Gavel and handcuffs on top of tax paperwork

Can You Go to Jail for Tax Fraud?

The Criminal Investigation Division of the IRS initiates approximately 3,000 criminal prosecutions for tax fraud and related crimes every year. Defendants who plead guilty or who are ultimately convicted of tax fraud can face lengthy prison sentences in addition to owing back taxes, penalties, and interest on unpaid amounts.

At Ayar Law in Farmington Hills, Michigan, we represent individuals and businesses that may be facing potential criminal charges for tax fraud and defend them if and when those charges are filed and prosecuted. We believe that a proactive strategy is the best mechanism to address tax issues before they mature into criminal charges. If the IRS does initiate a tax fraud prosecution, we also act as zealous advocates for our clients to reduce or eliminate the prospects of jail time.

What activities can lead to a criminal tax fraud prosecution?

There is no all-encompassing definition of what constitutes criminal tax fraud. Prosecutions generally flow from an IRS audit that uncovers material attempts to avoid paying taxes, including:

  • Intentionally failing to file business or personal tax returns
  • Gross misstatements of expenses and deductions
  • Knowingly making false statements to the IRS during an investigation or audit
  • Failure by a business to pay or collect employment taxes
  • Using personal expenses as business deductions
  • Hiding or understating income from a side business

These activities will have a solid potential to lead to jail time if done willfully and with an affirmative intent to avoid paying taxes. However, the IRS will likely not pursue criminal charges if, for example, expenses were overstated due to an honest mistake or taxes were not paid because the taxpayer did not have the money to pay them.

Further, a taxpayer’s legitimate attempt to avoid or reduce tax liabilities will not be deemed to be a reason for criminal prosecution and jail time. Taxpayers who have relied on tax avoidance schemes and are facing audits should always be represented by a knowledgeable and experienced tax fraud attorney. We can verify that these activities are characterized as tax avoidance and not tax fraud.

How are criminal tax fraud investigations initiated?

Some IRS investigations are sparked by whistleblower complaints, for example, from a disgruntled employee who has been instructed to take improper actions regarding a company’s finances. However, most investigations arise from random or targeted tax audits that reveal unpaid taxes, overstated deductions, or expenses.

What penalties do taxpayers face when they are convicted of criminal tax fraud?

Taxpayers convicted of criminal tax fraud can receive prison sentences of up to five years. Even after the prison sentence is served, the criminal conviction will remain on the taxpayer’s record. This can have serious adverse consequences for the taxpayer’s ability to procure employment and housing after the prison sentence is completed.

Taxpayers will also face substantial penalties depending on the nature of their tax fraud convictions:

  • Individuals can face fines of up to $100,000 for tax fraud and tax evasion. The maximum fine for businesses is $500,000
  • A $100,000 fine can be levied for filing a false tax return
  • Failing to file returns can generate fines of up to $25,000 for each year in which a return is not filed
  • A fine of up to $25,000 will be charged for inadequate or incomplete records or failures to pay estimated taxes
  • Willfully concealing assets in illicit offshore accounts can generate penalties of up to $500,000.

These fines and penalties are in addition to paying any back taxes the taxpayer owes per the IRS’s analysis from an audit and criminal prosecution.

Call Ayar Law Immediately if You or Your Business Are at Risk of an IRS Criminal Prosecution

At Ayar Law in Farmington Hills, we represent taxpayers in Michigan who are facing actual or potential criminal penalties on account of unpaid taxes, overstated expenses, or any other activities that may amount to tax fraud. We can assess your exposure to criminal tax fraud charges and take steps to forestall those charges and resolve your tax problems. If charges have been filed, we will aggressively defend you and fight to reduce or avoid a tax fraud prison sentence. Contact us to learn more, or for a free, no obligation consultation on your tax issues.