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Defenses to Tax Evasion

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What Is Tax Evasion?

Tax evasion is an intentional conduct where a person or a company purposefully underpays taxes or engages in fraud when dealing with taxes.

Mistakes and carelessness is not considered tax evasion. In order to be convicted for tax evasion, the IRS must know that you are intentionally and purposefully trying to underpay your taxes or trying to hide your taxable assets.

What Are Some Examples of Tax Evasion?

Tax evasion usually involves a intentional wrongdoing. Mere negligence or carelessness that causes tax errors is not tax evasion. The IRS usally investigates to determine whether tax evasion has been committed. Some examples of tax fraud includes:

  • Intentional understatements of income
  • Providing inadequate records
  • Failure to file tax returns
  • Inconsistent explanations of tax records
  • Failure to cooperate with tax authorities
  • Engaging in illegal tax activities and fraud
  • Dealing in cash to avoid being taxed
  • Failure to make required tax payments
  • Concealment of taxable assets

Other possible tax evasion conduct is lying, concealing, or delaying tactics that are designed to mislead the IRS agents in their investigation after you have been red flagged.

What Are Possible Defenses If I Am Accused of Tax Evasion?

Tax evasion is a crime, so all the defenses available for other crimes can be used. Common defenses include: 

  • Insufficient evidence - To be convicted of tax evasion, the prosecution must generally show that you willfully intended not to pay your taxes.  For example, if you can prove that your failure to file a tax return was because of forgetfulness that may be enough to dismiss a tax evasion charge because of insufficient evidence. Another way is to challenge the IRS claiming that they have made an error in calculating your taxes.
  • Statute of limitations - There is a statute of limitation (a time limit) to file a charge of tax evasion. Once this time period passes, the IRS cannot file a tax evasion suit even if they have sufficient evidence. In general, the IRS must file charges within six years of the alleged tax evasion. 
  • Entrapment - Entrapment occurs when the government compels an innocent person to commit a crime they would have otherwise not committed. However, simply providing an opportunity to commit a crime will not be considered entrapment.  If you think that you were entrapped to commit tax evasion, please speak to an experienced attorney to find out what you can do. 
  • Mistake - In using this defense, there is a clear distinction.  If you are mistaken about what day taxes are due or what exactly needs to be reported, then you may have a mistake defense. However, simply claiming that you didn't know you needed to file taxes will not be a valid. This is a fine line to draw, and an attorney would be able to explain to you which type of mistake you committed.  
  • Insanity - Insanity is always a possible defense, but it is a "tough sell" in any court for any crime. This defense allows you to claim you were either insane at the time of the offense or during trial. The success rate of an insanity defense is low and it would most likely be ineffective in tax evasion cases. 
  • Intentional Conduct: The government must prove that the taxpayer intended to evade the taxes and knew of the possible consequences of his or her wrongdoing.

What Are The Criminal Penalties For Tax Evasion? 

Since many taxes are considered federal taxes, federal agencies (like the IRS) are commonly in charge of prosecuting tax evasion cases rather than law enforcement. Individual federal law govern each tax evasion offense. Additionally each state might have their own tax evasion laws and penalties.

  • Prison: Tax evasion may lead to imprisonment for a term of up to five years. The term may be enhanced if their was multiple counts or if it was a repeated offense
  • Fines: Violating federal tax laws can result into substantial fines. A conviction for tax evasion can result up to $250,000 for individuals and $500,000 for corporations. Additional fines can be imposed by the courts.
  • Restitution: Tax fraud cases also can lead to court orders requiring defendant to pay for any restitution that they benefited from.
  • Probation: Courts may sentence a person convicted for tax evasion to probation. Probation sentences usually last at least 1-3 years. The probation period may be extended if the defendant fails to comply with the probation terms and conditions.

How Likely Will Any of These Defenses Work?

Tax evasion defenses can be used when there is insufficient evidence of intentional or purposeful conduct. The IRS must prove that the defendant knew their wrongdoing and intentionally misreported their taxes or tried to evade taxes. Mere mistakes and carelessness cannot convict someone with tax evasion. 

Other possible defenses for tax evasion may be that the taxpayer honestly believed that he is not evading or hiding his taxable income because of some misunderstanding of the law. To use this defenses, the taxpayer must show proof of reliance in where they relied on the information such as an accountant or lawyer.

Do I Need an Attorney?

Tax evasion and tax fraud is a very serious matter. If you have been contacted by the IRS for suspicion of tax evasion or fraud or have been charged with a tax evasion crime, you need to speak to a criminal defense attorney. Tax evasion charges must be proved by the IRS and they must provide clear evidence that you knowingly and purposefully tried to evade taxes. A local attorney will be able to assist you on your rights and determine whether you have any valid defenses.

Photo of page author Kourosh Akhbari

, LegalMatch Legal Writer

Last Modified: 05-08-2018 03:30 AM PDT

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