IRS Civil Tax Fraud Statute of Limitations, When Does Fraud Expire?
If the IRS believes that you committed Civil Tax Fraud, they may have the right go back and investigate you far beyond the typical 3-or 6-year IRS Statute of Limitations.=
Common Tax Fraud Questions we receive:
- Is Tax Fraud criminal?
- How long can the IRS come after me?
- Will I owe Fraud Penalties?
- Will I go to jail?
- Will I lose my Passport?
- Will the IRS Levy my account?
- Will the IRS Seize my assets?
- Will the IRS Lien my house?
Tax Fraud Statute of Limitations
It is important to note that’s the “Never-Ending” Fraud statute refers to civil tax fraud, not criminal tax matters.
The IRS does not enforce criminal tax matters, Rather they refer the matter the Department of Justice or other Government agency, which then pursues a complaint or indictment in a court of law.
Unlike Civil Tax Fraud, with Criminal Tax Fraud/Evasion, the Government must prove its case beyond a reasonable doubt.
Due to the fact that evidence loses value over time, and memories fade — when it comes to actual criminal Tax Fraud/Evasion the enforcement period typically expires after six years.
When Does the 6-Year Criminal Fraud Statute Commence?
When that six year statute actually commences or terminates is often an argument to be made in court, depending on the facts and circumstances of the particular situation.
**It is important to remember that even though Fraud and Evasion are used interchangeably, Evasion is criminal, while Fraud can be civil or criminal. The forever statute refers to civil tax fraud and not criminal tax evasion.
Civil Tax Fraud – How Long Can the IRS After You?
In some instances of civil tax fraud, the IRS may go back as many years as they would like to enforce the laws against you.
Unlike other IRS Statutes of Limitations which typically expire after three years (example: failure to file and informational return) or possibly six years (example: willful failure to pay tax) there is no statute of limitations for Tax Fraud. As with all tax matters, there are exceptions, exclusions and limitations to be cognizant of.
I thought the IRS has 10 Years to Audit After Me?
The 10-year rule refers to enforcement/collection of tax debt. And, it should be noted that in actuality, the IRS may be able to reduce the debt to a judgment, which is then renewable every 10 years (in most jurisdictions) — so you may be on the hook for longer than you may have thought.
Why Is the IRS So Strict About Tax Fraud?
The answer is relatively simple: Tax Fraud is a very serious violation in the eyes of the IRS. With Tax Fraud, a person is essentially trying to pull the wool over the IRS’ eyes, by tricking the U.S. government – typically either by reducing income or falsifying deductions – in order to artificially reduce their tax liability.
While in general, the IRS seems take every little thing way too seriously, when it comes to Civil Tax Fraud, there is a higher level of scrutiny against any individual the IRS believes committed Tax Fraud.
Therefore, the statute is written to provide the government with as much time as the government may need in order to go back and try to uncover the nucleus of facts leading to the Fraud.
Does the IRS Always Have Forever?
No. Whether or not the IRS can enforce the forever statute for civil tax fraud depends on various factors.
If the matter is appealed, or brought to the U.S. Court of Claims, not all courts agree as to whether the IRS may be able to enforce the civil fraud statute forever, and there are some limitations depending on who committed the fraud, when the fraud commenced (and ended), and what happened in the interim.
3 Main IRS “Forever Statute” Situations to be aware of
When it comes to Tax the main exceptions to the 3 or 6-year SOL is codified in 26 U.S. Code § 6501 – Limitations on assessment and collection are:
In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.
Willful Attempt To Evade Tax
In case of a willful attempt in any manner to defeat or evade tax imposed by this title (other than tax imposed by subtitle A or B), the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
Since the IRS does not define Civil Tax Fraud, you should review the IRM (Internal Revenue Manual) for assistance. The requisite sections of the manual have been reproduced below
Definition of Fraud
Fraud is deception by misrepresentation of material facts, or silence when good faith requires expression, which results in material damage to one who relies on it and has the right to rely on it. Simply stated, it is obtaining something of value from someone else through deceit.
Tax fraud is often defined as an intentional wrongdoing, on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing. Tax fraud requires both:
- A tax due and owing; and
- Fraudulent intent.
The compliance employee must be familiar with the following legal terms to understand the requirements of proof:
Burden of Proof
The obligation to offer evidence that a court (judge or jury) could reasonably believe in support of a contention. In tax fraud cases, the burden of proof is on the Government.
data presented to a judge or jury in proof of the facts in issue and, which may include the testimony of witnesses, records, documents, or objects. Evidence is distinguished from proof, in that, proof is the result or effect of evidence.
evidence in the form of testimony from a witness who actually saw, heard, or touched the subject of questioning. Direct evidence, which is believed, proves existence of fact in issue without inference or presumption.
Evidence based on inference and not personal observation.
Presumption (of law)
A rule of law that a judge or jury will draw a particular inference from a particular fact, or from particular evidence, unless and until the truth of such inference is disproved.
A logical conclusion from given facts.
Preponderance of Evidence
Evidence that will incline an impartial mind to one side rather than the other so as to remove the cause from the realm of speculation. It does not relate merely to the quantity of evidence. Simply stated, evidence, which is more convincing than the evidence offered in opposition.
A doubt that would cause a prudent person to hesitate before acting in matters of importance to themselves. Such a doubt will leave a juror’s mind uncertain after examination of the evidence.
Willful Intent to Defraud
An intentional wrongdoing with the specific purpose of evading a tax believed by the taxpayer to be owing.
Clear and Convincing Evidence
Evidence showing that the assertion made is highly probable or reasonably certain. This is a greater burden of proof than preponderance of the evidence but less than beyond a reasonable doubt.
Requirements of Proof
Understanding the requirements of proof is essential in establishing fraud. In all criminal and civil tax fraud cases, the burden of proof is on the Government.
The major difference between civil and criminal fraud is the degree of proof required.
- In criminal cases, the Government must present sufficient evidence to prove guilt beyond a reasonable doubt.
- In civil fraud cases, the Government must prove fraud by clear and convincing evidence.
Civil vs. Criminal
Civil fraud results in a remedial action taken by the Government, such as assessing the correct tax and imposing civil penalties as an addition to tax, as well as retrieving transferred assets. Civil penalties are assessed and collected administratively as part of the unpaid balance of assessment.
Criminal fraud results in a punitive action with penalties consisting of fines and/or imprisonment.
- Are enforced only by prosecution;
- Are provided to punish the taxpayer for wrongdoings; and
- Serve as a deterrent to other taxpayers.
A tax fraud offense may result in both civil and criminal penalties. Restitution may be ordered in criminal tax cases pursuant to a plea agreement or a conviction under Title 18 U.S.C. and may be required as a condition of probation.
Avoidance vs. Evasion
Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means. One who avoids tax does not conceal or misrepresent, but shapes and preplans events to reduce or eliminate tax liability within the parameters of the law.
Evasion involves some affirmative act to evade or defeat a tax, or payment of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.
Common evasion schemes include:
- Intentional understatement or omission of income;
- Claiming fictitious or improper deductions;
- False allocation of income;
- Improper claims, credits, or exemptions; and/or
- Concealment of assets.
Indicators of Fraud vs. Affirmative Acts of Fraud
Indicators of Fraud
Taxpayers who knowingly understate their tax liability often leave evidence in the form of identifying earmarks (or indicators).
Serve as a sign or symptom, or signify that actions may have been done for the purpose of deceit, concealment or to make things seem other than what they are. Indications, in and of themselves, do not establish that a particular action was done.
Examples include substantial unexplained increases in net worth, substantial excess of personal expenditures over available resources, bank deposits from unexplained sources substantially exceeding reported income, and documents that appear to be altered or false.
Affirmative Acts (Firm Indications) of Fraud
Those actions that establish that a particular action was deliberately done for the purpose of deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or make things seem other than what they are.
Fraud Cannot be Established Without Affirmative Acts of Fraud
Examples include omissions of specific items where similar items are included; concealment of bank accounts or other assets; failure to deposit receipts to business accounts; and covering up sources of receipts.
We Specialize in International Tax
We have successfully handled a diverse range of International Tax Fraud cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
Unlike other attorneys who call themselves specialists but handle 10 different areas of tax law, purchase multiple domain names, and even practice outside of tax, we are absolutely dedicated to International Tax.
No Case is Too Big; No Case is Too Small.
We represent all different types of clients. High net-worth investors (over $40 million), smaller cases ($100,000) and everything in-between.
We represent clients in over 60 countries and nationwide, with all different types of assets, including (each link takes you to a Golding & Golding free summary):
- Foreign Mutual Funds
- Foreign Life Insurance
- Fixing Quiet Disclosure
- Foreign Real Estate Income
- Foreign Real Estate Sales
- Foreign Earned Income Exclusion
- Subpart F Income
- Foreign Inheritance
- Foreign Pension
- Form 3520
- Form 5471
- Form 8621
- Form 8865
- Form 8938 (FATCA)
Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist
Our Managing Partner, Sean M. Golding, JD, LLM, EA is the only Attorney nationwide who has earned the Certified Tax Law Specialist credential and specializes in IRS Offshore Voluntary Disclosure and closely related matters.
In addition to earning the Certified Tax Law Certification, Sean also 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.)
He is frequently called upon to lecture and write on issues involving IRS Offshore Voluntary Disclosure.
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.
Our International Tax Lawyers represent hundreds of taxpayers annually in over 60 countries.