What is Tax Evasion?
Tax evasion is a form of tax fraud that refers to an individual’s deliberate underpayment or non-payment of their taxes. Tax evasion can include illegal methods to conceal income or other means of avoiding full disclosure to the IRS to avoid paying taxes.
Examples of tax evasion are hiding taxable assets, failing to report income, or intentionally underreporting accurate income and claiming tax deductions that you aren’t entitled to be another example.
Tax evasion is a serious crime and carries penalties of a felony, up to five years in jail, and the potential for a fine of up to $250,000. The defendant in tax evasion cases is typically responsible for paying the court costs and legal fees associated with the issue.
Another common consequence of tax evasion is the risk of more frequent or thorough audits. Generally speaking, audits involve the last three years of taxes to ensure you have filed accurately. If you are found guilty of tax evasion, the IRS may choose to go back further to audit, such as back six years rather than three.
It is important to note that it is likely that your accountant or tax preparer will refuse to work with you any longer should you be convicted of tax evasion as well.
What Are Common Examples of Tax Evasion?
Some of the most common tax evasion cases involve people who run mostly cash or all-cash business and pocket some cash without reporting it as income.
Tax evasion also occurs when illegal activity is performed, such as prostitution or drug dealing, and the income is hidden along with the criminal activity.
Paying someone for work in or at home may also constitute tax evasion. For example, if you work with a contractor and pay them cash or hire childcare often and pay for that with money, you may be under suspicion of tax evasion. It is best to be fully transparent to avoid any unnecessary issues or audits by including all of the wages paid on Schedule H when you file your taxes.
What Are Possible Defenses if Charged With Tax Evasion?
Insufficient evidence may be the most common form of defense for tax evasion. The prosecuting team must be able to provide sufficient evidence that you knowingly left out taxable income or inaccurately reported essential facts. Many cases involve proving that either the defendant was forgetful or was improperly calculating the taxable income they received throughout the year.
A mistake is another common form of defense. It is important to note that simply mistaking that you must file taxes is likely not a plausible defense. Not paying them in a timely fashion, however, may be sufficient. For example, some taxes are due quarterly rather than annually, and missing a deadline may be grounds for an adequate defense. However, not filing taxes for an entire year isn’t sufficient.
The statute of limitations may be a viable defense as well. If it has been more than six years, typically, that is beyond the statute of limitations, and the IRS may not be able to charge you with tax evasion.
Insanity, as with other charges, is an option for defense. Similar to additional charges, pleading insanity during the time of tax evasion, or that due to mental deficiencies, you weren’t aware of the tax evasion, could be considered pleading insanity. This defense is a stretch, to say the least, with a broad range of charges, but even more so with tax evasion.
The Burden of Proof Lies With the Prosecution
Though it is crucial to have a valid defense against tax evasion charges, the prosecutors must prove that the defendant willingly and knowingly avoided paying taxes. If a defendant is found to have made mistakes or been careless, chances are this is not enough to convict them of tax evasion.
Another Important Defense for Tax Evasion
As noted above, it must be proven that the defendant knew and still chose to evade reporting or paying taxes. It is possible that human error played a factor in calculating taxes and that the defendant was genuine and honest in believing they were correct in the reported income or taxes.
Suppose the defendant wants to use this defense. In that case, they will generally need to provide proof that they were relying on sound advice from an accountant or tax attorney, which is why they concluded to suppress information.
How Can a Tax Attorney Help?
Tax evasion is a serious crime and should be handled carefully. As with the defense options listed above, there will need to be sufficient evidence to prove that you, as the defendant, were genuine in your reporting errors. An attorney without specific tax experience may not be familiar with the necessary strategies, the strength of the case required to go up against the IRS, and more.
With years of experience helping our clients with tax issues and other federal-level concerns, we are confident that our team can protect your rights and work towards a positive outcome. Our team are fierce advocates and thoroughly understand how serious situations involving the IRS can become.
It is vital to your future to work with an experienced federal attorney, rather than at the state level, to ensure they are aggressive enough to go up against the IRS and provide a positive outcome.
Contact our office today at (305) 204-5000 to learn how we can best assist you or your loved ones with tax evasion questions or charges.