If the IRS suspects you of intentionally underpaying your taxes, you must take it seriously, but you can often settle these matters administratively without criminal penalties.
Consult an Alexandria tax fraud and evasion lawyer if the IRS has notified you of an investigation or you believe an investigation is likely. A skilled tax lawyer could help you navigate this sensitive “eggshell” investigation in such a way that produces a positive outcome.
Defining Tax Fraud
U.S. citizens and permanent residents have a legal obligation every year to determine the tax they owe and pay it on time. When someone fails to calculate their tax accurately or pay it in a timely fashion, the IRS could pursue civil or criminal penalties for tax fraud.
Tax fraud could involve one or more tax offenses. Tax evasion, 26 United States Code § 7201, means intentionally seeking to avoid tax liability. It is also a crime under 26 United States Code § 7202 to fail to pay the taxes owed. Other crimes associated with tax fraud are failing to file a tax return and providing false information in a tax return.
How the IRS Targets Tax Fraud
Some individuals or businesses find creative ways to skip out on paying their taxes. If the IRS suspects someone of committing fraud or intentionally evading taxes, it could order a civil or criminal investigation to confirm their suspicions. If the investigation report finds an intention to defraud, they might begin the process of referring the taxpayer for criminal charges.
The IRS scrutinizes taxpayers if they encounter one or more of the common “badges of fraud,” or indications of a willful attempt to avoid paying taxes. Some actions that taxpayers often take to evade taxes include:
- Reporting less income than the taxpayer earns
- Claiming excess deductions
- Keeping two sets of financial records
- Destroying financial records
- Failing to report assets, including foreign assets or accounts
Someone might also underpay their taxes by accident because of shoddy record-keeping, failure to understand the tax laws, or failure to file returns due to negligence or error. These underpayments can still carry penalties but would not be considered criminal.
The taxpayer’s intent is the key factor in distinguishing an attempt to defraud the government and an honest mistake that leads to an underpayment. A tax fraud attorney in Alexandria could compile evidence showing that the incorrect tax return, failure to pay the tax owed, or other violations resulted from negligence but not a willful attempt to defraud.
Defending Civil Tax Evasion Charges
If an IRS auditor or other official believes a taxpayer may have committed fraud, they could refer the matter to the IRS’ Criminal Investigation Division. One clue that a criminal referral has occurred is that the auditor ceases their work without issuing an examination report and does not respond to attempts at contact. Once the auditor makes a criminal referral, an IRS Special Agent could:
- Subpoena a taxpayer’s bank records
- Appear at their home or office to ask questions and gather documents
- Interview a taxpayer’s accountant or tax preparer
- Take other intrusive actions to find evidence of wrongdoing
If the Special Agent’s investigation produces credible evidence of fraud, they could refer the matter for criminal prosecution.
Throughout this process, a lawyer in Alexandria could work with the IRS to resolve the questions about tax fraud or evasion. Criminal tax litigation is time-consuming and expensive, and in most cases the IRS agrees to accept a civil resolution. Civil resolution could require the taxpayer to repay all taxes owed, plus a penalty of 75 percent of the fraudulent underpayment. If the IRS decides to pursue criminal prosecution, the potential penalty for tax evasion is five years in prison and a $100,000 fine.
Get Help with an Alexandria Tax Fraud and Evasion Attorney
If you believe or know for a fact that the IRS is investigating you for tax fraud, contact an Alexandria tax fraud and evasion lawyer as quickly as possible. The Pontius Tax Law team can often identify the problematic elements of your case and present solutions that can satisfy the IRS. We can also offer advice on how to properly address your taxes in the future.