What is Tax Evasion?
Tax evasion penalties may apply to any taxpayer who willfully attempts to evade paying his fair share of tax. Tax evasion constitutes a crime that may give rise to substantial monetary penalties, imprisonment, or both. Section 7201 of the Internal Revenue Code reads, “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.”
Are you a tax evader?
You may be a tax evader if you misrepresented your tax situation, deal in cash, engage in tax sheltering schemes or fail to file tax returns in a timely manner. In tax evasion cases the IRS may choose to assess a fraud penalty which tacks on an additional 75% of the unpaid tax. Taxpayers that are found guilty of tax fraud are often disallowed from taking certain credits. Plus, taxpayers convicted of fraud may be imprisoned.
Proof of tax evasion
Proof of the crime requires first proving the attendant circumstance that an unpaid tax liability exists. Second, the prosecution must prove some affirmative act by the defendant to evade or attempt to evade a tax. Third, prosecutors most show that the defendant possessed the specific intent to evade a known legal duty to pay. To convict, the jury must find the defendant guilty of each of these elements beyond a reasonable doubt.
Tax fraud or simple mistake
Clients sometimes ask, “What is the difference between tax fraud, and a simple mistake?” Generally tax fraud or tax evasion involves an intentional wrongdoing. Mere carelessness is not tax fraud. The IRS decides whether tax fraud has been committed by looking for badges of tax fraud. These badges include:
- understatements of income;
- inadequate records;
- failure to file tax returns;
- implausible or inconsistent explanations of behavior;
- concealment of assets;
- failure to cooperate with tax authorities;
- engaging in illegal activities;
- attempting to conceal illegal activities;
- dealing in cash; and
- failure to make estimated tax payments.
IRS collection tools
The IRS has nearly 3000 agents that are trained to detect tax evasion. These agents have access to tax returns, your financial information, and the right to freeze ad seize assets in an attempt to collect taxes. The IRS can garnish wages from your paycheck, take any tax credits or refunds that may be due to you, take money from your bank account, and place liens on any property you own. There are legal ways to reduce your tax liability. Taking advantage of them and keep your tax bill low if legal.