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Criminal tax penalties versus civil tax penalties

On Behalf of | Oct 21, 2022 | Tax Crimes, Tax Evasion

Being convicted of tax fraud or tax evasion can result in prosecution and the possibility of prison. There can also be heavy fines. The crime may also get categorized as civil tax fraud. It’s crucial to note that criminal tax penalties have nothing to do with civil tax penalties. In most matters before the court, defendants are likely to pay both.

The burden of proof for civil fraud

The IRS has the power to hold criminal tax penalties and civil tax penalties to different standards of proof. In criminal matters, the agency has to prove fraud beyond a reasonable doubt. When considering civil tax fraud, the only burden of proof is a clear and convincing argument of fraud. The IRS must show a case of fraud is reasonably or highly certain. The prosecution is less responsible for “beyond reasonable doubt” and more for “a preponderance of fraud.”

Tax fraud and evasion

In both criminal and civil matters, fraud requires a voluntary and intentional violation of legal duty, such as deliberately not filing a tax return. To prove tax fraud, the IRS has to show that you had a duty to file, that you knew you were aware of that responsibility and that you chose not to do so.

Tax evasion falls under section 7201 of the Internal Revenue Code. The standard of proof here requires proving the taxpayer willfully tried to evade or defeat a payment of tax to avoid tax owed.

The case of Cheek v. United States

In most circumstances, ignorance of the law is not a valid legal defense, but there seems to be a gray area in tax law. In Cheek v. United States (1991), defendant John Cheek failed to file taxes for over six years in the 1980s. Cheek, a tax protester, argued his wages were not taxable. Several courts decreed that Cheek’s belief was not a valid reason to evade his civic responsibility. But the Supreme Court overturned the lower court rulings arguing the plaintiff’s beliefs about his wages should have been included in jury deliberations.

Maintain good records

Tax law is a myriad of ever-evolving rules, regulations, and shifts among jurisdictions. Keep good records, so you always have a way to back up your filings if they are ever questioned or audited. If you are not doing your taxes yourself, always work with a trusted and trained tax preparer. Never choose to push your tax claims in a direction that is not supported by the law. Prison time and criminal and civil tax penalties are not worth the risk.



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