Did you know? Tax fraud is one of the most common offenses in the white-collar crime category. This federal charge typically has strong associations with executives and celebrities. However, anyone can be investigated by the Internal Revenue Service (IRS) and face serious charges and penalties.
How Tax Crimes Are Identified
The IRS has many departments for identifying and investigating criminal tax offenses. The Criminal Investigation Division (CID) investigates corporate and individual taxpayers, along with the individuals who prepare taxes that are suspected of committing offenses involving income taxes.
CID investigators look for red flags when looking at people’s taxes, including:
- Overstatement of deductions and exemptions
- Falsification of documents
- Concealment of income
- Falsifying expenses
- Claiming an exemption on a nonexistent dependent
- Underreporting income
Tax Fraud Penalties
Every tax fraud case is different, and federal charges are serious. However, convictions and sentences are determined based on various factors, including:
- The government’s financial loss
- Scope of conduct
- Using a specialized skill or abusing public positions
- Impeding investigations or obstructing justice
Penalties for Income Tax Fraud
Any taxpayer that attempts to evade paying their income taxes is subject to both criminal and civil penalties. The exact type of fraud determines the penalty. Here are some examples of penalties for specific kinds of tax fraud.
Attempting to Evade Paying Taxes: Once convicted, the taxpayer is guilty of a felony. They are subject to any penalties allowed by law, in addition to imprisonment for no more than five years, a hefty fine, and the cost of prosecution.
Fraud and False Statements: Once convicted, the taxpayer is guilty of a felony. They are then subject to imprisonment for no more than three years, a hefty fine, and the cost of prosecution.
Willful Failure to File a Return: This includes the failure to pay estimated taxes. Once convicted, the taxpayer is guilty of a misdemeanor. They are also subject to imprisonment for no more than one year, a fine, and the cost of prosecution.
All of these three types of fraud have similar consequences, although the amount of the fine will differ. Even so, you can expect to pay hundreds of thousands of dollars to the US government, and you may even have to spend time in prison.
In some cases, tax fraud may lead to conspiracy charges with a conspiracy to commit tax fraud or defraud the federal government. This is penalized by up to five years in prison on each count.
Tax fraud investigations can also discover information that may be evidence for prosecutors to pursue other fraud charges, such as:
- Wire and mail fraud
- Money laundering
Negligence vs. Income Tax Fraud
While the IRS may seem tough, they do understand that the tax code is complex and confusing for most taxpayers. Careless errors can occur, but if there are no signs of fraud, the IRS will assume that it was a mistake. In such an instance, the tax auditor will attribute this mistake to negligence. However, even if the mistake is intentional, the IRS may fine the taxpayer a penalty of 20 percent of the underpayment.
The IRS is not out to get you if you are a responsible taxpayer. To be found guilty of tax fraud, they must prove that you willfully committed this crime. This means that you must intentionally and knowingly lie on your taxes and they have to prove that. Be aware, though, that if you do willingly and knowingly commit tax fraud, the IRS will find out and they will prosecute you to the best of their ability.
Luckily, the IRS can distinguish when a mistake is the result of negligence or willful evasion of the law. Auditors check for common signs of fraudulent and suspicious activity.
Who Commits Tax Fraud?
Both service workers who are paid in cash and self-employed taxpayers who run cash-based businesses are the types of people who commit most of the tax fraud offenses. It is easy to underreport cash income. These professions were ranked as the top offenders in a government study:
- Restaurant and Clothing Store owners
- Car Dealers
- Doctors, Lawyers, Accountants
It’s also common for service workers, like mechanics and restaurant servers, to underreport their cash income.
The IRS Investigation
Once the IRS takes notice of a specific taxpayer, they will pull that taxpayer’s tax returns and send a notice. The notice will request that you address certain issues and make a repayment as soon as possible. If you refuse to make a repayment or continue to defend your innocence, they will begin a formal investigation.
If the amount you owe is more than $100,000, the IRS will contact you at your home or office for an interview. Take note, that if this happens, you should consult a Los Angeles federal criminal defense attorney immediately.
You can tell the IRS agents that you would prefer not to answer their questions until you speak with your attorney. Remember that the IRS knows more than you realize and they will be comparing your statements with their records. You never want to incriminate yourself, so make sure you have a qualified tax lawyer.
Los Angeles Federal Criminal Defense Lawyers
Once you retain an attorney, they will try to plea bargain your case and mitigate the amount of jail time you receive. If you have not committed fraud, then you should bring your paperwork and tax forms to prove it to your attorney. Once your lawyer has this information, they can obtain the information that the IRS has and begin investigating.
Your attorney will be invaluable when it comes to proving your innocence. Most tax fraud and related crimes prosecuted by the federal government result in prison sentences. It is your attorney’s goal to reduce your exposure to these penalties and structure a clear and strong defense to obtain the best outcome.