How do they prove tax evasion?

| by Max Soni

Thanks for visiting Spodek Law Group. If you’re reading this, you’re probably facing a tax investigation – or worried about one. At Spodek Law Group, a second-generation law firm managed by Todd Spodek, we’ve spent over 40 years handling federal criminal cases, including high-profile matters that drew national attention. Our team represented Anna Delvey in the case that became a Netflix series, handled the Ghislaine Maxwell juror misconduct matter, and defended clients in the Alec Baldwin stalking case. We know how federal prosecutors build tax evasion cases – because some of our attorneys used to be federal prosecutors themselves.

Tax evasion is one of the hardest charges for the government to prove. Unlike a drug case where agents find narcotics in your car, tax crimes happen on paper – in ledgers, bank statements, spreadsheets. The government needs to reconstruct your entire financial life, then prove you deliberately lied about it. That’s not simple. But when the IRS Criminal Investigation Division decides to come after you, they have tools most people don’t understand.

This article explains exactly how prosecutors prove tax evasion in 2025. What evidence they gather. What methods they use. What you’re up against if special agents knock on your door.

Three Elements the Government Must Prove

Federal prosecutors can’t just show you owe taxes. They need to prove three separate elements beyond a reasonable doubt under 26 U.S.C. § 7201 – and if they fail on even one element, the case falls apart.

First, there’s a tax deficiency. You owed substantially more tax than you paid. Second, you committed an affirmative act to evade that tax – some deliberate action to hide income or inflate deductions. Third, it was willful. You knew you were breaking the law and did it anyway.

That willfulness element – that’s where most cases get won or lost. The government has to prove you didn’t just make a mistake or misunderstand the tax code. They need to show you intentionally violated a known legal duty. In fiscal year 2024, IRS Criminal Investigation initiated over 2,667 criminal investigations and maintained a 90% conviction rate – but that conviction rate exists because they only prosecute cases where the evidence is overwhelming.

Affirmative Acts – Not Just Failing to Pay

Simply not filing a return isn’t enough for a tax evasion charge. The government needs affirmative acts – deceit, subterfuge, camouflage, concealment. Things you did to actively mislead the IRS or hide funds.

Filing a false return is the most common affirmative act. You report $50,000 in income when you actually made $200,000. You claim business expenses for personal vacations. You create fake invoices to justify deductions that never existed. Those are affirmative acts of evasion of assessment – you’re lying about what you owe.

Then there’s evasion of payment. Opening bank accounts under fake social security numbers. Hiding cash in safety deposit boxes registered to relatives. Moving currency out of the United States and laundering it through foreign accounts. Taking payments in Bitcoin to avoid creating bank records. One contractor was just sentenced in January 2025 for keeping over $1.1 million that should have gone to federal and state income taxes – he’d been hiding income for years through shell companies and cash transactions.

What makes these acts “affirmative” is the intent to deceive. You’re not passively failing to pay – you’re actively working to make sure the government can’t find the money or can’t calculate what you really owe. Prosecutors love affirmative acts because they show consciousness of guilt. Innocent people don’t open bank accounts with fake identifying information.

How They Reconstruct Your Income When Records Don’t Exist

Tax evaders rarely keep accurate books. If you’re hiding $500,000 in annual income, you’re probably not recording it in a ledger labeled “unreported cash from side business.” So the IRS uses indirect methods of proof – ways to calculate your real income even when you’ve destroyed or never created records.

The net worth method looks at everything you own at the start of a year, then at the end. Your house appreciated $100,000. You bought a boat for $75,000 cash. You added $50,000 to investment accounts. Your net worth increased $225,000 – but you only reported $60,000 in income on your tax return. Where did the other $165,000 come from? If you can’t explain it with loans, gifts, or other non-taxable sources, the government assumes it was unreported income.

The bank deposit method is simpler. Special agents subpoena every bank account you control – checking, savings, business accounts, accounts in your spouse’s name, accounts at online banks you thought were private. They total up all deposits for the year. If $300,000 hit your accounts but you only reported $100,000 in income, you need to explain the gap. Maybe some deposits were transfers between your own accounts, not new income. Maybe your parents sent you $50,000 as a gift. But if you can’t document legitimate sources for those deposits, each one becomes evidence of tax evasion.

Then there’s the expenditures method – they calculate how much you spent during the year on everything. Mortgage payments, car payments, groceries, utilities, private school tuition, vacations, restaurant meals. If you spent $180,000 but only reported $90,000 in income, the math doesn’t work. Where did the money to cover your lifestyle come from? This method works particularly well against people who deal in cash – restaurant owners, contractors, salon owners – because their spending patterns reveal income they never reported.

According to IRS methods of proof guidelines, these indirect methods use circumstantial evidence to establish your correct taxable income when direct evidence isn’t available. They’re allowed because tax crimes are acts of individual greed – people who evade taxes deliberately avoid creating the paper trail that would prove their guilt directly.

The Evidence They Actually Collect

An IRS Criminal Investigation isn’t like a normal audit. Special agents have law enforcement powers – they can execute search warrants, conduct surveillance, interview witnesses under oath, and use forensic accounting tools that reconstruct financial histories from fragments.

They start with your tax returns – all of them, going back at least six years. They compare what you reported year-to-year looking for anomalies. Income suddenly dropped by half the year you started a second business? Red flag. Deductions tripled without explanation? Red flag. They’re looking for patterns that suggest deliberate concealment rather than honest mistakes.

Bank records come next. Not just your bank – every financial institution where you might have accounts. They’ll find that Wells Fargo account you opened in a different state. They’ll find the business account you control even though it’s in your brother’s name. They’ll get records from Venmo, PayPal, Cash App – any platform that moves money. In 2025, forensic accountants use software that aggregates all these sources and identifies cash flows you thought were hidden.

Then they talk to everyone around you. Your employees, your clients, your vendors, your ex-spouse, your business partners. They ask questions designed to uncover unreported income or fake deductions. “How much did you pay him for that work?” “Did she ever ask you to make checks out to cash?” “What was the real purpose of that trip to Las Vegas he claimed as a business expense?”

Surveillance happens more than people realize. Agents watch you leave your “business office” – which turns out to be your personal residence that you’re deducting as a business expense. They photograph you driving the luxury car you claimed was a company vehicle but use exclusively for personal trips. They document the home renovation you paid for in cash – cash that had to come from somewhere.

Digital forensics can recover deleted files, reconstruct spreadsheets, pull metadata from documents. That QuickBooks file you deleted before the audit? It’s still on your hard drive. Those emails where you told your accountant to “be creative” with the deductions? Recoverable. Text messages coordinating cash payments to avoid creating records? They’ve got tools for that.

Why Most People Who Get Investigated Get Convicted

IRS Criminal Investigation doesn’t refer cases to the Department of Justice unless they’re rock solid. That 90% conviction rate in fiscal year 2024 exists because they build overwhelming cases before they ever arrest you. By the time you’re indicted, they’ve already got your bank records, your tax returns, witness statements, forensic analysis of your financial records, and usually your own words from interviews you gave before you hired a criminal defense attorney.

The burden of proof is beyond a reasonable doubt – the highest standard in law – but prosecutors meet it by using your own financial life against you. Every bank deposit you can’t explain. Every asset you acquired without reported income to pay for it. Every false statement on your return. Every affirmative act to hide money from the government. They pile it up until no reasonable juror could believe it was an accident or a misunderstanding.

Most people facing tax evasion charges don’t go to trial. They plead guilty because the evidence is too strong to fight. The government proves its case by making your financial life tell a story – a story where you deliberately cheated, you knew it was wrong, and you did it anyway.

What This Means If You’re Under Investigation

If IRS Criminal Investigation contacts you, everything changes. You’re not dealing with a civil audit anymore. You’re looking at potential felony charges carrying up to five years in federal prison per count, plus fines, plus restitution, plus a felony conviction that follows you forever.

The worst thing you can do is talk to agents without an attorney. They’re investigators, not your friends – and anything you say will be used to prove willfulness and affirmative acts. People try to explain themselves, try to justify decisions, try to minimize the damage – and they end up giving prosecutors exactly the evidence of criminal intent they need.

At Spodek Law Group – we’ve defended clients against tax evasion charges in federal courts across the country. Our former prosecutors on staff know how these cases get built because they used to build them. We know which evidence matters and which is circumstantial noise. We know how to challenge indirect methods of proof, how to present alternative explanations for financial discrepancies, and when the government actually has a weak case despite their bluster.

Tax evasion is provable – but it requires prosecutors to meet a high burden using complex financial evidence. The question isn’t whether they can prove it. The question is whether you had experienced criminal defense counsel protecting your rights from day one of the investigation, before you said anything that helped them prove willfulness, before you handed over documents that establish affirmative acts. That’s the difference between a conviction and a fighting chance.

We’re available 24/7 for consultations. If special agents have contacted you, don’t wait – every day without counsel is a day you might be building the government’s case for them.