Individuals and businesses alike can be found guilty of tax crimes. While you can make mistakes as a taxpayer, the IRS may consider some of those mistakes or tax decisions to be intentional evasion or fraud. Some are worse offenses than others.
Failure to file federal or state tax returns can constitute a crime. So too are such things as underreporting income, undisclosed offshore income and/or assets and false filing of returns, statements and documents.
Tax evasion vs. tax avoidance
No one wants to pay more taxes than required by law. Through careful planning of taxable transactions to reduce the liability of potential taxes, you are just performing tax avoidance. Doing so is perfectly legal, but the tax code is not something that is easy to read, understand or apply to individual situations.
When the Internal Revenue Service (IRS) or state taxing authority determines that you have tried to minimize your tax liability through concealment or deceit, they will accuse you of committing tax evasion. Tax evasion is a crime.
The IRS and other taxing authorities assume that these are intentional actions, committed with the mindset to cheat or “evade” a tax bill. Is this common? Do people intend to cheat? Do they consider possible code violations to be crimes?
Credit Karma Tax® performed a survey in 2020 trying to answer some of these questions. The survey revealed that most responders assumed wealthy individuals were the most likely to commit tax crimes. Most responders denied that they would evade taxes intentionally, but some admitted to activities including neglecting to report cash income such as tips, padding their dependents and paying someone else under the table – activities that affect the average individual.
It is important to know that someone who avoids their tax liability, knowingly or unknowingly, may be subject to criminal charges with severe penalties. This and other tax crimes are all included in the Tax Crimes Handbooks, put out by the Internal Revenue Service. As we noted before, unless you have a working knowledge of tax law or financial planning, it can be difficult to understand.
Tax audits and when to call in a tax attorney
If you have received notice that you are subject to a tax audit, that is the first sign that the IRS or another tax authority is questioning the legality or honestly of the information on your return.
You may have a defense against an accusation of tax evasion. One is an honest, explicable error.
If a taxing authority has let you know that you and your tax filings are being placed under audit, now is the time to have a talk with an experienced tax attorney. Rather than addressing the issue yourself, collect your records and call. Be sure to include all of that paperwork from a tax preparer as well. Take everything with you for a consultation with your tax attorney. If she or he feels it appropriate, let him/her contact your tax filer.
Defend yourself against accusations of evasion or fraud. Working side by side with a tax attorney will help you protect your rights. They can help guide you through the audit process while providing you with peace of mind that everything is being handled correctly.