For as long as there have been taxes, people have used countless techniques to avoid paying them. Governments deal harshly with those caught evading taxes through illegal means. Remember, there are legal ways of avoiding taxes such as contributing some of your pre-tax income to an IRA. It is when a taxpayer goes outside of the accepted modes of tax avoidance that he or she may be charged criminally with evading taxes.
Michigan Tax Evasion Defense Attorney
Ayar Law is one of the country’s preeminent tax law firms. We have extensive experience defending individual and corporate clients accused of tax evasion and other forms of tax fraud. We have represented clients in criminal tax cases both big and small. If you are facing charges of tax evasion, contact us at (248) 262-3400 for a free, no-obligation consultation.
When Can You Be Charged With Tax Evasion?
In order to understand the grounds for tax evasion charges, you need to understand how the offense is defined. Also referred to as “attempt to evade or defeat tax,” income tax evasion essentially means that a defendant took deliberate actions to try and avoid paying his or her full tax obligations. However, in accordance with Section 7201 of the Internal Revenue Code, there are actually two subcategories of income tax evasion:
- Willful attempts to defeat or evade tax assessment: The IRS reports that in many cases, the taxpayer will either file a false return which contains inaccurate information or will falsely claim deductions which are not actually applicable. This is not the same as an attempt to avoid paying the tax — it’s an attempt to prevent tax obligations from being accurately assessed in the first place.
- Willful attempts to defeat or evade tax payment: In contrast to evading assessment, evading tax payment means that while taxpayer’s obligations have already been established, he or she avoids actually paying those obligations by concealing their assets or accounts.
While these two subcategories have subtle differences, you may have noticed that both contain the term “willful.” This is very important, because in order to prove that a defendant evaded or attempted to evade tax obligations, there are three critical components which must be established. As the Criminal Tax Manual states, “To establish the offense of attempting to evade and defeat a tax, the government is required to prove beyond a reasonable doubt the following three elements.” These three elements are that:
- The defendant owed a “substantial income tax” in addition to that which was actually declared on his or her income tax return.
- The defendant “made an affirmative attempt” to evade or defeat assessment or payment of tax.
- The defendant’s actions were “willful,” i.e. deliberate. The IRS states that any “voluntary, intentional violation of a known legal duty” is sufficient to fulfill the willfulness requirement.
Fortunately for defendants, the burden of proof falls upon the prosecution in these sorts of cases. Defendants are not required to call upon witnesses or to provide any evidence of their own.
Tax Evasion Penalties
It’s important to understand that income tax evasion charges are extremely serious, and should absolutely never be ignored. If you are facing these charges, or if you have concerns about the results of an IRS tax audit or IRS criminal investigation, it is imperative that you consult with an experienced tax attorney right away.
Evading or attempting to evade tax obligations is a felony. Pursuant to 26 U.S. Code § 7201:
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.
Keep in mind that the above penalties pertain only to criminal charges, and even the civil consequences can be very harsh. Civil consequences can include a massive 75% penalty on any assessed income tax, plus interest on the penalty. Furthermore, while the criminal penalties are restricted to the five-year statute of limitations, civil penalties are not bound to any time limit.