The threat of a tax audit is not news to most business owners. While some may be willing to risk the chance of ignoring their tax responsibilities when the outcome is simply fees and financial penalties, that may change when they realize that tax evasion may lead to more than just monetary punishments. It may be news to some that tax evasion is a crime punishable with jail time. With that in mind, is it still worth the risk?
The average jail time for tax evasion ranges between three to five years. It varies on a case-by-case basis, but jail time for tax evasion occurs more often than one would think. What other penalties exist for tax evasion?
According to Internal Revenue Code, “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
Needless to say, IRS takes tax evasion seriously. With a 90.4%.conviction rate on criminal cases, going up against the IRS criminal investigations department is not to be taken lightly.
Is Tax Evasion A Criminal Or Civil Offense?
IRS has the ability to determine if a case of tax evasion is a criminal or civil offense or both. While criminal penalties have the ability to send you to jail for up to 5 years in addition to a fine of up to $100,000, as stated above, civil tax penalties can hold you responsible for repaying up to 75% of the tax due, plus interest.
While the actions that lead to both criminal tax penalties and civil tax penalties can be the same, IRS is held to a different standard of proof for each penalty type. In a criminal tax case, the IRS must prove tax fraud “beyond reasonable doubt.” To impose a civil tax fraud penalty, the IRS must only prove tax fraud by “clear and convincing evidence.” This lower standard of proof raises the urgency of having impeccable representation in civil cases as well as criminal.
Types Of Tax Evasion
IRS identifies two types of tax evasion. They are defined as “the willful attempt to evade or defeat the assessment of a tax”, and “the willful attempt to evade or defeat the payment of a tax.”
The first represents a taxpayer that files a falsified return either by omitting income or claiming deductions that they are not entitled to. The latter encompasses taxpayers that conceal money or assets that could be used to repay the taxes that they owe.
Below are a few examples of tax evasion practices:
- Failure to file returns
- Understating income/assets
- Overstating tax deductions
- Filing of false returns
- Sales tax fraud
- Failure to pay employment withholding taxes
Tax Evasion vs Tax Avoidance
It should be noted that there is a distinct difference between tax evasion and tax avoidance. Tax avoidance occurs when individuals can lawfully mitigate tax liabilities using methods that have been approved by tax authorities—tax evasion is purely illegal evasion of the tax burden that befalls your company.
If an individual willfully fails to report foreign accounts, IRS can potentially collect the full maximum balance of foreign accounts through a civil penalty. IRS accomplishes this by penalizing the maximum balance by 50% numerous times over a multi-year period. Criminal penalties may also be issued for FBAR penalties. These can result in more than $400,000 and potential jail time—similar to tax evasion.
How To Defend Against Tax Evasion Charges
You may be able to show that there was no intent to defraud the government if you are able to prove that there was a legitimate miscalculation of taxes. With proper guidance, it is possible to partake in tax resolution negotiations with IRS or state tax authorities. It is always advised that you receive counseling from an experienced tax attorney who can help in creating a defensive strategy to bolster your case.
The attorneys at Milikowsky Tax Law have extensive experience in dealing with tax evasion charges. Contact us today if with further questions or to discuss your case.