We’ve previously discussed the potential consequences and ramifications – both civil and criminal – that can flow from submitting falsified tax returns. A majority of cases that involve criminal penalties flow from individual tax returns, but it is important to remember that business-related tax fraud (or evasion) can also result in criminal charges. These include, but are not necessarily limited to:
- Payment of back taxes/restitution to the IRS
- Tens – or hundreds – of thousands of dollars in fines
- Payment of costs associated with prosecution
Do you own a small business?
Business tax fraud that leads to criminal charges is more commonly found amongst closely-held corporations, partnerships and other smaller businesses. This is because in larger companies, there are often layers of management and separation – referred to as the “corporate veil” – that shield board members and top executives from personal liability. Wrongdoing at the corporate level is usually only imbued to individuals in particularly egregious cases.
Recent high-profile cases involving falsified business tax returns that yielded criminal charges (and ultimately prison sentences) arose from small businesses that had only one or two shareholders and operators. In these cases, the IRS was able to prove that these “responsible persons” were liable for tax shortfalls, improper deductions, wrongfully sought credits and other fraudulent activities on behalf of the business.
Another potential ramification of fraudulent or falsified business tax filings is the loss of the business: depending on the severity of the infractions, the IRS may move to wind up the company to ensure that it doesn’t happen again. Alternatively, the IRS could seek an injunction that forces the business to comply with employment and tax laws in the future.
Business owners – and individuals alike, particularly those with a high net worth – need to ensure proper tax filings to avoid drawing the ire of the IRS. Even if an outside tax preparer handles the tax returns, taxpayers are still held liable for deficiencies; the IRS presumes that tax returns are reviewed prior to signing.
If your business is facing an audit, you need to remember that the majority of criminal charges brought by the IRS arise from civil audits. Proper representation by an experienced tax attorney during the audit process could stave off additional action.