A tax crime is something more severe than neglecting (or forgetting) to file your tax returns. You aren't committing a tax crime if you can't pay your taxes in full. Those are issues that can cause your tax debt to collect penalties, fees, and interest. Still, they don't rise to the level of criminal activity.
A tax crime is when a taxpayer willfully makes an affirmative act to evade paying taxes or makes false material statements on a tax return.
In other words, the taxpayer does it on purpose, knowing full well that it is against the law. Two main types of tax crime are tax evasion and tax perjury. These are similar crimes, but they are not the same. Other willful tax crimes also exist.
Before we begin this post, it's important to note that if you are charged with tax evasion, tax perjury, or any other felony tax crime, you will want to contact a criminal defense attorney who specializes in tax crimes for legal representation.
Now let’s break down the different types of tax crimes.
Tax evasion is defined as “when a taxpayer acts willfully (voluntarily and intentionally) in making an affirmative act of evasion or attempts to evade as a way of avoiding tax liability or payment.” It also includes the willful attempt to evade the assessment of tax and the willful attempt to evade or defeat a tax payment.
Evading assessment means filing a false tax return that leaves out income or claims deductions the taxpayer is not eligible for. The taxpayer is trying to keep the government from learning their true tax liability, which is the amount an individual, corporation, or other entity owes to a taxing authority.
Evading payment means the taxing authority knows how much the taxpayer owes, but the individual, corporation, or other entity deliberately conceals any money or assets that could be used to pay the tax.
The IRS Recognizes Two Types of Tax Evasion
As defined above, tax evasion can be either intentionally underreporting assets or income or concealing money or assets that could be used to pay the tax bill. It’s more than neglecting to file or pay. While those actions are technically misdemeanors, the IRS doesn’t aggressively seek prison time in these cases.
The agency is at its most aggressive in pushing for prison time in cases where the taxpayer attempts to hide their assets and income that could be used to pay the tax liability. Evasion of payment is kind of a big deal with the IRS.
Tax Evasion Investigations
The investigation into tax evasion is performed by the Criminal Investigation Division (CID) or the IRS. The results of the investigation are passed to the Tax Division of the Department of Justice for prosecution.
How does the CID know when to investigate? It receives tips from various sources, such as:
- Revenue officers or agents who detect fraud
- Local newspaper articles
- Other law enforcement agencies
Information about potential tax evasion can come from almost anywhere. Tax evasion can apply to corporations as well as individuals.
- An individual can be fined up to $100,000, five years in prison, or both.
- A corporation can be fined up to $500,000, five years in prison, or both.
- The statute of limitations for tax evasion charge is six years from the last act of evasion.
Examples of Tax Evasion
Tax evasion includes:
- Claiming an independent when you don’t have one (pets don’t count)
- Keeping two sets of books to hide unreported income
- Concealing assets by putting them in someone else’s name.
There you have it — if you deliberately try to con the IRS by avoiding a tax assessment or hiding money you could use to pay your taxes, you commit tax evasion.
Tax perjury is like perjury in court. The taxpayer is lying on their tax form. In this case, no taxes are supposed to be "due and owing." All it takes is to intentionally make a false statement or claim on a tax return.
In more detail, tax perjury is when:
- The taxpayer signs a tax return containing a written declaration that was made under penalty of perjury
- The return includes false information about a material matter like underreporting income
- The taxpayer knows the statement is false and yet made the statement willfully, with the intent to violate their legal duty
Whether you owe taxes or not, if you lie on your tax return, you are committing perjury. You can "make or subscribe" to a false statement through a tax preparer, accountant, or by supplying your tax preparer or accountant with incorrect information. It becomes perjury when you sign the return and/or any other false document. The agency can use it in evidence when attempting to prove its case.
Oral vs. Written Statements
Oral statements are not punishable under the laws for tax perjury. Those fall within the Title 18 false statements statute. Tax law applies only to the written statements that a taxpayer attests are true by signing documents to that effect.
Signed documents in tax perjury cases include:
- The tax return itself
- Any accompanying schedules and statements
- Documents incorporated into the return
The court also considers documents containing a “jurat” or oath that the document includes truthful information. It's a rare tax form that is not authorized by the Internal Revenue Code section 7206 to be used in evidence even though it contains a jurat, like the short-form financial statement FORM 433-AB.
Each false document a taxpayer signs can result in a separate count of tax perjury. Tax perjury is punishable by up to three years in prison and a fine of up to $250,000. The agency must prove to the court beyond reasonable doubt that:
- There is at least one incorrect item and
- The misstatement was material and
- The taxpayer signed the false document willfully
Anyone willfully aiding or assisting in, counsels, or advises the planning of a tax return or other false or fraudulent IRS document for any material matter can be found guilty of aiding and abetting tax perjury and is exposed to the same punishments.
The IRS comes down heavily on tax planners because they have likely committed perjury with multiple clients. The taxpayer is not included if it can be shown the individual or entity was unaware of the falsification.
Other Tax Crimes
Tax crimes beyond evasion and perjury include:
- A business owner willfully failing to collect or pay over payroll taxes
- Money laundering, which is when someone attempts to make money obtained illegally appear legitimate
- False, fictitious, or fraudulent claims
- Attempts to interfere with the administration of internal revenue laws
- Conspiracy to commit the offense or defraud the US government
All of these are felony charges that come with prison time and heavy fines. It’s not nice to try to fool the IRS.
Wrapping It Up
Felony tax crimes are willful. They are done on purpose with the intent to defraud the taxing authority. If a taxpayer purposefully evades assessment, hides assets that could be used to pay taxes, or signs a false tax document, they have committed a felony.
If you are in this position, you need a criminal tax attorney that knows tax law, which not every criminal attorney knows.
Top Tax Defenders can help. We have all the resources you need to fight criminal tax charges. If you have been notified of criminal tax proceedings, don’t hesitate to contact us.