Civil Tax Fraud Penalties – How Does IRS Enforce Civil Tax Fraud?
When it comes to the IRS, some tax violations are worse than others. Generally, tax fraud — even civil tax fraud — can have serious tax consequences.
Not only are the penalties for civil tax fraud, steep, but a Civil Tax Fraud Penalty may lead to additional penalties — and may even result in an IRS Special Agent investigation, which can can lead to a recommendation for criminal prosecution.
Civil Tax Fraud Penalties
Civil Tax Fraud Penalties are tough. Here’s why:
Civil Tax Fraud Statute of Limitations
There is no limitation on the time limit the IRS has to enforce Civil Tax Fraud Penalties. In other words, while most statute of limitations tend to expire after 3-6 years, the IRS is not limited to these time restraints.
What is the Level of Proof the U.S. Government Needs?
Unlike criminal tax crimes (in which the government must prove “beyond a reasonable doubt”) or general civil tax statutes (which typically require mere “preponderance of the evidence” aka more likely than not), Civil Tax Fraud Penalties fall somewhere in the middle/
The standard of proof is called “clear and convincing evidence.” While the level proof is not quantified in the statute, it tends to be considered about 75% proof.
IRS Civil Tax Fraud Penalty?
As provided by Internal Revenue Code section 6663:
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
International Component as well
The IRS has made offshore tax enforcement a key enforcement priority. If the IRS believes a person acted fraudulently and willfully in failing to report foreign accounts, assets, investments, and/or income — the IRS may seek to recover penalties upwards of 50% value of the maximum value of accounts & assets.
In other words, if the IRS believes a person acted fraudulent, it may make it easier for the IRS pursue ancillary penalties beyond just tax fraud — and these penalties can be much worse than tax fraud penalties alone.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.