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What is the Difference between Tax Evasion and Tax Fraud?

18 February 2017

Tax evasion and tax fraud are illegal practices that occur when one avoids paying their taxes. When taxes aren’t paid, it could have a big impact on the economy and government operations. That is why the Internal Revenues Services is very keen in finding culprits.

Tax evasion and tax fraud are terms that are commonly interchanged. In fact, some countries consider them the same crime, but in the U.S., these are two different infractions. To make it simple, Tax Evasion is a form of Tax Fraud.

 Tax Evasion vis-à-vis Tax Fraud

Generally, for an action to be considered fraud, these conditions must be present:

 

  • There is an additional tax due and owing as the result of a deliberate intent to evade tax; or
  • There is the willful and material submission of false statements or false documents in connection with an application and/or return. (Take note of the word deliberate intent, this is one of the most common defenses that tax attorneys use to bump down tax charges.)

 Tax evasion is merely the omission of income or other factors that may increase tax. It is also when you deliberately refuse to pay taxes that you owe. Underestimated income is the most common type of tax fraud. It happens more often than not to individuals whose income is paid in cash. Freelancers and wait staff are the most likely to engage in this crime due to the cash-based nature of their work, but lawyers and doctors are known to do it as well. Cash-based transactions are hard to follow and track down because of lack of physical evidence.

 

The thin line between evasion and tax fraud is the submission of false documents. Fraud isn’t always evasion but evasion is always fraud. Fraud uses schemes such as reporting expenses that are not legally under your name, and/or making fraudulent or false claims.

 

Civil Fraud vs. Criminal Fraud

 

The IRS must decide if someone is charged with criminal or civil fraud.

Civil fraud entails paying a pecuniary penalty while criminal fraud can entail a fine but also includes imprisonment. This depends on how the fraud was conducted.

The IRS are very vigilant against suspicious activity and have complex methods of detecting fraud. They can immediately spot red flags upon encountering false receipts and altered checks to increase deductions. There are also obvious indications such as when a person reports a smaller income than their standard of living.

Due to the complexities of these charges, the IRS even developed a reward that recognizes whistleblowers. If you have information that could lead to a discovery non-compliant taxpayer, you get tax benefits of your own.

 

What to Do When Charged with Tax Evasion or Tax Fraud

While the IRS is relentless in its pursuit, they also recognize that the tax code is so complex that sometimes people make honest mistakes or acts of negligence that may seem like criminal activity. If you are contacted by the IRS, follow their instructions to avoid possible fines.

The IRS generally prefers civil cases because criminal trials usually require a lot of time and resources, and the burden of proof lies on the government. However, whether you are charged with a civil or criminal tax fraud or evasion, it is best that you let an experienced tax attorney handle it.

If you are looking for a criminal attorney in Miami-Dade area, contact Chad Piotrowski today.

 

Chad Piotrowski - post author

Chad Piotrowski is a criminal defense attorney in Miami, Florida. He is a former Miami-Dade Prosecutor and has practiced criminal law, exclusively, for more than 10 years.

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