The Criminal Investigation Division (CID) of the IRS is charged with investigating people who have committed federal tax crimes, gathering evidence, and referring those individuals to the Department of Justice – Tax Division for prosecution. With the recent rise in the number and notoriety of tax crimes, the IRS has been stepping up the enforcement. As with other divisions of the IRS, the number of special agents hired has dramatically increased and revenue agents and officers are screening routine civil matters with increasing scrutiny. CID receives tips from a variety of sources including referrals from revenue officers or agents who detect fraud, whistleblowers, local newspaper articles, and other law enforcement agencies.
Criminal tax in itself contains many different issues and charges. Because this can often be confusing, we have compiled a list of the most common criminal tax offenses and what imprisonment or penalties they may carry. This is not an exhaustive list nor does it explain every detail and should only be used as a starting point in your research on these crimes. An experienced San Diego criminal tax defense attorney can serve as a guide for any criminal tax matter. If you believe you are facing one of the charges listed below, it is best to seek advice from a criminal tax attorney rather than just a criminal attorney because most of these offenses are punishable by the amount of tax loss. A tax attorney knows the intricacies of the tax rules and regulations and will be the most knowledgeable attorneys to help advocate for you. At RJS LAW, all of our 8 attorneys either have their LL.M., the highest degree available in the tax law profession, or are in the process of obtaining it, making us uniquely qualified to represent criminal tax cases. Our team of expert criminal tax defense attorneys would be happy to assist you in the event you are being investigated or have any questions, and we want to invite you to call us and come down for a complimentary consultation.
Felony charges in criminal tax
Attempt to evade or defeat tax (26 U.S.C §7201):
Tax evasion is when a taxpayer willfully (meaning voluntarily and intentionally) uses illegal means to avoid paying their taxes. This charge can apply to an individual or corporation and carries a punishment of up to $100,000 in fines ($500,000 for a corporation), or five years of imprisonment, or both. Examples of tax evasion include claiming a dependent when you do not have one, keeping two sets of books with unreported income, or concealing assets by placing them in someone else’s name. The statute of limitations for tax evasion is six years from the last act of evasion. It is important to note that while criminal tax evasion is a felony, this is different than failing to file your tax returns.
Fraud and false statements (26 U.S.C. §7206 part 1):
When a taxpayer signs their tax returns or other documents under penalty of perjury they are attesting to the fact that they have examined the return or documents and all accompanying schedules and attachments, and to the best of the their knowledge and belief, it is true, correct, and complete. Therefore, anyone submitting a tax return or other document that they know to be false can be found guilty of a false statement tax crime. Every false document that is signed by the taxpayer could result in a separate count of the offense and each count is a felony that carries a maximum three (3) year prison sentence and a fine of up to two hundred and fifty thousand dollars ($250,000 USD). In order for the government to secure a conviction, they must prove beyond a reasonable doubt that:
- There is at least one incorrect item,
- The misstatement was material, AND
- The taxpayer signed the false document willfully.
Examples of Perjury can include:
- Underreporting income on your tax return
- Overstating deductions
- Improperly calculating capital expenditures and depreciation deductions
- Reporting a false source of income, even though the amount was correct
- Giving a false answer on the foreign bank account question on the tax return
- Failing to list all assets on a 433-a
- Providing false information on form 656
Aiding or assisting the planning of a false or fraudulent document (26 U.S.C. §7206 part 2):
In addition to perjury, any person who willfully aids or assists in, counsels, or advises the planning of a tax return or other IRS document that is fraudulent or false as to any material matter can be found guilty of the aiding and abetting prong of the statute. This is a three year felony that carries a maximum three (3) year prison sentence and a fine of up to two hundred and fifty thousand dollars ($250,000 USD). An individual does not need to sign the document in question to be found guilty of this crime and this statute is often is used to catch tax planners, accountants, or lawyers who help taxpayers cheat on their taxes. This happens when a tax planner and a taxpayer work together in agreement to plan a false tax return, or when a tax planner falsifies a taxpayer’s documents and that taxpayer is unaware of the falsifications. In these cases, the tax planner will be prosecuted heavily because they likely have done this with other taxpayers.
Willful failure to collect or pay over taxes (26 U.S.C §7202):
This pertains to any person with a legal duty to collect tax and willfully fails to collect or pay these taxes owed. This will often apply to a taxpayer who owns a business and does not pay their payroll taxes.
Laundering of monetary instruments (18 U.S.C. §1956):
This charge will be brought against anyone who attempts to make money which was obtained through an illegal act, look legitimate. For example, if a taxpayer makes money as a drug dealer but funnels that money through a business bank account owned by this same taxpayer, then withdrawals that money to pay his employees, this is considered money laundering. Money laundering can also be any financial transaction whose principal purpose is violating laws, including tax evasion or making false statements to the IRS. This felony carries a prison sentence of not more than 20 years.
False, fictitious, or fraudulent claims (18 U.S.C. §287):
If you make a false claim to the government on your taxes, especially in order to receive a refund, you may be charged with a felony.
Attempts to interfere with administration of internal revenue laws (26 U.S.C §7212):
Any attempt to interfere with the administration of the laws set in place by the IRS, or any agent acting under the U.S. tax code. For example, if a taxpayer sends a letter to a revenue agent threatening them, that is considered obstruction.
Conspiracy to commit offense or to defraud United States (18 U.S.C. §371):
This involves two people who knowingly or voluntarily agree to either commit a tax offense or to defraud the government out of tax money.
Misdemeanor charges in criminal tax
Willful Failure to file a return, supply information, or pay a tax (26 U.S.C. §7203):
Any person who is required to file a tax return or pay a tax due and willfully fails to do either of these things may face misdemeanor charges. Generally there are two types of non-filers: those who filed in the past and have since stopped, or those who are in protest of tax laws. If you have filed your tax returns previously and then stop, the IRS will likely prosecute. If you are protesting tax due, you will likely only face a misdemeanor, as long as there is not a large amount of press surrounding your protest and you are not acting aggressively and the dollar amount is very little.
Offenses with respect to collected taxes (26 U.S.C. §7215):
This pertains to any person who willfully delivers or discloses a document they know to be false or fraudulent. For example, if a taxpayer is undergoing an audit and provides a false document to the auditor, they are subject to being charged with a misdemeanor.