Criminal Penalties for Income Tax Fraud

A person who is charged with federal income tax fraud may face both civil and criminal penalties. The severity of the penalties will vary based on the nature and extent of the fraud. Criminal penalties for federal income tax fraud can result in substantial jail time.

Examples of Tax Fraud and Tax Evasion

Tax fraud occurs when a taxpayer knowingly or willfully makes false statements on a tax return. The most common form of tax fraud is the actual and intentional under-reporting of income. Some examples include taking false deductions, claiming personal expenses as business expenses, keeping two sets of financial records and claiming improper dependents. Tax evasion occurs when a person fails to file a tax return.

Most cases of tax fraud or tax evasion are discovered during an IRS audit. When an auditor discovers suspected tax fraud or tax evasion, they can impose a civil penalty of up to 75% of the tax owed and can also refer your case to the Criminal Investigation Division (CID). The CID is a division of the IRS that investigates people who are suspected of tax fraud or tax evasion> The CID, in turn, refers the cases to the United States Attorney’s Offices for prosecution.

Tax Fraud Jail Time and Other Penalties

If your case is prosecuted criminally, you will face a term of imprisonment which will depend on the amount of the tax loss to the government resulting from either the false statements made or the failure to file a return.

Tax fraud and tax evasion are similar in that both crimes involve willfully underpaying taxes. Both tax fraud and tax evasion are felonies, but tax fraud is the less severe of the two. A conviction for a single count of tax fraud is punishable by up to three years in prison and fines of up to $100,000. However, the total amount of time that you face can be more than three years if you are facing more than one count of tax fraud.

Tax evasion is a more serious crime that occurs when a taxpayer willfully attempts to evade or defeat the payment of taxes. This usually occurs when a person fails to even file a return. A conviction for a single count of tax evasion carries a sentence of up to 5 years in jail and fines of up to $100,000.

How the IRS Proves Cases of Tax Fraud

IRS auditors are trained to look for common forms of wrongdoing, known as “badges of fraud.” There are three common badges of fraud that auditors look for.

• Specific items. An example of a specific item is if your business received a check and you cashed the check and/or deposited it into your personal account. A specific item can be used to establish fraudulent intent. In most cases, auditors will look for more than one specific item to make a case for fraud, unless the item is for thousands of dollars.
• Bank deposits. The auditor will add up the deposits to your bank account. If the total is greater than your reported income, you may be suspected of tax fraud. There may be legitimate reasons for the discrepancy, such as loans, gifts, inheritances, sales, or tax-exempt income, but they can make an auditor suspicious and lead to an investigation.
• Auditors will calculate your living expenses, including checks you paid, checks you wrote, and add known or estimated expenses paid by cash. If your living expenses are greater than your reported income, the auditor will suspect fraud.

To prove a case of tax fraud, the IRS must establish proof “beyond a reasonable doubt.” This is the highest standard of proof in the American legal system.

To impose civil penalties, the IRS needs to prove fraud by “clear and convincing evidence.” This is a level of proof that is higher than a preponderance of the evidence, but lower than beyond a reasonable doubt.

What To Do If You Are Under Investigation for Tax Fraud or Facing Tax Fraud Jail Time

If you are suspected of tax fraud, CID special agents will open an investigation. They will start by contacting people close to you, such as friends, family members, neighbors, coworkers, employees, business associates, bankers, and insurance agents. Special agents often intimidate people into providing them with information.

The only person who cannot be compelled by the government to provide information about you is your lawyer. You have an attorney-client relationship with your lawyer, which means that anything you say to her must remain confidential. Your lawyer cannot be compelled to disclose to the IRS anything you say to her.

In most cases, you will not know you are under investigation until you are formally charged, or if a friend, employee, your accountant, your tax preparer, your lawyer, or someone else who was contacted by the IRS tells you.

If you are contacted by the IRS and are the target of an investigation, the CID should tell you so immediately. This is similar to being read your Miranda rights. If you are under investigation and are approached by an IRS special agent, you have an absolute constitutional right to request a lawyer and to remain silent and not answer any questions. Then contact Hope Lefeber.

Hope Lefeber: Philadelphia Tax Fraud Defense

Federal criminal defense attorney Hope Lefeber has spent more than 30 years defending people accused of financial crimes in federal court, including people facing allegations of tax fraud and tax evasion.

Ms. Lefeber began her career as an Enforcement Attorney with the Securities and Exchange Commission (SEC) where she learned first-hand how the government prepares and prosecutes white-collar crimes. Today, she uses that experience to defend people who are accused in federal court of committing financial crimes.

Ms. Lefeber has earned a reputation among her clients, federal judges, and her colleagues as a fierce and tenacious litigator who meticulously prepares every case she handles. She has defended high-profile clients, including executives of Fortune 500 Companies, businessmen and women, professors, doctors, accountants, healthcare professionals and lawyers who have been facing federal criminal charges. She has lectured on federal criminal law topics and has appeared on TV as a legal expert.

If you are under investigation or have been charged with tax fraud, contact Hope Lefeber today.