Tax Evasion is generally defined as any act designed to defraud the IRS. This definition is very broad and allows the IRS to come after you for just about any knowing misstatements on your taxes.
Tax evasion usually involves an individual or corporation who misrepresents their income to the IRS. A misrepresentation may involve underreporting yearly income, inflating deductions, hiding taxable money, or transferring income to offshore accounts.
When Must the IRS Charge You with Tax Evasion?
Generally you have 6 years for the government to come after you for misstatements on your taxes. But there is no time limit on when the IRS can audit you. To be convicted of tax evasion, it must be proved:
- Unpaid tax liability exists.
- Prosecution must prove that the defendant did some kind of act to attempt to hide his/her taxable income and dodge paying some kind of taxes on their money.
- Prosecution must show that the defendant had specific intend to dodge paying taxes that he had a legal duty to pay.
- The jury must find the defendant guilty of each element beyond a reasonable doubt.
Punishments for Tax Evasion
Tax evasion in the United States is a crime and an individual may be punished to substantial monetary penalties, imprisonment, or both. Punishments for tax evasion can be harsh, including:
- Fines as much as $250,000 for individuals and $500,000 for corporations
- A 75% civil penalty
- Criminal charges, including imprisonment of up to 3 years
Types of Tax Evasion
- Personal Income Tax evasion
- Falsifying income or other factual data
- Business Tax evasion
- Claiming false deductions
- Deliberately underreporting or omitting income
- Overstating the amount of deductions
- Keeping two sets of books, or making false statements in books and records
- Claiming personal expenses as business expenses
- Hiding or transferring assets or income
- Employment Tax Evasion
- Failure to pay employment taxes
- Falsifying payroll
- Employment leasing
- Paying employees in case
What's the Difference between Negligence and Fraud Tax Evasion?
Negligent Tax Mistakes: Negligent mistakes on taxes occur when an individual commits careless mistakes without the specific intent to actually defraud the IRS. The individual usually does not know about the mistake until they are notified. Negligent tax mistakes do not invoke a criminal offense, but the individual could face civil penalties.
Fraudulent Tax Evasion: Tax fraud is when a person intentionally does acts to defraud the IRS. A person who commits tax fraud knows that they are trying to defraud the IRS and they commit the acts purposely while knowing the consequences if they were investigated and caught.
Should I Consult an Attorney If I Am Accused of Tax Evasion?
If you have been accused of tax evasion or you are facing an audit, you should speak to a tax attorney immediately to learn more about your rights, your defenses and the complicated legal system.