There are several kinds of tax crimes, but the most common are either tax fraud or tax evasion. Tax fraud is when the filer puts intentionally fraudulent information on their tax returns to avoid payment. Tax evasion is the act of failing to pay of their taxes owed.
The IRS has to first discover the tax fraud before it can be prosecuted. Usually, criminal tax fraud is discovered through an audit, or even sometimes whistleblowers (like a disgruntled partner or angry ex-spouse). Then, a revenue agent is sent out to complete an audit. This agent works with a fraud referral specialist, who will instruct the agent on how to handle the case. If warranted, the case will be transferred to another special agent who can serve subpoenas, warrants and can even file charges and take the defendant to trial.
A good tax lawyer will use as many defenses possible for a client accused of tax fraud or tax evasion. For tax evasion, the prosecutors have to show intent to willfully avoid paying your taxes and benefit financially. You may be able to show that you simply forgot, or were late, or mistaken. One of the most effective defenses is the statute of limitations.
The IRS has a limited period of time to file suit for tax evasion, even if they have sufficient evidence to charge you. Generally speaking, the IRS has to file charges within six years of the alleged activity. This is why most accountants advise clients to keep their tax returns from the past 7 years. Mere mistakes and carelessness cannot result in a conviction of tax evasion or tax fraud. As a note, tax crimes can be charged against tax preparers as well as individuals. CPA’s and other accountants must be vigilant and also firm with their clients if they suspect fraudulent information, but still submit the form to the government.
Someone who has been convicted of tax avoidance can face up to $250,000.00 in fines, plus the chance of imprisonment for up to five years. If someone has been convicted of making false statements on their returns, the fine is the same, but imprisonment is lowered to 3 years.
There are additional penalties which can be a huge financial burden. There is a 75% civil tax fraud penalty, intended to nullify any benefit the actor might have received from defrauding the IRS. In other words, if someone owed $100,000.00 but was convicted of tax fraud, then that person would still be liable for the original $100,000.00 tax, as well as the $75,000.00 penalty – plus interest.
If you are contacted by the IRS and you suspect that it might have to do with allegations of tax fraud or tax evasion, contact an experienced attorney immediately. Do not speak to anyone about the case outside of your lawyer, as these conversations will be privileged.
Many CPA’s do not necessarily enjoy the same privilege, particularly if they also might have been involved in any sort of fraudulent behavior. This means they could be subpoenaed to testify against you. Do not speak to any one from the government or IRS until you have spoken with an experienced attorney.