Tax Evasion and Tax Fraud
The only things certain in life are death, taxes and people not wanting to pay taxes.
While minimizing your personal or business taxes is perfectly legal, many people go too far, using deceit and false records to avoid payment. The IRS reports that in 2007 Americans owed $345 billion more in taxes than they paid.
If you think you may have committed or have been charged with tax evasion or charged with tax fraud, you may want to speak with an attorney to learn more about the laws and your personal situation. To speak with a criminal defense attorney who can advise you on tax evasion issues, simply fill out the free case evaluation form on this page or call 877-445-1059.
Tax Fraud Defined
Tax fraud is generally described as the avoidance of paying taxes owed by illegal means. Tax evasion can be committed by individuals, businesses or corporations in regards to federal, state or local taxes. The IRS and tax laws consider many actions tax fraud, from scams to deceitful bookkeeping.
Individual Tax Fraud
Tax fraud may be committed by individuals that purposefully use deceitful means to avoid paying income taxes. These tax crimes can take many forms. The following actions may constitute income tax evasion:
- Deliberately under-reporting, omitting or concealing incomes
- Overstating the amount of deductions
- False deductions
- Claiming non-existent dependents
- Deceptive record keeping
- Claiming personal expenses as business expenses
- Hiding or transferring assets or income
- Failure to file tax returns
- Using a false social security number
- Concealing or destroying records
- Money laundering
- Evading customs duties
Some of the most common types of fraud are under-reported income and overstated deductions. This may include someone hiding money in account in a foreign country, counting personal expenses as business expenses or even claiming deductions for a dependent child or spouse that doesn’t exist.
Efforts to alter your tax records to make these false claims seem legit are also in violation of tax laws.
Tax fraud may happen through simple actions, such as failing to file tax returns or fabricating deductions. However, more complex procedures, such as money laundering and smuggling, could also be considered tax evasion.
In each instance the goal of the offender is the same.
Business Tax Fraud
Businesses can also be charged with tax evasion. While not all employees may be liable if a business is committing tax fraud, any employees found contributing ‒ whether through carrying out active practices in violation of tax law or simply shredding or altering documents ‒ could face criminal charges.
Small Businesses Tax Fraud
Small businesses can be particularly susceptible to the temptations of tax fraud. Small businesses may be run out of a home, have only a few employees, or deal largely in cash. Many of the same actions that are tax fraud for individuals are tax fraud for businesses, such as under-reporting or omitting incomes, exaggerating deductions and deceitful record keeping.
But because of the way businesses operate, they can violate tax laws in ways individuals cannot. The following practices may be punishable under tax law:
Pyramiding. Typically committed by managers or owners, the practice of withholding income taxes from employee paychecks, and pocketing the money instead of sending it to the IRS. Businesses involved in this type of tax fraud often file bankruptcy to discharge the accrued liabilities, only to go forward and start another business under a new name to restart the process.
Employment leasing. This scam involves contracting outside businesses to handle administrative, personnel and payroll tax concerns for employees. In cases of abuse, the employee leasing companies collect money for employment taxes, but ‒ just as in pyramiding ‒ don’t pay the taxes to the IRS. The company owners spend the money as they wish, then dissolve the company.
Paying employees “Under the Table.” This is the practice of paying employees in cash, without deducting taxes or reporting payments to the IRS or state and local tax authorities. When employees are paid in cash, not only does the IRS lose tax revenue, but also the employee experiences the loss or reduction of future Social Security or Medicare benefits. In these cases, a business owner might pay his employees cash and then invent false entries for his financial books, or keep two sets of books altogether ‒ one real and one fabricated. This violation may be committed by the self-employed who accept payment for their jobs in cash.
Payroll tax violations. Filing false payroll tax returns or failing to file payroll tax returns are ways of understating the amount of taxes that are owed on wages paid.
A note on home businesses and tax laws: If you run a business out of our home, you may take certain extra deductions. However, the IRS warns business owners about over-deducting their expenses, or deducting personal and family expenses as business costs. The IRS also alerts business owners to tax scams that claim they can save you money. There are “businesses from your home” scams that bend and violate tax laws under the guise of saving you money.
Corporate Tax Evasion
Corporate tax violations mirror those taken by the smaller guys. Even giant corporations under-report income, try to hide assets and income or take deductions.
Corporate tax laws may be violated by a CEO or top manager, by a smaller department or even by large groups of employees as a matter of business practice. Some corporations may even keep two sets of financial records, one full of false records to show the IRS and one that shows what’s really going on.
Specific examples of corporate tax fraud include:
- Overstating the depreciation amount on equipment
- Diverting money to false corporations, skimming payroll taxes or using money for personal expenses; this may be a form of embezzlement
- Creation of false accounting documents to cover up the use of business money for personal expenses
Depending on the situation, conspiracy charges may be added to corporate tax fraud charges.
Tax Evasion Penalties
Tax law enforcement falls to the Internal Revenue Service, although the IRS may work with other law enforcement agencies to prosecute crimes. According the IRS, typical penalties for tax evasion include up to five years in prison and up to $250,000 in fines. For businesses, the fines are greater.
Keep in mind that if you play a role in a corporation’s tax fraud efforts, you could be charged. The same is true of a tax preparer that purposefully alters tax returns, either with or without the knowledge of the filer.
To be convicted of tax fraud, there must be proof that an unpaid tax liability exists. For a jury to convict, the prosecution must also prove beyond a reasonable doubt that the defendant made a deliberate attempt or action to avoid paying the tax and had the specific intent to evade a known legal duty to pay the taxes.
Just as many people entrust their tax returns to accountants, many people turn to a defense attorney when faced with tax evasion charges. Tax laws are complex and the IRS can be tough adversary to face alone. If you’ve been charged with tax fraud, or think you may have committed a tax crime, you may want to speak with a criminal defense attorney.
Get Help with Tax Evasion Charges
If you have been accused of tax evasion or tax fraud, seek advice from a local criminal lawyer about your case. To connect with a lawyer, simply fill out our free case evaluation form or call toll-free 877-445-1059 to arrange for a free, no-obligation consultation.
The above summary of tax evasion is by no means all-inclusive and is not legal advice. Laws may have changed since our last update. For the latest information on tax evasion laws and penalties, speak to a criminal defense attorney in your area.