The Most Common Legal Defenses in IRS Criminal Tax Cases

The Most Common Legal Defenses in IRS Criminal Tax Cases

Dealing with the IRS can be scary, especially if you’re facing criminal charges. But there are legal defenses you can use to protect yourself. This article will explain the most common defenses used in IRS criminal tax cases, so you can understand your options if you ever find yourself in this situation.

Reliance on Professional Advice

One of the most common defenses in criminal tax cases is reliance on professional advice. This means you reasonably relied on the advice of an accountant, tax preparer, or lawyer when filing your taxes. To use this defense, you need to show:

• You gave full disclosure about your financial situation to the professional
• You actually relied on their advice when filing your return
• Your reliance was reasonable based on the professional’s qualifications

If you can prove these elements, it helps show you didn’t intend to break the law. Instead, you were just following the expert advice you were given, even if that advice ended up being wrong. This defense puts the blame on the professional rather than you [4].

Lack of Willfulness

Many tax crimes require the government to prove you acted “willfully.” This means you knew you were breaking the tax law and intended to do so. Challenging willfulness is another common defense strategy. For example, you could argue:

• You didn’t understand the law due to its complexity
• You made an honest mistake rather than intentionally evading taxes
• You failed to file a return, but not as an intentional act of tax evasion

If you can show there was no willfulness, it’s much harder for the government to prove you committed intentional tax fraud or evasion [5].

Statute of Limitations

Tax crimes must be prosecuted within a certain time limit known as the statute of limitations. For most tax crimes, the statute is 6 years from the date the return was filed. If the IRS didn’t catch the issue within 6 years, the statute of limitations prevents prosecution.

However, the timeline can be extended in certain cases, like if you substantially underreported income or filed a fraudulent return. Talk to a tax attorney to see if the statute of limitations has expired in your case.

Lack of Tax Deficiency

For some tax crimes like tax evasion, the government must prove there was an actual tax deficiency – that you owed more tax than you reported. If you can show through records and documentation that you didn’t actually underpay your taxes, it defeats an element of the offense.

No Tax Due and Owing

Another related defense is to show no tax was due and owing. This means that even if your return had some inaccuracies, you prove that you didn’t actually owe any additional tax. For example, you may have additional deductions you didn’t originally claim that offset any underreported income. If no additional tax is owed, it weakens the government’s case.

Lack of Financial Sophistication

Courts may show some leniency if you lacked financial knowledge and sophistication. This defense argues you simply didn’t understand complex tax reporting rules. While ignorance of the law is not a full defense, it can sometimes lead to reduced penalties or charges if you can show you weren’t competent to handle your own finances and taxes.

IRS Misconduct or Errors

You may be able to claim the IRS made mistakes or engaged in misconduct while investigating or prosecuting your case. For example, if they denied your rights, mishandled documents, destroyed evidence, or violated procedure, it could help your defense. While you still have to disprove the underlying tax crime itself, IRS errors could persuade the court to dismiss the case or reduce penalties.

Constitutional Violations

You can also raise constitutional arguments like violations of your Fourth or Fifth Amendment rights. For example, if the IRS seized your bank accounts or property without proper procedures, it could constitute an illegal search or seizure. Or if you were compelled to provide self-incriminating testimony, it could violate your right against self-incrimination. Constitutional challenges are less common but can provide another avenue of defense in some cases.

Negotiating with the IRS

Rather than going to trial, many tax crime cases end up settling through negotiations with the IRS. An experienced tax attorney can negotiate to get charges dismissed or reduced, lower penalties, or avoid jail time. The IRS may agree to a deal to avoid the cost and uncertainty of a trial. Settlement options can include:

• Reduced charges – Misdemeanor instead of felony
• Lower penalties and interest
• No jail time
• Probation or house arrest instead of prison
• Agreement not to assess further back taxes

Settlement negotiations are complex and require strategic expertise. A tax attorney can best position you to get the most beneficial outcome. They’ll understand what motivates the IRS and the prosecutor and know what concessions to seek.

Avoiding Collateral Estoppel

If you’re charged criminally, any admissions you make can be used against you later in a civil audit or tax court case. This is known as “collateral estoppel.” When negotiating a plea deal, be very careful about admitting anything that could hurt you down the road in a civil tax proceeding. A savvy tax attorney will know how to admit guilt without making damaging civil admissions [2].

How Criminal Tax Charges Arise

Before discussing more defenses, it helps to understand how criminal tax issues typically arise in the first place. Here are some common triggers that could prompt an IRS criminal investigation:

• Underreporting a large amount of income
• Using multiple bank accounts or “structuring” deposits to avoid reporting
• Keeping two sets of books
• Using a false Social Security number
• Claiming false deductions
• Not filing returns for multiple years
• Moving assets or income offshore to evade taxes
• Using a business to hide personal expenses

These types of red flags will often lead the IRS Criminal Investigation (CI) division to open a case. They have law enforcement capabilities like search warrants, surveillance, and seizures to build evidence for prosecution.

Avoiding Other Federal Crimes

When defending a tax crime case, it’s also crucial to avoid getting charged with other related federal offenses. For example, tax evasion can sometimes lead to additional charges like:

• Mail or wire fraud – If you used the mail, email, or wire transfers to carry out tax evasion
• Money laundering – If you hid the source of illegally obtained funds or made them appear legal
• False statements – If you lied on a tax form or loan application
• Obstruction of the IRS – If you deliberately interfered with an audit or investigation

The more charges piled on, the higher your sentencing exposure becomes. A skilled tax defense lawyer will know how to handle the original tax crime charge while avoiding these additional offenses.

Sentencing Considerations

If convicted of a tax crime, your sentence will depend on the federal sentencing guidelines and other factors. The court will consider things like:

• Your criminal history and prior offenses
• Acceptance of responsibility
• Cooperation with authorities
• Sophistication and frequency of the offense
• Use of offshore accounts or entities
• Amount of the tax loss to the government

Your defense attorney can argue for mitigating factors under the sentencing guidelines and also directly petition the judge for leniency. The goal is to minimize fines and jail time. Probation, house arrest, or halfway houses are preferable to prison if possible.

Parallel Civil and Criminal Proceedings

A final complication is that the IRS often pursues civil and criminal cases at the same time. The civil side seeks back taxes and penalties, while criminal seeks prosecution. This parallel track adds complexity when defending yourself. Settlement on one side doesn’t necessarily resolve the other. Your defense strategy must coordinate responses to both simultaneously.

Getting Experienced Legal Help

Don’t go it alone against the IRS juggernaut without experienced legal firepower. The criminal prosecutors and IRS agents are experts on the complex tax code and have vast investigative resources. The cards are stacked against you. Having an aggressive tax attorney on your side is crucial.

Look for a lawyer who specializes in tax rather than a general practitioner. Understand all your defense options by consulting with tax counsel before speaking to IRS agents or prosecutors. Don’t be tempted to hide evidence or try to fix things yourself – that will only make matters worse. The best chance at the best outcome relies on skilled legal representation.

Dealing with criminal tax charges is scary. But knowledge of your defense options helps relieve some uncertainty. You have strong protections under the law. And a knowledgeable tax attorney can strategically assert your rights. So take a deep breath, educate yourself, and fight back. With perseverance and a little luck, you may just get through it.