The Top 6 Tax Crimes And How A Tax Attorney Can Help
Every April 15, all Americans with an income above a certain level must file a tax return
. Unfortunately, many Americans do not file their taxes, or unknowingly file their taxes incorrectly, which can land them in hot water with the Internal Revenue Service (IRS). According to a 2008 Akron Tax Journal, the IRS estimated in 2007 that Americans owed $345 billion more than they paid, or about 14% of federal revenues for the fiscal year of 2007. For this reason, the IRS has more than 3,000 special agents trained specifically to gather the necessary information used to detect tax evasion and other tax crimes.
Read on to learn the top 6 tax crimes in the U.S., and how a tax attorney can help if you are accused of one.
1. Tax Evasion
One of the most common types of tax crime is tax evasion, which involves a person who is required to file taxes in the US failing to report taxes, reporting taxes inaccurately, or completely avoiding paying taxes. Some key indicators of tax evasion include a person claiming a large number of deductions in proportion to their income or a person with a great deal of assets declaring a very small income.
If it is established that taxes have been intentionally evaded, the IRS can issue any number of income tax evasion penalties, including jail time and fines. Fines may be collected by freezing money in checking and/or savings accounts, garnishing wages, levying tax liens, or seizing other assets.
Anyone that is determined to be involved in an evasion of tax liability has the right to meet with the IRS and be heard. Should you find yourself in this situation, it would be wise to hire a tax attorney.
2. Failure to File Tax Returns
While tax evasion is defined as taxpayers deliberately misrepresenting or concealing the true state of their incomes, profits or gains to the tax authorities to reduce their tax liability, failure to file your tax returns means exactly what it sounds like: you have failed to file your income tax return by the April 15 deadline (or by any other deadline indicated by the IRS).
A person can be found guilty of failure to file tax returns only if all of the following facts are proven:
- The person was required by law or regulation to file a tax return for the taxable year charged
- The person failed to file a tax return by the deadline required by the law
- The person's failure to file their return was willful or on purpose
The government has six years from the date a tax return was due to criminally charge a person for failure to file tax returns. If you are convicted, you could face prison time as well as civil tax penalties and interest on top of the taxes you owe. The penalty is 5 percent of the unpaid tax for each month that the payment is late. The civil tax penalty cannot be more than 25 percent of your taxes. A person does not have to pay the penalty if they can show reasonable cause for not filing on time, which is much easier to prove with the help of a tax attorney.
3. False Statements
It is against federal law to submit false statements either on a tax return or to an IRS Revenue Agent, Revenue Officer or Special Agent. For a person to be found guilty of making false statements regarding their taxes, the government must prove three things beyond a reasonable doubt:
- The person signed a federal income tax return containing a written declaration that it was being signed under the penalties of perjury
- Said person did not believe that every material matter in the tax return was true and correct
- The person purposely made the false statement and the false statements were not a result of accident or negligence
If you are under criminal investigation for any tax-related matter, including making false statements, you are likely to do much more harm than good by representing yourself. You could make a mistake in your audit and not even know it until after you find yourself with even more serious problems than the initial charges.
Every conversation you have with IRS agents, officers or personnel is saved in one form or another, so you could make a seemingly innocent statement that IRS personnel interpret very differently. Any false statement to any federal official of any kind, even if not made under oath, can result in criminal indictment. With the help of a tax attorney you won't have to speak to the IRS at all, and many times, all charges are completely cleared or diminished significantly.
4. Failure to Pay Taxes (Trust Fund Recovery Penalty)
All employers are responsible for withholding the appropriate amount of income taxes, Medicare taxes and social security taxes from each of their employees' paychecks. These withholdings are then submitted to the IRS. However, until these tax withholdings are submitted to the IRS, they are considered to be held by the employer in trust on behalf of the employees. But what happens when an employer fails to send its employees' withheld taxes to the IRS?
By law, if an employer fails to send the withheld taxes to the IRS and is unable to pay said taxes over time, the IRS can collect those taxes personally from one or more persons with power over the employer's finances by assessing a Trust Fund Recovery Penalty (TFRP). Individuals who can be held legally responsible for the TFRP are referred to as the "responsible person" and can include any partners in a partnership, officers or key persons of an employer, or members in an LLC with the duty to collect and pay over withholdings.
The penalty for failure to pay employees' withheld taxes only includes taxes withheld from employees and does not include the employer's share of withheld taxes, interest and penalties.
5. Money Laundering
Money laundering is the practice of taking part in various financial transactions to conceal the source, identity or destination of illegally obtained money. While it is not technically a tax crime, it is generally relevant or linked to a tax case. To be convicted of money laundering, the government has to prove that a person knowingly made a transaction or transfer with monies that were the proceeds of a specified unlawful activity. In money laundering cases a tax attorney can certainly help to prove reasonable doubt and clear charges.
6. Conspiracy of a Tax Crime
Conspiracy of any sort of crime, not just tax crimes, is a separate federal crime of its own. Conspiracy is defined as an agreement or partnership with someone else to do something which, if actually carried out, would amount to another federal offense. To establish a case for conspiracy, it must be proven that:
- Two or more persons came to a shared understanding to try to carry out an illegal plan
- The person purposefully or willfully joined such conspiracy
- One of the conspirators knowingly completed at least one explicit or overt act in furtherance of the conspiracy or in an effort to accomplish the conspiracy's objective
When facing an investigation of any sort of tax crimes by the IRS, it is always best to hire a professional tax attorney. Something that seems like just a small mistake on your income reporting can quickly turn into a long drawn-out investigation if you're not careful. A tax attorney can help you avoid common pitfalls and ensure that you get the best legal representation possible.
by: Sarah Simmons
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