For most taxpayers in the United States, an IRS audit is something you should try to avoid at all costs. Unfortunately, many taxpayers already know the stress that comes when the IRS knocks on your door to investigate a simple error. When the “simple error” results in a significant discrepancy in reporting, or failure to report at all, the IRS could come after you for criminal tax evasion or fraud.
Understanding the Definition of Tax Evasion
It’s important for all taxpayers to understand the definition of tax evasion. In 2018, the IRS processed more than 154 million tax returns and issued more than $324 billion in tax refunds. Of these millions of returns, a relatively small percentage are selected for an audit.
Of those selected for an audit, an even smaller number will be investigated for tax fraud or evasion. Still, the IRS takes tax crimes very seriously – imposing substantial fines, and in some cases incarceration, in the event that someone is found guilty. Understanding how the IRS defines tax fraud and evasion is the first step to avoid paying the harsh consequences.
Tax fraud is a white-collar crime involving the purposeful misrepresentation or omission of information when filing a tax return. Tax fraud occurs when a person misrepresents their information to claim tax credits or deductions, intentionally fails to pay taxes due, fails to report all of their income, or intentionally fails to file their income tax return, among other deceptive acts.
While there are nuances that define them, tax fraud and tax evasion are often used interchangeably. Tax evasion is more narrowly focused specifically on acts of intentionally failing to file or pay taxes due.
5 Things to Know About Criminal Tax Fraud and Evasion
Tax laws are complex and it isn’t uncommon for someone to be uncertain about the legalities of their tax obligation or underestimate the severity of an intentional tax-related error. To help clarify these topics, here are five things that you might not know about criminal tax fraud and evasion.
- There’s a Difference Between Income Tax Fraud and Tax Negligence: Income tax fraud is willfully and intentionally using deceptive tactics to deceive the IRS when filing, or failing to file, a tax return. The IRS is aware that the tax code is complicated and understands errors occur that are not malicious in intent. The IRS generally considers these errors to be negligence rather than fraud. While a fine may still be issued, the IRS will not seek prosecution.
- You Can Go To Prison for Tax Fraud: It can be easy to think of tax fraud as nothing more than little white lies posing no serious threat to anyone. However, the IRS thinks differently. Not only can deceptive tactics result in a hefty fine, but the IRS can also seek criminal prosecution and you could face prison for a federal crime.
- The IRS May Display Leniency for Extenuating Circumstances: Generally speaking, the IRS isn’t looking to send financially disadvantaged people to prison. Most of their criminal prosecutions involve people who were able to pay their tax debt but chose not to. If you can show you’ve experienced financial hardship during the past year, the IRS may be willing to make arrangements to rectify your tax debt.
- You Can File for a Compromise: Prosecutions are expensive and a drain on all resources. In an effort to minimize resources spent on tax fraud and evasion cases, the IRS does allow debtors to file for an offer in compromise. This compromise usually includes a lump sum payment which satisfies a determined portion of the debt. This offer can prove to be a useful tool for individuals with a high amount of tax debt.
- The IRS Knows More Than You Think: Chances are you’re not going to pull anything over on the IRS. They have the ability to cross check all of your sources of income, including those you don’t report. Honesty is always the best policy when it comes to dealing with the IRS.
Should You Hire a Dallas Tax Fraud Attorney?
If you’re facing an audit and possibly charges for tax evasion, it’s in your best interest to work with a Dallas tax fraud attorney to review your case and prepare the best defense. There are serious consequences to tax fraud and evasion. A skilled, knowledgeable criminal defense attorney at the Broden & Mickelsen, LLP in Dallas can help minimize the penalties and protect your reputation.
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Prior results cannot and do not guarantee or predict a similar outcome with respect to any future case.