Falsely Reporting Income to the IRS: Tax Evasion Charges
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Falsely Reporting Income to the IRS: Tax Evasion Charges
Paying taxes is a civic duty that supports our communities and country. However, some people try to avoid paying their fair share by underreporting income. This is illegal and can lead to serious consequences if caught. Let’s break down tax evasion charges for falsely reporting income to the IRS.
What is Tax Evasion?
Tax evasion involves illegally avoiding taxes by underreporting income, overstating deductions, failing to file returns, and other deceptive tactics. It often involves concealing or misrepresenting sources of income or other information on tax returns.
Some common ways people evade taxes are:
- Not reporting cash income
- Inflating business expenses
- Hiding money in offshore accounts
- Using complex schemes to disguise income
Tax evasion is a purposeful attempt to defraud the government. It’s different from an honest mistake, which is usually handled through IRS audits and additional tax payments.
Federal Tax Evasion Laws
Tax evasion is prosecuted under federal criminal statutes. The main laws are:
- 26 U.S.C. § 7201 – Tax Evasion
- 26 U.S.C. § 7206 – Fraud and False Statements
- 18 U.S.C. § 371 – Conspiracy to Defraud the Government
Section 7201 makes it a felony to willfully attempt to evade federal income tax. This often involves substantial underreporting of income, but even small amounts can warrant charges.
Section 7206 criminalizes making false statements on tax returns, such as overstating deductions. Even if no extra tax is owed, lying on a return is itself a crime.
Conspiracy charges under Section 371 apply to elaborate tax evasion schemes involving multiple people.
How Tax Evasion Is Discovered
The IRS relies on third-party documentation to verify incomes and deductions. Common red flags include:
- Unreported income from 1099 forms
- Business expenses disproportionate to income
- Not filing for multiple years
Audits may uncover suspicious activity, though only a small percentage of returns are audited. Tax evasion can also be uncovered through whistleblowers, leaks, and IRS investigations stemming from other charges.
Once evasion is suspected, the IRS Criminal Investigation Division conducts an in-depth probe building evidence for prosecution.
Tax Evasion Penalties
Tax evasion is a felony with severe penalties designed to deter this crime.
- Up to 5 years in prison and $250,000 in fines for each count
- Fines equal to the amount of unpaid tax
- Court costs, asset forfeiture, and lost future wages
- Ban from owning or operating certain businesses
Tax evaders often face multiple counts and thus lengthy prison sentences. Tax attorney Robert S. Katz estimates the average tax evasion sentence is 3-5 years.
Defenses Against Tax Evasion Charges
Those charged with tax evasion have several legal defense strategies:
- Lack of intent – Argue the false return was a mistake, not willful deception. However, pattern of behavior can demonstrate intent.
- Reliance on a tax professional – Claim you relied on an accountant’s advice. But the advice must be reasonable and in good faith.
- Duress – Argue you were coerced into evasion by threats or force. Hard to prove and not applicable to most cases.
- Statute of limitations – Tax charges must be brought within 6 years. But timeline restarts with each false return.
An experienced tax attorney can assess defenses and negotiate with prosecutors for reduced charges. Quick acceptance of responsibility also helps.x