For most everyday people, the Internal Revenue Service (IRS) handles tax season and not much else. For people with more complicated financial situations and money moving around, the IRS is the statutory body that ensures everything is above board and legal.
IRS officials are constantly on the lookout for people abusing the system and stashing money illegally to evade taxes and commit fraud. If you’re caught, the penalties are severe. However, catching tax cheats has proven to be a challenge for the IRS which says the gap between how much tax money the government should be paid and how much the government is actually paid is a whopping $441 billion.
Within that number are people who know exactly what they’re doing and many people who have no idea they’re committing tax fraud.
What is tax evasion?
Tax evasion is an illegal scheme to avoid paying the taxes you owe to the government, usually by hiding income from the IRS. Ultimately, there are several scenarios where individuals or organizations do this, including:
- Stashing money in offshore accounts that don’t report or answer to the IRS
- Lying about total income
- Misrepresenting where income is coming from (often called money laundering)
- Claiming false deductions or expenses on tax returns
What many people don’t realize is that failing to take close account of your income and other financials could result in you unknowingly committing tax evasion. In these situations, as long as the IRS is able to verify the fraud was accidental your penalties could be lessened or waived entirely.
Penalties for tax evasion
Because the government relies on tax dollars to fund necessary programs, the penalties for evading your taxes are severe. The punishments also differ based on whether the IRS pursues you for criminal charges, civil charges, or both.
In criminal cases where individuals are found to intentionally evade taxes, the charges include up to $100,000 in fines and up to five years in prison. For corporations, the penalties rise to up to $500,000 along with prison sentences for those involved.
In civil cases, 75% of the taxes due plus interest will be charged. Civil cases don’t involve jail time, but the IRS can pursue both civil and criminal charges, resulting in higher financial penalties and prison time.
Defending yourself against charges of tax fraud
The best way to avoid charges of tax fraud is to be honest with yourself and the IRS, keep a ledger of all income and expenses, and file in a timely manner to ensure you can correct any minor mistakes on time.
If the IRS believes you’ve committed tax fraud, you will receive prompt notice. There are several defenses to these claims. Defense can include:
- Filing an amendment once you recognize the fault on your return
- Admitting you did not realize your actions were in violation of tax law
- A third party who filed your taxes failed to properly submit your return
- The other party who filed a joint return on your behalf is the one who committed fraud (often known as the “Innocent Spouse Relief”)
These defenses aren’t bulletproof, but the IRS will have to prove beyond a reasonable doubt that you knowingly and intentionally committed tax fraud before severe penalties can be imposed. From the moment you receive a notice from the IRS, your financial future is on the line. It’s important to have the right attorney by your side to consider your options and defend yourself. The Law Offices of Attorney Robert V. Boeshaar should be your first call whenever you run into tax trouble. We help individuals and small businesses resolve their disputes with the IRS.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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