A taxpayer’s worst nightmare is a charge of tax evasion. When a seemingly simple bookkeeping error turns into an audit, investigation, and even a criminal charge of tax evasion or fraud, taxpayers need to know what their options and legal rights are.
At the extreme end of the spectrum, individual taxpayers can be charged and even jailed for committing tax fraud or evasion. In 2021, 370 people were convicted of tax fraud at the Federal level, with an average prison sentence of 14 months. Even if a person is not ultimately convicted, they can be fined and penalized in other ways. Either way, the consequences can be devastating.
What is Tax Evasion?
Tax evasion is the intentional failure to pay or deliberate underpayment of taxes. While the IRS understands that mistakes can happen and may give people opportunities to correct those mistakes, they do not take kindly to taxpayers that intentionally try to cheat the system. Penalties for those convicted of tax evasion can include up to 5 years in prison and up to $100,000 in fines. Fines can go up to $500,000 for corporations convicted of tax evasion.
Tax evasion can happen through obvious tactics such as hiding large amounts of income and money from State and Federal tax agencies. In many situations, these people know what they are doing as they are doing it. However, many well-meaning taxpayers can find themselves under investigation for mistakes that are less intentional. Often, these issues can stem from earnings that don’t go through a regular payroll process, such as:
- Tips earned at a job in the service industry;
- Cash payments for work such as lawn care, construction, or tutoring;
- “Side gigs” such as driving for Uber or delivering food for DoorDash.
A person that doesn’t properly account for these forms of income can run into trouble with the IRS even if they aren’t intentionally trying to deceive tax authorities. It is important to note the distinction between tax evasion – a criminal offense – and tax avoidance – a perfectly legal method of reducing a person’s tax burden. Claiming various deductions, credits, and adjustments to income are legally acceptable ways to reduce what a person owes to the IRS via tax avoidance. Tax evasion happens when someone bypasses these methods and intentionally hides income instead.
What is Tax Fraud?
As opposed to tax evasion, tax fraud involves the intentional falsification of information and income to limit tax liability. Essentially, tax fraud means “cheating” on a tax return. Some examples include false deductions, underreported income, or claiming personal expenses as business expenses. Claiming newly-acquired personal property as business property can also lead to problems.
Tax fraud is a felony charge that also brings potential penalties of up to 5 years in prison and $100,000 in fines and other costs. Whether a person is ultimately charged and convicted depends on the facts involved and the nature of the case. For example, the IRS might be more lenient if a person was minimally involved in a tax-fraud scheme or made mistakes on their return. Sentences can be increased, however, if a person used sophisticated methods to defraud the IRS, obstructed justice, or was the “ringleader” of a tax-fraud scheme.
If You are Being Audited, Investigated, or Charged with a Tax Crime, The Tampa Criminal Defense Attorneys at Trombley & Hanes Are Here to Help
Everybody understands – even the IRS – that we seek to reduce our tax obligations where the law allows it. However, accounting errors and innocent mistakes can sometimes lead to serious tax problems – even criminal charges of tax evasion or fraud. These situations can throw a person’s life in turmoil or cripple their business as the investigation unfolds. During times like these, you need a trustworthy and experienced legal team at your side. At Trombley & Hanes, our Tampa criminal lawyers have helped others navigate the murky waters of a tax investigation and can help you do the same. When possible, we can also negotiate with tax agencies or prosecutors to secure an acceptable outcome that helps the taxpayer move on with their life. To learn more, call our office today at 813-229-7918, or visit our legal team online.