The federal crime of tax evasion involves an attempt by a taxpayer to avoid paying or being assessed the tax bill that they owe under federal law. Tax evasion is the most common form of a federal tax crime, and it is frequently pursued by United States Attorneys across the country.
For many, these charges stem from an honest mistake. Tax law is complex, and a single error in calculating the tax that is owed could result in scrutiny from the federal government. In these cases, the IRS will not always take your word for it that it was a mistake.
If you are facing charges of tax evasion in California, you have the right to counsel from an attorney experienced in defending federal tax crimes. Contact attorney Vitaly Sigal right away to discuss your defense options.
Understanding Federal Tax Evasion Charges
The offense of tax evasion is governed by 26 U.S. Code Section 7201. A felony, this charge is designed to cover any taxpayer that avoids the assessment or payment of a federal tax. This statute applies to any person attempting to avoid a federal tax, making it broadly apply to more than an individual taxpayer. In fact, this statute could apply to a taxpayer's attorney, accountant, or bookkeeper as well. In addition to individuals, the federal government could bring charges of tax evasion to a corporate officer or even an estate administrator attempting to avoid the impact of federal taxes. The broad language not only allows the federal government to prosecute the individual principally responsible for the tax evasion, but anyone that aided them as well.
To obtain a conviction for tax evasion, the prosecutor must establish three elements. These elements include:
- The existence of an additional tax due and owing,
- An attempt to evade or defeat the tax by the taxpayer, and
- Willfulness on the part of the taxpayer.
First and foremost, there must be an existing tax obligation that a taxpayer currently owes. After all, it is impossible to evade a tax that you do not owe. However, efforts to evade or defeat owing the tax could occur prior to the assessment of a tax bill. The prosecution needs only to show that the amount of taxes owed was substantially more than what was paid; they are not obligated to prove the exact dollar amount.
An unpaid tax bill is not enough to result in a conviction for tax evasion. The prosecution must also show that an individual took active steps to evade or defeat the tax. This can occur in a number of ways. One common method of evasion is to substantially underreport the amount of revenue an individual or business earned. Another could involve the inappropriate use of tax deductions or credits that a person was not entitled to. Any effort to disguise income, increase expenses, or unlawfully use credits or deductions could satisfy this element.
Finally, tax evasion is a crime of intent. The prosecution must show the steps taken by the defendant were made willfully, with the intention to defraud the government of the taxes they owe. This means that clerical errors or accidental bookkeeping mistakes will not qualify under the statute. Unfortunately, intentional fraud and honest mistakes can be hard to tell apart. When in doubt, the federal government could bring tax evasion charges against you for an honest mistake.
One of the best ways to understand the offense of tax evasion is through examples. Consider the examples below.
Frank owns a small hardware store. Upset over his potential tax bill, Frank alters his books in an effort to reduce his tax bill. Despite bringing in over $200,000 in revenue, Frank alters his receipts to show he only made $10,000. This dramatically reduces the amount of income and other taxes he owes. This effort to avoid tax liability would qualify as tax evasion.
Consider the example above. Instead of altering his books himself, Frank pressures his accountant to do it. Fearful of losing a client, the accountant alters Frank's books to reduce his reported revenue. Even though the accountant is not the taxpayer in question, both he and Frank could face prosecution for tax evasion.
Sally owns a cupcake shop. In an effort to save money, she keeps her books and files her taxes on her own. In addition to her normal cupcake sales, she also caters events that makes up ten percent of her revenue. When preparing her taxes, she accidentally omits the revenue she earned through catering. Because it was an accident, Sally has not committed a crime. That does not mean she is not at risk of an IRS investigation or even criminal charges.
Given that tax evasion is a felony under federal law, it should come as no surprise that the penalties for a conviction are significant. If convicted, the court could sentence you to no more than five years in federal prison. Additionally, they could assess a fine of up to $100,000. In cases where a corporation is charged, that fine could increase to $500,000. In addition to the potential of prison time or fines, the court also will assess the costs of prosecution against the defendant.
Like with any crime, there are a number of defenses that could be used in a tax evasion case. Some common defenses include:
- Insufficient evidence
- Lack of intent
- Statute of limitations
- Violations of your constitutional rights
Determining the right defense for your case is vital. Your attorney could review the facts of your case and advise you on your best options moving forward.
How a Los Angeles Federal Defense Attorney Can Help
If you are facing federal tax evasion charges, it is in your best interest to face the investigation head-on. Your legal counsel could assist you in showing the prosecution that it was an honest mistake or that they lack the evidence to prevail at trial. To discuss the defense that could work best for you, schedule a free consultation with the Sigal Law Group today.