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What constitutes criminal tax evasion?

On Behalf of | Jan 7, 2022 | Tax Evasion

 

Tax evasion is more complicated than forgetting to file a tax return. The common theme in criminal tax evasion is a willfulness to avoid assessment of a tax or actions taken to purposely evade the payment of taxes. I.R.C. § 7201 – Attempt to evade or defeat tax states:

“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined* not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.” 

The following will focus on what factors determine the criminal responsibility of tax evasion.

Evading the assessment and payment of taxes

When a taxpayer purposely files a false tax return that does not include income that should be reported or claims deductions when there are no entitlements, this can constitute an evasion of assessing the correct tax owed by the taxpayer. This situation is what the I.R.S. calls an affirmative act of not filing a return or filing a false return. Voluntarily and intentionally violating the legal duty of reporting income by filing a false tax return to evade or overcome taxes, evade payment of taxes, or evade additional tax due will result in a criminal action if proven beyond a reasonable doubt.

This law also includes:

  • Filing a false amended return
  • Filing false W-4’s
  • Making false statements to Treasury agents regarding the fraud perpetrated
  • Making a consistent pattern of exaggerated deductions
  • Concealing bank accounts
  • Keeping large sums of cash in safe deposit boxes in different banks

Affirmative acts to conceal or mislead, in addition to filing a false tax return, include:

  • Destroying records
  • Creating false invoices
  • Keeping a double set of books
  • Handling transactions to avoid ordinary records
  • Making false or altered entries in books

Avoiding assessment of tax due and owing on criminal intent income

A tax deficiency can be found if it is determined the taxpayer had more income than reported. However, it must be proven that the income was taxable income. If it can be proven that it is taxable income from criminal intentions and evidence of criminal intent is included, criminal tax adjustments can be imposed. Some examples of taxable income that is gained from criminal intentions are:

  • Gambling
  • Extortion proceeds
  • Fraud income
  • Loans received with no intention of paying
  • Kickbacks

 

 

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