What will the IRS criminally prosecute me for?
Usually, tax evasion cases on legal-source income start with an audit of the filed tax return. In the audit, the IRS finds errors that the taxpayer knowingly and willingly committed. The error amounts are usually large and occur for several years – showing a pattern of willful evasion.
Here’s more about what the IRS looks for:
Unreported income: This is the biggest issue that brings taxpayers under criminal investigation. This includes leaving out specific transactions, like the sale of a business, or entire sources of income, such as income from a side business. This issue has gotten many gig economy workers in trouble with the IRS when they leave out income from their side hustle.
Dodgy behavior during an audit: People who make false statements or purposely hide records (such as bank accounts) from an IRS auditor are headed for criminal prosecution. The IRS calls these behaviors “badges of fraud.” They’re hot buttons that indicate tax evasion.
What will I be required to pay if I am found guilty?
The simple answer is “restitution”. In a criminal tax case, a court can require a defendant to pay the losses incurred by the government. The amount of the restitution ordered by the court is calculated from evidence submitted at trial or from information contained in the plea agreement and presented to the court at sentencing.
What does the IRS have to prove in a criminal tax case to prosecute?
Each element of a tax crime must be proved beyond a reasonable doubt just like other crimes. According to the Ninth Circuit, the evidence must be reviewed “in the light most favorable to the prosecution to determine whether any rational factfinder could have found the essential elements of the offense beyond a reasonable doubt.” U.S. v. Marashi, 913 F.2d 724, 735 (9th Cir. 1990).
For example, each of the three elements of tax evasion must be proved beyond a reasonable doubt: that (i) the taxpayer attempted to evade or defeat a tax or the payment of a tax; (ii) the taxpayer had additional tax due and owning, and (iii) he acted willfully in his attempt.
Can I be prosecuted for the failure to file a tax return?
Possibly. The answer turns on knowing more about your specific facts and circumstances.
Passively failing to file a tax return is not tax evasion. Thus, if you fail to file your tax return, the government can assert that you attempted to evade your taxes (a crime) only if you also engaged in some “affirmative act” to conceal or mislead the government. Thus, two things need to be present: (1) you failed to file your tax return when you should have, and (2) to engaged in some act to affirmatively conceal or mislead the government.
You might be guilty of tax evasion if you (1) failed to file your tax return and (2) you also engaged in “any conduct, the likely effect of which would be to mislead or conceal” the government as to your tax liability. Qualified legal counsel can help you answer whether these two elements are present in your case.
What does tax evasion consist of?
The IRS recognizes two different forms of tax evasion: evasion of assessment and evasion of payment. If a person transfers assets to prevent the IRS from determining their true tax liability, they have attempted to evade the assessment. If a person hides their assets after a tax becomes due and owing, an attempt to evade payment has occurred.
Evasion of Assessment: The taxpayer must perform some action that is focused on defeating the assessment of a tax. Requires more than a proof of negligence. An intentional under-reporting qualifies as an attempt to evade.
Evasion of Payment: Affirmative acts to evade payment generally involve concealment of money or assets with which the tax could be paid. Such an act could also take the form of removing the assets from the reach of the IRS, such as in a foreign bank account. Simply failing to pay taxes owed, is not evasion of payment. An example of evasion of payment is concealing assets in a family member’s bank account.
What happens if I’m found guilty of tax evasion?
Tax evasion is punishable by up to five years in prison, a fine of as much as $250,000, in addition to the payment of any taxes owing. Here are some common criminal penalties for specific types of tax evasion:
- Not Filing a Return: This offense generally carries civil tax penalties. In extreme cases, there can be up to one year in prison and $100,000 in fines for each tax year not filed.
- Filing a Fraudulent Return: A criminal felony that carries up to 3 years in prison and $100,000 in fines.
- Misrepresent or Conceal Financial Information: A criminal felony with a maximum penalty of 5 years in jail and $100,000 in fines.
- Failing to Pay Taxes: A felony offense with penalties of up to 3 years in prison and $250,000 in fines.
What can land me in jail with respect to my taxes?
The following actions will land you in jail for one to three years:
- Tax Evasion: Any action taken to evade the assessment of a tax, such as filing a fraudulent return, can land you in prison for 5 years.
- Failure to File a Return: Failing to file a return can land you in jail for one year, for each year you didn’t file.
- Helping Someone Evade Taxes: Helping someone else get out of paying their taxes can carry a three to 5-year prison sentence depending on what action is alleged.
Will I go to jail if I can’t pay my taxes?
If you cant pay your taxes, don’t ignore it. The IRS could find your actions criminal and potentially prosecute you. A better way to approach it is to enter an installment obligation with the IRS and pay your taxes off over time. Here are some options:
- Individual Installment Agreement: If you owe less than $50,000 in tax, interest, and penalties combined, you can set up a plan that allows you to pay down over time, with regular monthly payments. If you owe more than $50,000, you can still arrange an installment agreement, there’s just more paperwork involved. You’ll need to provide the IRS with detailed information on your assets, such as real estate and investment accounts, as well as household expenses.
- Offer In Compromise: This is an agreement between you and the IRS to settle your tax liability for less than the full amount owed. It’s generally not an option when the IRS thinks you are able to pay down your debt through a payment plan. This analysis is known as establishing your “reasonable collection potential.”
Can an IRS audit land me in jail?
This depends on your facts and circumstances. If you get hit with an audit, it is not automatic that you will be criminally prosecuted, even if you are found to owe taxes. Rather, if the IRS agent auditing your return finds that there were indicia of fraud around your filing, they may refer your case to the IRS Criminal Investigation Unit for further inspection.
However, most audits remain civil and do not result in a referral to the IRS’s Criminal Investigation Unit.
What is the IRS’s criminal investigation process?
The IRS criminal investigation process begins without your knowledge. The Criminal Investigation Division “CID” is composed of federal agents (called “Special Agents”), who are highly trained financial investigators that carry a gun and wear a badge. Unlike your typical police department, CID conducts a very thorough investigation, and which may last years while they interview your family, friends, co-workers, employees, and business associates, and bankers, among others, to acquire evidence as to the extent of the tax evasion or tax fraud that may have occurred.
Only once the IRS has sufficient information to believe they have a strong case against you, will they begin a formal “audit” of your finances and tax filings. This takes the form of an audit with the IRS’s Criminal Investigation Unit. If upon the finalization of their audit they believe they have strong enough evidence to prosecute you, they will do just that and file charges.