common that those who are under investigation for tax evasion haven’t done anything wrong, but may have misunderstood one of many complex tax rules and regulations. A California tax fraud attorney will work hard to help you avoid the worst-case scenario.

Here’s what you need to know if you find yourself charged with tax evasion in Los Angeles, California:

What Exactly is Tax Evasion?

Tax evasion is most simply defined as a failure to file a federal income tax return or a lapse in the payment of federal taxes. The reality is that the term “tax evasion” can be used to describe several different crimes. Individuals and businesses can be charged with tax evasion. The U.S. Attorney prosecutes five different charges related to taxes:

  • Tax evasion
  • Filing a false tax return
  • Failure to file a tax return
  • Conspiracy to file fraudulent tax returns
  • Money laundering

Tax evasion is not the same as owing money on your federal taxes. Just because you made a mistake on your taxes and potentially owe more than you thought does not necessarily mean you are guilty of tax evasion. The federal government and Internal Revenue Service (IRS) have to prove that you purposefully left out more income than you claimed. They also look for patterns of not reporting a percentage of income over multiple years.

Tax evasion is also different from tax fraud, although they are both serious matters. Tax fraud is when people provide incorrect information on their taxes to overstate their expenses or downplay their income. Tax fraud is often part of tax evasion, but tax evasion has the elements of trying to avoid filing and paying taxes over simply providing incorrect information.

Common Types of Tax Evasion

It might feel like the IRS is just waiting for someone to make a mistake so they can pounce with an investigation and lawsuit, but the reality is that the IRS wants to give taxpayers the benefit of the doubt and assume most errors are simple mistakes. These mistakes will need to be rectified and there might be penalties, sure, but those kinds of outcomes are drastically different from being convicted of tax evasion.

The IRS identifies common forms of tax evasion. If they see one or more of these and observe a pattern, that could raise red flags and lead to an investigation. Here are the most common forms of tax evasion in Los Angeles:

  • Failing to report cash income
  • Reporting less than your actual income
  • Hiding money in overseas accounts
  • Improperly claiming a tax deduction
  • Omitting property
  • Underreporting an estate’s value
  • Over reporting the value of property donated to charity
  • Paying employees in cash (under the table) and not filing the proper returns

What are the Punishments for Tax Evasion in California?

The penalties for tax evasion are among some of the harshest for non-violent crimes. The IRS can issue monetary fines, recommend time in jail – or a combination of both. Since tax evasion is a federal crime, it comes with stringent penalties.

Depending on how severe your alleged tax evasion is, you could face up to $250,000 in penalties. If it’s your company’s taxes in the hot seat, that amount could double. The nature of your case could also result in up to five years in prison. On top of fines and prison time, you may also be responsible for all court costs along with any money that you still owe the IRS.

Strict punishments like these are all the more reason that you don’t want to try and defend against these accusations on your own. Making a mistake in court or during the investigation will cost you a great deal of money or your freedom. Sometimes both. A federal criminal defense attorney will be able to help you create a strong defense and potentially even avoid a case in court.

A Good Defense Wins

Investigations into tax evasion are lengthy and expensive. Federal agents of the IRS Criminal Investigation Division are methodical in their work. These investigations can take months or years to complete and when enough evidence is found, you could be charged with and placed on trial for tax evasion. The trial is prosecuted by the United State’s Attorney’s Office and/or the U.S. Department of Justice’s Tax Division.

A proactive defense includes presenting evidence to the U.S. Attorney or U.S. DOJ attorneys to prevent actual prosecution. In many instances, your federal criminal defense attorney may be able to get the prosecutors to accept the payment owned with penalties without going to court. This is often the best-case scenario short of having charges completely dropped.

In case you are charged and convicted of tax evasion, your tax evasion lawyer can help get a reduced sentence, lower fines, etc.

The first thing you want to do when charged with tax evasion in Los Angeles is to contact a California criminal defense attorney. They will guide you through the next steps and make sure you’re not blindsided by the process.

While you’re working on setting up a consultation and meeting with a tax evasion lawyer, do your best to gather all pertinent information for the taxes in question. This information includes anything that shows your income for the year, like a W-2 or 1099-MISC, as well as any receipts and expenses. 

And be completely honest with your defense attorney to ensure they can actually help you. Armed with accurate and complete information, your lawyer and any of their experts on retention should be able to pore through and find enough to show that you simply made a mistake.

Without professional assistance, you’ll be navigating a complex system. That small mistake you made could turn into a significant issue. The best way to protect yourself and/or your business is to hire legal counsel. Even if you suspect that you might be investigated in the future due to normal but potentially suspicious activity, like foreign bank accounts, make sure to contact a tax evasion attorney sooner than later. You’ll be glad that you did.

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