Avoiding Criminal Liability When Tax Code Has Been Violated

Although the Internal Revenue Service (IRS) estimates that a small fraction of tax crime convictions occur in a given year, the organization also estimates that 17 percent of American taxpayers fail to comply with tax code.

It is mostly individual taxpayers, not corporate entities, that commit some of the most common tax-related offenses, like tax fraud. In fact, IRS estimates reveal that roughly 75 percent of all income tax fraud cases involve individual taxpayers.

Because the United States tax system revolves around the self-assessment of any taxes owed, or “voluntarily compliance”, the IRS uses several practices to discourage violations. This includes assessing fines, seeking prison sentences for offenders, civil taxes and penalties. It also involves the publicizing of criminal indictments related to tax code violations.

Avoiding Tax Code Violations

The tax code is complex set of rules and regulations that can be difficult for most taxpayers to decipher – the IRS understands that. That’s why, when a careless error occurs and there is no evidence of fraud, the IRS will generally assume that it was a simple mistake, rather than an intentional attempt to evade the tax code.

The IRS can also usually distinguish between a simple, negligent error and willful evasion of tax law. Auditors will look for suspicious or fraudulent activity, such as:

  • Falsification of documents
  • Overstatement of exemptions and deductions
  • Transfer or concealment of income
  • Keeping multiple sets of financial ledgers
  • Using false Social Security information
  • Attempting to pass personal expenses off as business expenses
  • Willfully underreporting income
  • Claiming exemptions for non-existent dependents, including children

Although the IRS can usually separate negligent from fraudulent activity, that does not mean that the IRS will not attempt to punish a taxpayer for making a simple mistake. Even if it is unintentional, the IRS may still elect to impose a penalty on the individual – up to 20 percent of the underpayment.

Example of Tax Crime Conviction

In 2015, a Boston court sentenced a man to a year in prison for evading the tax code. The man, who was a business owner and occasional contractor for a family member’s business, was paid by check for any work performed and admitted to using check cashing services, rather than depositing funds in the bank, to avoid any scrutiny by the IRS.

According to the court, the man cashed roughly $3 million in funds using this method. He was also found to be operating his businesses and paying his workers entirely in cash, even requesting that customers not write checks to him for bills exceeding $10,000.

As a result, the man failed to file tax returns for a number of years, eventually gaining the attention of IRS auditors. As is common practice, the IRS publicized this conviction, as it does with other non-filer investigations.

Trusted Tax Attorneys in Texas

If you encountered a tax-related issue, such as failing to file your taxes or intentionally evading the tax code, it is highly recommended that you seek the guidance of a qualified tax attorney as soon as possible.

In Texas, the legal team at the Scammahorn Law Firm, P.C. has secured outstanding results for clients dealing with tax matters, including disputes with the IRS. Our firm advises taxpayers on every facet of the tax code and is prepared to fight the IRS on your behalf. Our goal is to reduce your any criminal liability, wherever possible, and resolve your case through an Installment Agreement or Offer in Compromise.

To set up a preliminary consultation to discuss your tax issue or IRS dispute, contact the skilled attorneys at Scammahorn Law Firm P.C. today at (903) 595-1000.