Is the IRS Investigating me for Tax Evasion or Tax Fraud? - Golding & Golding

Is the IRS Investigating me for Tax Evasion or Tax Fraud? – Golding & Golding

Is the IRS Investigating me for Tax Evasion or Tax Fraud?

Tax Evasion is a very common (and oftentimes unnecessary) concern for individuals and businesses with U.S. Tax requirements — who are out of IRS tax compliance and/or made some mistakes in prior return filings.

And, as a result of the online scaremongering by unscrupulous attorneys, even Taxpayers who have committed relatively minor and unintentional (non-willful) tax infractions — and would not be subject to tax evasion charges — get concerned that they too may be subject to tax evasion.

Tax Evasion

Due to the fact that the U.S Government has a very high conviction rate for tax evasion, it is an understandable fear. 

But, we believe that if people had a better resource to understand the basics of tax evasion, it may help to alleviate some of the concerns (or not, but it’s worth a shot).

Therefore, we are providing, a non-technical summary (in layman’s terms) for your review:

What is Tax Evasion?

Tax evasion is criminal. Unlike other forms of Tax Crimes, tax evasion is a well-known violation of the tax code. Typically, it involves either:

  • Unreported Income
  • Embellished Tax Deductions
  • Falsified Reporting
  • Cryptocurrency
  • Foreign and Offshore Income and Reporting issues

Tax Evasion is Easy to Commit

Tax Evasion is relatively simple to commit. For example, as you prepare your tax returns for the current year, you see a commercial for the new sports car you want. You look at your income, your expenses, back at your income…man, that’s a sweet ride.

You lose focus and think, why not – right? You don’t need a “crew” or other accomplices…just your computer and some bad decision making.

You also realize that the last client paid you in cash, and while cash is king, it can also be dangerous. You think about it…then again…then one more time and decide to not include the income in your current tax return. It may become and ongoing theme in future tax returns, or maybe just a one-off.

Intentionally Excluding Income is an Example of Tax Evasion

Why is this tax evasion? Simple, because you met the elements for committing a crime:

  • You knew you earned the Income
  • You knew you were supposed to report it
  • You completed the tax return
  • You reported other income you had
  • You signed the return
  • You submitted the return

Code Section for Tax Evasion

There are various tax violations, which can be considered criminal. Tax evasion is section 

26 U.S. Code § 7201 – Attempt to Evade or Defeat Tax

“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.”

Willfulness is the Most Important Element

Willfulness is the most important element when it comes to tax evasion and tax crimes in general.  Without intent, the U.S. Government cannot show a person acted willful (for criminal willful purposes).  As a result, while the person may be liable for negligence and/or civil tax fraud, the government would not be able to prove the crime of Tax Evasion.

26 U.S. Code § 7201 – Statute of Limitations

It is important to make a distinction between the Statute of Limitations for Civil Tax Fraud vs. Criminal Tax Evasion.

While the statute for Civil Tax Fraud can be “forever,” the statute for criminal tax evasion is usually 6-years.

That is because evidence gets lost, memories fade, and since the government must meet the “beyond reasonable doubt” standard, a cut-off must be made.

With that said, when the statute of limitations begins to run is a highly contested issue. Of course, the government wants to argue it is when they discovered the fraud and not before (which can extend the statute for many years), whereas defendants argue that it is when the IRS/DOJ should have discovered it (e.g., they had the opportunity to, and should have discovered it earlier) – thereby cutting off the statute earlier.

Out of IRS Compliance?

If you are out of compliance, you may want to speak with an experienced Voluntary/Offshore Disclosure lawyer to review your case, assess whether you were willful or not, and determine which IRS Amnesty program is right for you.

We Specialize in IRS Voluntary & Offshore Disclosure

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

Examples of recent cases we had to takeover from less experienced Attorneys can be found by Clicking Here (Case 1) and Clicking Here (Case 2).

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

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.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.