Introduction 

If you fail to pay either your State or Federal taxes you may be charged with tax fraud. Tax fraud includes several acts such as failing to file a tax return, falsifying information on a return, or deceiving an auditor that is reviewing your information. The act of tax fraud in New York applies to both individuals and corporations, with penalties assessed for fraud on a corporate and individual level.

Usually, failure to pay taxes will result in both federal and state charges. It is important when you are facing multiple charges to have a criminal defense attorney that specializes in both state and federal charges. The federal and state statutes both impose their own punishments and getting charged with both can greatly increase your punishment.

If you are currently being audited with suspicion of fraud or are charged with tax fraud it is important to contact an attorney that specializes in the criminal prosecution of tax fraud. If you are charged with tax fraud you may face serious fines to repay any taxes that were avoided and you may face jail time. A detailed reading of your finances with an understanding of what the criminal charges may make an attorney well suited to advise you of your rights and what to do.

Statutes

New York and the Federal Government both have laws to prosecute individuals that fail to pay their taxes. Almost every time an individual receives any money it creates what is known as a taxable event. If all taxable events are not reported on your tax returns for the federal and state taxes you may be prosecuted under tax fraud.

The New York Tax Law in article 37 part 2 lays out the foundation of tax fraud acts and penalties. §1801 defines tax fraud as either;

• Failing to file a tax return or report;
• Filing a false statement;
• Supplying false information during an audit;
• Making false promises to the government in connection to a tax;
• Not paying any taxes owed;
• Evading taxes; or
• Issuing a document that says a sale is tax exempt.

This boils down to the basic assumption that you could be found guilty for trying to evade taxes.

The criminal reproduction of tax fraud varies in New York between a class A misdemeanor and a class B felony depending on how much money was involved:

• Fifth-degree has no value attached and is a class A misdemeanor.
• Fourth degree is charged for an amount over $3,000 and is a class E felony.
• The third degree is charged for an amount over $10,000 and is a class D felony.
• The second degree is charged for an amount over $50,000 and is a class C felony.
• First degree is charged for an amount over $1,000,000 and is a class B felony.

A class B felony could land you up to a 25-year sentence, while a class A misdemeanor sentence would be under a year. There is a high chance if you are being prosecuted for this crime the amount would be at least over $3,000 which would move the sentence to 1 ⅓ to 4 years of jail time.

Under the Federal Law 26 U.S.C. § 7201 establishes the punishment for tax fraud on the federal level. The federal law makes it illegal in any manner to evade or defeat any tax. The attempt is criminalized under this statute, which means they do not have to be successful. The charge under § 7201 is a felony conviction with a fine up to $100,000 and up to 5 years imprisonment.

Detection and Investigation

The IRS in 2016 put out estimates on the amount of underpayments and nonfilings between 2008-2010 as about 15% of all of the gross taxes. This means that the IRS and in New York the Department of Taxation and Finance know or think that there is a large problem with people committing tax fraud. Due to these disparities in income, they have been investigating a large number of cases of tax fraud.

The crime of tax fraud is detected in multiple ways. Both New York and the IRS have reporting websites where you can report a business or individual you suspect of tax fraud. One reason an individual may report you is if you transact with them all in cash and you do so to avoid taxes.

There are also investigative bodies that try and find cases of tax fraud, including the Criminal Enforcement division of the IRS. Auditors usually are the ones to check on individual and business tax returns to see if they are correctly reporting income. One way they do this is check all expenses to see if the numbers have greatly deviated from the reported income. In addition, there are several other government operations to try and catch tax fraud and the level of the investigation depends on the amount of fraud and the publicity attached to the case.

If you are suspected of tax fraud you may be audited as mentioned before or you may be questioned by investigators. If you are questioned you may speak to an attorney before answering questions. Your personal or business taxes may be complicated, so speaking to an expert can help you through the investigation process and help understand why you are being investigated.

Representation from a criminal lawyer with expertise in handling tax fraud charges is important because it could help make the difference in your case. The best way to avoid being charged with tax fraud is to work with a specialist to finalize your taxes. If you are currently under arrest or under investigation an attorney will be able to help you deal with the authorities to try and find what evidence they have on you and to help plan your best defenses to these crimes.

Court Actions

Following an investigation, the District Attorney or the Attorney General’s Office will make a determination if they want to press charges against you for tax fraud. If you are charged at any point you may enter into a plea deal with the prosecutor, however, it is advised that you speak to an attorney before entering into such a deal. In addition to criminal penalties, there are also some civil penalties that you may face.

A criminal trial usually begins with an investigation. During the investigation, the investigators will try and illicit confessions and information that they can use to convict. It is important to know what the government’s burden of proof is tax fraud as to not accidentally disclose incriminating information.

You have the right to remain silent so you do not incriminate yourself and you have the right to have an attorney present. If the authorities begin questioning you about tax fraud you may tell them that you want to speak to an attorney.

If the District Attorney or the Attorney General’s Office feel there is enough evidence after investigation they will press charges. After being charged you will be granted a grand jury hearing where they determine if there is enough evidence to indict. Before a grand jury hearing, it is important to speak to an attorney to help you prepare for the hearing because there is a chance to get the charges dropped.

After the indictment, the government will prepare for trial by continuing to gather evidence and securing witnesses. At this point, your attorney should be reviewing all of the evidence and preparing the best defense for a trial.

Importance of Defense

A successful conviction of tax fraud comes with the possibility of a large fine and imprisonment.  If you are found to intentionally lie to try and avoid paying taxes the government may find out and press charges. When they press charges or when you find out you are under investigation speaking to an attorney can help make all of the difference.

Having a criminal defense lawyer who specializes in both state and federal tax fraud offenses is important because a detailed understanding of the law will greatly help your case. When you are charged under federal or state law there is a good chance that you will be investigated for both state and federal charges as a result.

If you fail to provide any tax returns there is a chance you may face these criminal charges. If you are under investigation for this you may be able to work with the IRS or Department of Taxation and Finance in New York to be able to settle any taxes that are owed. One defense that you might have is that you might not have needed to file returns in certain situations.

If you purposely understated your income for purposes of avoiding taxes and the government finds out you may be held criminally liable. This situation may come up when you receive cash at your job for example if you are a waiter and receive tips. If you do not report all of your cash as income for your taxes then you are underpaying. Working with an attorney may help you figure out what the prosecutor thinks you owe and either settling the discrepancy or disputing the discrepancy to avoid any liability.

Also, it is important with tax fraud cases to distinguish between what was an intentional misrepresentation and what legal loopholes were legally exploited. There are several tax loopholes that are intentionally written into the law, so an experienced criminal attorney will be able to help distinguish between chargeable offenses and legal actions to avoid taxes.

Recent Cases and Their Impact

On October 5, 2018, Michael “The Situation” Sorrentino was sentenced to 8 months in jail after being found guilty of tax fraud. Sorrentino was found guilty of tax fraud in federal court for not reporting income of about $9 million. He admitted that he would make cash deposits of under $10,000 to avoid any detection from the IRS and he intentionally stated false information in his tax return so he could avoid paying taxes.

In addition to Sorrentino’s 8-month sentence, he will also have to pay a $10,000 fine, serve 500 hours of community service and serve two years of supervised release. This case and sentence were both highly publicized and is increasing awareness of the consequences of tax fraud.

One of the most famous tax cases in the Supreme Court in Gregory v. Helvering which established the president that it is not illegal in itself to try and reduce your taxes, as long as it is done within the law. In the decision, Judge Learned Hand stated “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” Gregory v. Helvering did establish some precedent that you can avoid taxes, however, it is important to note that there is a fine line between legally avoiding taxes and tax fraud.

Evgeny Freidman and Andreea Dumitru in 2017 was arrested for stealing over $5 million dollars in taxes that were owed to New York State in relation to their taxi business.  They were both charged with tax fraud in the first degree and could face up to 25 years in prison if they are found guilty.

Proactive Advice and What to Do if Accused

The best way to avoid charges for tax fraud is to work with professionals to complete your taxes. Certain actions under both the New York and federal tax codes are allowed but acting outside of the code could result in an investigation.

If there is any inaccurate information that was reported on any tax return with the help of an attorney you may proactively help address this situation before it becomes a problem. Reporting could lead to an investigation which is why having an attorney help you navigate updating any information will lower chances of criminal repercussions.

If you know or suspect your business or any of your employees of engaging in activities to avoid paying taxes for the business you should directly address this issue. If you own a business and they are engaging in tax fraud there is a chance you may get charged with tax fraud.

The first step if you are under investigation or if you think you might become under investigation speaking to a lawyer should be your first step. If you are proactive and work with your attorney you may be able to avoid charges or lessen the severity of any charges. The communication with the authorities could get tricky with complicated taxes, so if you are unrepresented you might end up accidentally incriminating yourself.

Contact Us

If you become under investigation for tax evasion it is important to contact an attorney. Having an attorney that understands the intricacies of the law will help you plan the best course of action for you. An attorney can help plan next steps and for them to be present during questioning to help you through the investigation process. The charge of tax fraud can be a very serious charge and having a criminal attorney that specializes in federal and state criminal tax law can make all the difference.