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What to do if you suspect your business partner of tax evasion

On Behalf of | Oct 11, 2022 | Tax Evasion

 

Tax evasion is a federal crime. It means that an individual or business entity is avoiding its legal obligation to pay taxes by using some kind of illegal method. It is common for tax evasion to occur in the recording of expenses and income, where inaccurate numbers are used to minimize tax obligations.

If you suspect your business partner has committed tax evasion, taking immediate action is crucial before the damage becomes too severe. Tax evasion puts both your financial and legal interests at risk and can result in serious jail time and fines if caught by the Internal Revenue Service or state government authorities. 

What are the legal consequences?

The IRS does not take tax evasion lightly, particularly for those who commit it willfully. The punishment for tax evasion depends on the severity of the crime and whether it was a first-time offense. Consequences for tax evasion can include fines, the loss of a business license, and even prison time. The IRS could also exercise its rights within the law to levy a property, put a lien against a property, or seize other assets.  

Understand the nature and intention of the tax evasion

If you suspect that your partner is committing tax evasion crimes, the first thing to do is to talk to them. It is possible that your partner made an innocent mistake, like failing to report income or expenses for the company. They may not realize that they are breaking the law, and this conversation could help them understand their legal obligations. 

 On the other hand, it’s also possible that they are willfully committing tax evasion crimes, like refusing to pay taxes, altering records, or even destroying records. Understanding whether the act was willfully done or just an honest mistake will inform your next move.

How to protect yourself

When you are in business with another person, you can be liable for their mistakes and their actions if they break the law. It’s important to protect yourself in these scenarios so you can avoid sharing the consequences if your partner is caught and charged.

If you suspect that your partner is intentionally committing tax evasion crimes, document everything you can that supports your suspicions. These documents should include historical as well as current business reports, expenses, and financial accounts. You will need to prove that you were not directly involved in the actions that led to the crime or benefited from the financial gains created by tax evasion. 

 

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