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The Most Common Legal Defenses in IRS Criminal Tax Cases
|Last Updated on: 24th September 2023, 06:06 pm
The Most Common Legal Defenses in IRS Criminal Tax Cases
Dealing with the IRS can be scary, especially if you’re being investigated for potential criminal tax fraud. While the government has a high burden of proof in these cases, the penalties for conviction can be severe. However, there are viable legal defenses you can use to fight the charges. This article will explain the most common defenses used in IRS criminal tax cases, so you can understand your options if you find yourself under investigation.
Reliance on Professional Advice
One of the most common and effective defenses in criminal tax cases is reliance on professional advice. This means you consulted with and followed the advice of an accountant, tax preparer, or other tax professional regarding the tax matter at issue. For example, if your accountant advised you to take certain deductions on your return and you’re later criminally charged for those deductions, you may argue you relied in good faith on the accountant’s advice. To use this defense, you must show:
- You fully disclosed all relevant facts to the advisor
- You relied in good faith on the advisor’s guidance
- Your reliance was reasonable under the circumstances
If you can prove these elements, it negates the government’s proof that you acted “willfully,” which is required for criminal conviction. Reliance on professional advice has frequently led to acquittal in criminal tax cases. See IRS Tax Crimes Handbook[1], SF Tax Counsel article[2].
Lack of Tax Due and Owing
For tax evasion charges under 26 U.S.C. § 7201, the government must prove the taxpayer owed substantially more federal income tax than was reported. One defense is to show there was no additional tax due and owing. Strategies include:
- Unreported income was offset by allowable deductions
- Alleged unreported income was actually a nontaxable gift
- The taxpayer was entitled to credits eliminating any additional tax
If you can show through records, documentation, and expert testimony that you didn’t actually owe any additional tax, it defeats an essential element the government must prove. See The Tax Lawyer article[3].
Lack of Willfulness
Most tax crimes require the government to prove you acted “willfully.” This means voluntarily and intentionally violating a known legal duty. Forgetting to report income or take deductions, making mistakes in calculating tax, or negligence do not meet the willfulness standard. You can argue you did not act willfully if:
- You misunderstood complex tax laws
- You were unaware of filing requirements
- Someone else prepared your return and you had no reason to know it was incorrect
Raising doubt about whether you acted intentionally and voluntarily can defeat criminal charges. See IRS Tax Crimes Handbook[1].
Statute of Limitations
For most tax crimes, the government must begin prosecution within 6 years of the alleged criminal act. If the IRS tries to charge you beyond the 6-year limitations period, you can seek case dismissal based on expired statute of limitations. The timeline can be extended in certain cases of tax fraud or substantial unreported income. But the government has the burden of proving the limitations period was tolled if they bring charges beyond 6 years. See IRS article on limitations.
Lack of Materiality
For charges like tax perjury under 26 U.S.C. § 7206(1), the government must prove you made a materially false statement on a tax return or other document. You can defend yourself by showing the alleged false statement was not material. Minor mistakes or omissions that have little impact on your overall tax liability generally do not meet the materiality requirement. See The Tax Lawyer article[3].
IRS Misconduct
Another potential defense is arguing the IRS engaged in misconduct in investigating and referring your case for prosecution. This includes issues like:
- Violating required procedures
- Denying your constitutional rights
- Using deceptive tactics
- Making false statements
- Withholding or destroying exculpatory evidence
While challenging the IRS itself is an uphill battle, credible evidence of misconduct may persuade prosecutors to drop the case. See IRS Tax Crimes Handbook[1].
Collateral Estoppel
If you already went through an audit with the IRS civil division over the same tax matters at issue in a criminal case, you may be able to prevent the government from relitigating those issues. This doctrine is called collateral estoppel. For example, if the civil audit already determined you properly reported certain income or deductions, that decision can bind the government in the criminal case. See The Tax Lawyer article[3].
Sentencing Mitigation
If you decide to plead guilty or are convicted at trial, developing mitigating factors can help reduce your sentence. Arguments for a lighter sentence include:
- Minimal tax harm from the offense
- Personal circumstances like health issues, age, or family responsibilities
- Charitable works and community service
- Cooperation with prosecutors
- No prior criminal history
An experienced tax defense lawyer can advise on these and other mitigating factors and advocate for a reasonable sentence. See IRS Tax Crimes Handbook[1].
Avoiding Collateral Consequences
Pleading guilty or being convicted of a tax crime can impact your finances, career, and reputation long after your sentence ends. Your attorney can help negotiate plea terms or sentencing conditions that minimize collateral damage, such as:
- Avoiding a felony conviction
- Serving probation instead of prison time
- Paying restitution instead of fines
- Sealing or expunging court records
- Keeping your professional license
While every case is different, skilled tax defense counsel will fight to protect your rights, freedom, and future. See IRS Tax Crimes Handbook[1].
Takeaways
If you’re being criminally investigated or prosecuted by the IRS, don’t go it alone. Hire an experienced tax attorney to advise you on the best defense strategies for your unique situation. While the government wields significant power in tax cases, you have rights and viable defenses. An attorney who specializes in tax fraud and tax crimes representation can protect your interests, maximize your chances of success, and help achieve the best possible outcome.
The most common defenses in criminal tax cases include reliance on professional advice, lack of tax due and owing, lack of willfulness, statute of limitations, lack of materiality, IRS misconduct, collateral estoppel, sentencing mitigation, and avoiding collateral consequences. Thoroughly understanding these defenses will help you make informed decisions in responding to IRS allegations.
References
[1] IRS Tax Crimes Handbook[2] SF Tax Counsel article
[3] The Tax Lawyer article
[4] IRS TEB Phase III Lesson 5
[5] The Tax Lawyer article on mistake/ignorance
[6] Brown, PC article