Criminal Tax Charges and Their Penalties

Key Takeaways

• Tax crimes encompass behaviors that display a pattern of willful and intentional disregard for tax laws.
• Tax crimes can result in prison time of up to five years and fines of up to $250,000 for the most severe violations. Corporations can face fines of up to $500,000.
• If you’re facing criminal tax charges, then it’s in your best interests to hire a tax resolution attorney as soon as possible.

1. Tax Evasion (IRC §7201)

Per federal law, tax evasion is the deliberate underpayment of taxes that are owed to the IRS. Tax evasion encompasses a host of behaviors, and it also signifies a pattern of non-compliance.

For instance, it wouldn’t be considered tax evasion if a citizen didn’t file their tax returns for a few months, but they’ve always been compliant in the past. It may be considered tax evasion if the failure to file taxes is a recurring issue every year and the taxpayer is trying to deliberately avoid paying taxes.

Tax evasion is the most serious tax crime, and it’s usually prosecuted when the taxpayer uses clear and intentional deception.

One of the most common examples of tax evasion is the intentional underreporting of income. Not reporting the right income levels will result in a lower tax liability. Typically, the IRS discovers this type of violation when it notices discrepancies between the income you report and what other people report as payment to you.

Another example of tax evasion is hiding money in offshore accounts or not reporting cryptocurrency gains. Willfully overstating deductions to garner an unfair tax advantage is also an example of tax evasion.

Criminal Consequences of a Tax Evasion Conviction

A tax evasion conviction comes with significant criminal penalties. The maximum penalty you could face is five years in prison and fines of up to $100,000. Corporations that face a tax evasion conviction could get fined up to $500,000.

2. Filing a False Tax Return (IRC §7206(1))

Another common type of tax crime is filing a false tax return. This offense happens when a taxpayer willfully submits false information on a tax return. Filing a false tax return is a crime even if the citizen still pays taxes.

The biggest difference between this crime and tax evasion is that the evidence needed to show intent is lower. That’s why prosecutors often try fraud charges rather than evasion charges. One of the most common behaviors that leads to charges related to filing a false tax return is claiming false and fake deductions on purpose. 

You can also be charged with this crime for failing to report all your income, not reporting your cryptocurrency gains, or misstating expenses.

Criminal Consequences of Filing a False Tax Return

If you get convicted of filing a false tax return, then you can face up to three years in prison and fines of up to $100,000.

3. Willful Failure to File or Pay (IRC §7203)

A taxpayer can be charged with the willful failure to file or pay when they’ve intentionally avoided filing their tax returns, paying their tax burden, or providing required information as requested by the IRS. This type of charge is likely to happen if you’ve received multiple communications from the IRS about your situation, and you ignore them.

Typically, if you haven’t filed or responded to IRS letters, then the tax agency will go ahead and estimate what you owe in taxes. They’ll file a substitute-for-return on your behalf, which will likely overestimate your tax burden and underestimate your tax breaks, credits, and potential deductions. Then, they’ll let you know what you owe through more letters and communication efforts. Ignoring this tax bill and refusing to pay it for too long will lead to charges.

Criminal Penalties Associated with a Willful Failure to File or Pay

A willful failure to file or pay your taxes is punishable by up to one year in prison and $25,000 for each offense. While this crime is only a misdemeanor and doesn’t carry heavy penalties, you can be charged with multiple counts of this crime if your tax situation went unaddressed for years. Since the statute of limitations on tax debt is 10 years, you could hypothetically face up to 10 counts of this crime.

4. Conspiracy to Defraud the Government (18 U.S.C. §371)

This tax crime is levied when at least two individuals work together with the goal of obstructing lawful tax collection. For example, if you and your spouse agree to lie on your returns about being married so that both of you can get the benefits of filing for head of household, then that may be considered a conspiracy to defraud the government.

Another example of this type of crime would be when someone establishes a fake business entity in order to reduce payroll taxes or garner other benefits. Other coordinated schemes to hide income involving tax preparers, business partners, or other associates would also be considered a conspiracy to defraud the government.

Penalties of Participating in a Conspiracy to Defraud the Government

This crime carries a maximum penalty of five years in prison and fines of up to $250,000.

5. Aggravated Identity Theft and Structuring (18 U.S.C. §1028A and §5324)

Aggravated identity theft happens when one person intentionally uses someone else’s financial information and identity to file false tax returns or claim tax refunds on behalf of the rightful recipient. This type of criminal charge usually results in a two-year prison sentence.

Tax structuring is defined as breaking up financial transactions intentionally in order to avoid reporting requirements. This type of crime could result in up to five years in prison.

Unlike filing a false tax return, this type of charge is typically added on top of other criminal charges, making the situation more serious.

How These Charges are Prosecuted

Criminal tax litigation doesn’t start at the point of charging taxpayers with a crime. Typically, a case is built up over a long period of time. Upon discovering the person’s non-compliance, the IRS requests information or action. When the IRS can’t seem to collect from you, they’ll refer your case to the Criminal Investigation Division (CID). From there, your case will be analyzed and then potentially referred to the Department of Justice.

At that point, you’ll face a criminal investigation. You could get surveilled, interrogated, hit with a search warrant, subpoenaed, and charged if enough evidence is discovered.

How a Criminal Tax Attorney Can Help

Time isn’t on your side when it comes to an escalating tax situation. In general, the faster you take action, the more likely you are to secure a better outcome. A criminal tax attorney can help you quickly understand your options and find a solution that benefits you.

If your case hasn’t been referred for prosecution yet, then you might be able to avoid it through the IRS’s voluntary disclosure program. The IRS advises speaking to an attorney before utilizing this program.

If you are already being investigated, then your attorney can help you respond to interview requests, develop a defense strategy, and negotiate with the other party. If necessary, your attorney will also represent you in court.

Are You Ready to Resolve Your Tax Problems?

Struggling with an overdue tax balance or unfiled returns that date back years is a significant challenge, but adding on the potential of facing criminal charges is enough to make anyone feel uneasy. To protect your rights and interests, it’s best to consult with a criminal tax attorney if you believe your tax situation might get referred to criminal court for prosecution.

At McLaud Law P.C., our tax attorney and other tax resolution professionals have decades of combined legal experience handling cases just like yours. We take a client-centered approach to each situation we handle, and we’re ready to aggressively fight to protect you.

Request a free and confidential consultation by leaving your contact details on our online form now to get started.

Frequently Asked Questions: Common Tax Crimes and Their Penalties

Do you have additional questions about your tax situation? If you think your case has progressed to the point where you might face criminal charges, then it might be your best bet to get in touch with a tax resolution attorney who can give you personalized legal advice. An attorney will be able to consider your unique circumstances and filter through their knowledge of the law to generate advice that you can rely on to uphold your rights. 

Answers you find online will only take into consideration the law, not your unique circumstances. That said, we’ll go over some generalized answers to some of the most common questions about tax crimes below.

What’s the difference between tax fraud and tax evasion?

Tax fraud is the intentional falsification of tax records to purposefully deceive the IRS, while tax evasion is the illegal avoidance of paying or filing taxes. Tax fraud includes the additional element of intentional deception, so the penalties are typically a bit more severe.

Will I go to jail for not filing or paying my taxes?

It’s possible to go to jail if you don’t file or pay your taxes for an extended period of time and also refuse to acknowledge communication from the IRS. You won’t go to jail for being incapable of paying if you communicate this fact to the IRS. When the tax agency determines you genuinely can’t pay, they’ll file your case under non-collectible status rather than attempting to criminalize your inability to pay.

How will I know if I’m being criminally investigated by the IRS?

You’ll know you’re being investigated if you receive a subpoena, get called in for questioning, get hit with a search warrant, or the IRS suddenly sends an agent out to your home or place of business.

How does the IRS investigate criminal tax cases?

After the IRS‘s Criminal Investigation Division does a preliminary analysis of your case, if they think there is enough evidence to suggest a crime has occurred, then they’ll refer your case to the Department of Justice for investigation and prosecution.

Can I negotiate a deal to avoid prosecution?

It depends on how far along you are in the process. If your case has already resulted in criminal charges, then negotiating a deal with the IRS will not necessarily help you avoid prosecution. It could help you reduce the penalties associated with a conviction, but it won’t stop you from being convicted. If you haven’t been charged yet, then it’s still possible to negotiate a deal before you get charged.

What if I made a mistake on my return but didn’t mean to?

If you made a genuine mistake with your tax returns, then it’s very unlikely that you’ll face criminal charges. The IRS will give you ample opportunities to correct the error and resolve any balance that results from the mistake. Tax crimes are prosecuted against citizens who are being willful and intentional about avoiding their tax debts.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.