What to do when Confronted with Tax Fraud

Tax Fraud is a very serious matter that can result in civil and criminal prosecutions, severe penalties, jail time and a felony record. There are, however, different degrees and types of tax fraud and not all tax fraud is criminal. When confronted with potential tax fraud problems it is best to consult with a tax law professional, as opposed to an accountant. The tax lawyers at Anderson & Jahde have extensive tax fraud experience and can help with tax fraud issues.

Proving Tax Fraud

Criminal Tax Fraud, including tax evasion, requires the Government to prove the taxpayer’s “willful intent” to evade or defeat a tax or collection matter. While willful intent can be difficult to prove, the Department of Justice only prosecutes those cases it believes it can win and, as a result, the DOJ has a better than 95% conviction rate. Civil fraud also requires the government to prove fraud – but not at the same “willful intent” level of proof as required for criminal fraud.

Criminal Tax Fraud Penalties

If you are facing a Criminal Tax Fraud cause, it should not be taken lightly. A conviction for Criminal Tax Fraud can include, for each violation, a penalty of $250,000, imprisonment for up to five years and a felony conviction. Corporations can also commit tax fraud – fraudulent corporations are subject to penalties twice the amount applicable to individuals, but they do not face jail time. Criminal Tax Fraud can include the following penalties per violation (generally per year):

Tax Evasion 26 U.S.C. § 7201 Imprisonment not more than 5 years
Fine not more than $250,000
Willful Failure
to Collect or Pay Tax
26 U.S.C. § 7202 Imprisonment not more than 5 years
Fine not more than $250,000
Willful Failure
to File or Pay
26 U.S.C. § 7203 Imprisonment not more than 1 year
Fine not more than $100,000
Willfully
False Statement
26 U.S.C. § 7206 Imprisonment not more than 3 years
Fine not more than $250,000
Willful
Interference
26 U.S.C. § 7212 Imprisonment not more than 3 years
Fine not more than $250,000
Conspiracy
to Defraud
18 U.S.C. § 371 Imprisonment not more than 5 years
Fine not more than $250,000

 

Civil Tax Fraud Penalties

Civil Tax Fraud does not include jail time but it can include severe penalties along with the stigma of being liable for “fraud.” Civil penalties include I.R.C. § 6663 Civil Fraud which carries a penalty of 75% of the tax underpayment due to fraud and I.R.C. § 6651(f) Fraudulent Failure to File which carries a possible penalty of 75% of the unreported tax.

Tax Fraud Investigation

Tax fraud convictions generally begin as civil audits and investigations. If, during the civil audit, indications of fraud are detected, the Revenue Agent will contact a Fraud Coordinator and together they will develop the case for referral to Criminal Investigation (“CI”). If CI accepts the case, it can conduct further investigations including undercover and sting operations before it ultimately (if warranted) refers the case to the U.S. Department of Justice for prosecution.

Fraud cases can also begin through routine collection matters, IRS Whistleblower Program or other targeted IRS programs such as the IRS Offshore and Foreign Account Compliance programs. If a criminal fraud referral is accepted by the Department of Justice, a Grand Jury is empaneled and if it returns an indictment, a Criminal Tax trial is held in the U.S. District Court. Civil fraud cases, on the other hand, are prosecuted by the I.R.S. Office of Chief Counsel in U.S. Tax Court.

Confronting Tax Fraud

Because Fraud cases generally begin as civil audits, many are won or lost on the skill of representation during the audit. The Internal Revenue Code and the obligations it imposes on individuals and businesses are confusing. Individuals faced with criminal investigations should not represent themselves or allow themselves to be represented by inexperienced practitioners. Internal Revenue Agents are trained and encouraged to uncover indications of fraud during civil audits and refer cases to Criminal Investigation for prosecution. Indications of Fraud can ultimately be interpreted as simple taxpayer mistake(s) not subject to penalty or they can be convincing evidence of the taxpayer’s “willful intent” to commit a crime. The distinction could depend on the skill of the taxpayer’s attorney and the representations made to the IRS.

If you have been contacted by IRS Criminal Investigations or you believe you are under investigation for fraud, call an experienced Criminal Tax attorney immediately. Do not speak to anyone (including your CPA) – call a tax attorney. The “accountant client privilege” does not extend to criminal matters and because their conversations are not privileged, accountants are often chief witnesses in DOJ prosecutions for criminal fraud against their clients.

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