The Most Common Tax Charges in IRS Criminal Investigations

The Most Common Tax Charges in IRS Criminal Investigations

Paying taxes is a civic duty that supports our communities. However, some people try to avoid paying their fair share of taxes. When this happens, the IRS may open a criminal investigation. IRS Special Agents in the Criminal Investigation division look into tax crimes like tax evasion, tax fraud, and failure to file a tax return.

Most people want to follow the tax laws. But taxes can be complicated. Some taxpayers make honest mistakes. However, others knowingly try to cheat on their taxes. This article will explain the most common tax charges in IRS criminal cases. It will also give information about defenses and penalties. The goal is to educate taxpayers so they can stay compliant with tax laws.

Tax Evasion

Tax evasion is purposefully not paying taxes that are legally owed. It involves taking illegal steps to avoid paying taxes. For example, tax evasion includes:

• Not reporting income
• Inflating deductions
• Hiding money in offshore accounts

Tax evasion is a felony. If convicted, penalties can include:

• Up to 5 years in prison
• Fines up to $250,000 for individuals or $500,000 for corporations
• Court ordered restitution for unpaid taxes

Defenses against tax evasion charges may include:

• You did not act “willfully” because you did not know you were breaking tax laws
• There were errors in calculating the amount of tax owed

Famous tax evasion cases include Wesley Snipes[1], Leona Helmsley[2], and Al Capone[3].

Tax Fraud

Tax fraud involves intentionally deceiving the IRS by:

• Filing a false return
• Claiming false deductions or credits
• Using false documents like fake invoices

Like tax evasion, tax fraud is a felony. Penalties can include:

• Up to 3 years in prison
• Fines up to $250,000 for individuals or $500,000 for corporations

Defenses against tax fraud may include:

• You did not act “willfully” because you did not intend to deceive
• Someone else prepared your return and you did not know it was false

Famous tax fraud cases include Richard Hatch[4] from Survivor, Joe Francis[5] of Girls Gone Wild, and Heidi Fleiss[6], the “Hollywood Madam.”

Failure to File a Tax Return

It is illegal to not file a required tax return. This includes:

• Not filing a return
• Filing late
• Filing an incomplete return

Failing to file is a misdemeanor. Penalties may include:

• Up to 1 year in prison
• Fines up to $100,000 for individuals or $200,000 for corporations

Defenses for failure to file include:

• You did not act “willfully” because there were circumstances out of your control
• You relied on an accountant or tax preparer who failed to file your return

Celebrity cases include Richard Pryor, Chuck Berry, and Sophia Loren.

Employment Tax Fraud

Businesses are required to pay employment taxes on wages paid to employees. Employment tax fraud involves:

• Not paying payroll taxes
• Not reporting wages paid to employees
• Misclassifying employees as independent contractors

Penalties may include:

• Up to 5 years in prison
• Fines up to $10,000
• Having business licenses or permits revoked

Defenses may include that you relied on an accountant or tax professional to handle payroll taxes. Or that nonpayment was due to financial hardship outside your control.

A recent employment tax fraud case involved a former Emory University professor. He was convicted for not reporting income from a Chinese talent program on his tax returns[1].

Tax Obstruction

Obstructing the IRS involves getting in the way of tax administration. Examples include:

• Destroying or hiding records from an audit
• Lying to IRS agents
• Filing frivolous tax arguments in court

Penalties can include:

• Up to 3 years in prison
• Fines up to $250,000 for individuals or $500,000 for corporations

Defenses may claim obstruction was not “corrupt” or intentional. Or that inaccurate information was given by mistake.

As tax day approaches, taxpayers should take care to file truthful returns[2]. Intentionally avoiding taxes is illegal. But even honest mistakes can lead to penalties and interest on unpaid taxes[3].

Restitution and Other Consequences

In addition to fines and jail time, other consequences of tax crimes may include:

• Paying back taxes owed with interest and penalties[4]
• Serving probation or community service
• Losing professional licenses
• Facing civil lawsuits or asset seizure[5]

Tax crimes can also lead to money laundering charges[6]. Taxes that are intentionally evaded are considered “dirty money.”

The IRS warns that everyone is responsible for their own tax compliance. Ignorance of tax laws is no excuse. Taxpayers who are unsure of their obligations should consult a trusted CPA or tax attorney.