When someone engages in an action intended to cheat the Internal Revenue Service, they are committing tax evasion (IRS). The term “tax evasion” has a fairly broad definition. It enables the IRS to pursue a person for virtually any willful tax misrepresentation.
Usually, tax evasion entails a person or business giving the IRS false information about their income. Misrepresentations may include deceptive practices like underreporting annual income, inflating deductions, concealing taxable income, or moving money to offshore accounts.
When Must the IRS Accuse You of Evading Taxes?
The IRS has six years to prosecute a person for any tax filing errors. The IRS may audit a person at any time; there is no time limit on this.
The IRS must establish each of the following in tax evasion cases:
- There is an overdue tax debt;
- The defendant attempted to conceal their taxable income and avoid paying taxes on it;
- The defendant had a clear purpose of avoiding paying taxes that they were legally required to pay; and
- Each element must be shown beyond a reasonable doubt by the jury in order for the defendant or accused person to be found guilty.
What are the Legal Consequences of Tax Evasion?
In the United States, evading taxes is illegal. It carries a sentence of incarceration, significant financial fines, or both.
Tax evasion can result in severe penalties, such as fines of up to $250,000 for private individuals and $500,000 for corporations, a 75% civil penalty, criminal charges, including up to 5 years in jail, attorney’s fees, and court costs.
Tax Fraud Definition
Tax fraud happens when a person or organization knowingly and purposely falsifies facts on their tax return in order to avoid paying their full tax debt.
Because the American tax system relies on voluntary compliance or self-assessment of taxes owed, the IRS works to deter infractions by making public tax fraud convictions, pursuing jail sentences for offenders, and levying fines, civil taxes, and penalties.
What Are a Few Illustrations of Tax Fraud?
Intentional and deliberate violations of the tax code are considered tax fraud.
Examples could be: making a false deduction, classifying a personal expense as a business expense, neglecting to declare earned income, failing to file a tax return on purpose, failing to pay the required taxes on time, and willfully failing to record all revenue received, as well as creating and submitting an incorrect tax return.
What Distinguishes Negligence from Income Tax Fraud?
There is a distinction between carelessness and tax fraud. Most people find it challenging to understand the tax code since it is a very complicated set of laws and rules.
If a person makes a thoughtless mistake, the IRS usually assumes that it was an honest error rather than a deliberate avoidance of the tax rules, provided that there are no other indications of fraud. The tax auditor may view the error as negligence in these circumstances. However, the IRS has the right to impose a punishment on the taxpayer equal to 20% of the underpayment, even in the case of inadvertent noncompliance.
What Can I Do if I Don’t Agree With the Results of an IRS Audit?
If you believe the audit’s result was unfair, you have the right to appeal. You have 30 days from the end of the audit to appeal your case to the IRS.
You must submit a letter of protest to the IRS in order to do this:
- Providing your name, address, and home phone
- A declaration that you want to challenge the ruling
- A duplicate of the IRS letter containing the audit findings
- The analyzed tax years
- The precise information and findings you want to dispute
- The evidence that backs up your claims
- The applicable legislation in this case
Since it could take up to a year before your appeals audit is reviewed, you might wish to try to resolve your dispute with the IRS during this period.
Why Will The IRS Not Consider My Appeal?
The IRS normally will entertain appeals based on legal principles, but it will not consider appeals based on political, religious, or moral opinions. Such appeals are viewed negatively by the IRS, which has a policy of not considering them.
If I Cannot Resolve My Issue Through the Regular IRS Channels, to Whom Else May I Appeal?
You may request relief from the Taxpayer Advocate Office, yes. The TAO will look into your dispute, provide its findings, and assist in reaching a fair resolution.
If you still believe the IRS made an unfair decision regarding your audit after receiving the appeals decision, the IRS will send you a letter in the mail giving you 90 days to file a petition with the U.S. Tax Court.
If I Disagree with the Tax Court’s Ruling, am I Still Eligible to Appeal My Case?
The response is based on the amount you were first believed to owe the IRS. A streamlined process is applied in the U.S. Tax Court if the debt was $50,000 or less for any one tax quarter. The Tax Court is your only option after going through this streamlined process because the decision in your case cannot be challenged in court again.
If you choose not to follow this streamlined process, you might still be able to take your case to the U.S. District Court for review. But bear in mind that your costs will increase dramatically if you appeal to this level. However, it might be worthwhile if the IRS is treating you unfairly or you are disputing a sizable amount of money owed to the IRS.
What Do I Stand to Gain If I Appeal an Audit?
The first and most obvious advantage of contesting an audit is that it may reduce or eliminate many assessed taxes and fines. Second, delaying the tax bill’s due date will result from contesting the audit.
Given that an appeal may take several months or even years, you should have enough time to gather the money necessary to pay the taxes. The appeal itself won’t increase financial obligations because there are no additional fees or charges associated with appealing the matter to the IRS or TAO.
Are There Any Drawbacks to Appealing?
The main drawback of challenging an audit is that tax interests continue to accrue, which is frequently the only drawback. This is not an issue if the appeal reduces or eliminates the taxes, but if the appeal is rejected, you can wind up paying more than before. However, the majority of appeals are successful, which is good news.
The only other issue with filing an appeal is that it can unearth fresh, damning information about your case. The original audit must have been incredibly poor to overlook such information, which is incredibly uncommon.
Is a Tax Attorney Necessary?
The appeals process for taxes can be very difficult. You might want to speak with a tax attorney to help you navigate the appeals process and inform you of your rights and potential defenses.
You will almost likely need an experienced tax attorney if your appeal proceeds all the way to the U.S. District Court because there are numerous federal rules of procedure that apply and further complicate the proceedings.