What the government has to prove
Tax evasion, failure to file and false return charges all require proof that the person acted willfully. Whether someone made an honest mistake or relied on a preparer is often at the center of the case.
Tax evasion under 26 U.S.C. § 7201 requires a willful attempt to evade or defeat a tax or its payment. Filing a false return under § 7206(1) requires willfully signing a return under penalty of perjury that the person does not believe is true and correct as to every material matter.
Willfulness is the line between a tax problem and a tax crime.
Charges and maximum penalties
| Charge | What it covers | Maximum prison term |
|---|---|---|
| Tax evasion, 26 U.S.C. § 7201 | A willful attempt to evade or defeat a tax or its payment (felony) | 5 years and a fine of up to $100,000, or $500,000 for a corporation |
| Failure to file or pay, 26 U.S.C. § 7203 | Willfully failing to file a return, pay a tax, keep records or supply information (misdemeanor) | 1 year and a fine of up to $25,000, or $100,000 for a corporation |
| False return, 26 U.S.C. § 7206(1) | Willfully signing a return under penalty of perjury that is false as to a material matter (felony) | 3 years and a fine of up to $100,000, or $500,000 for a corporation |
| Aiding a false return, 26 U.S.C. § 7206(2) | Willfully helping prepare or present a materially false return, even without the taxpayer’s knowledge | 3 years and a fine of up to $100,000, or $500,000 for a corporation |
| Obstruction, 26 U.S.C. § 7212(a) | Corruptly obstructing or impeding the administration of the tax laws | 3 years |
The court can also order the costs of prosecution. Tax cases are sometimes charged with conspiracy to defraud the United States under 18 U.S.C. § 371, which carries up to 5 years.
Who investigates
Criminal tax cases are investigated by IRS Criminal Investigation, whose special agents may visit people in person. The IRS offers an online tool to confirm that someone claiming to be a CI agent actually works there.
Cases can start with a revenue agent or revenue officer who spots possible fraud during civil work, with a tip from the public, or with a referral from another agency or a U.S. Attorney’s Office. Agents use interviews, bank record subpoenas, search warrants and forensic accounting.
How these cases usually unfold
- Preliminary reviewSpecial agents assess whether a crime may have occurred, and a supervisor decides whether to open a criminal investigation.
- InvestigationAgents gather bank records, interview witnesses and may execute search warrants.
- RecommendationIf agents find enough evidence, they write a report recommending prosecution, which goes through several levels of review.
- Justice Department reviewJustice Department policy requires its Tax Division to approve criminal tax charges. A taxpayer can ask in writing for a conference, which is generally granted when time allows.
- Charges, plea or trialIf prosecution is approved, charges are filed and the case moves through federal court.
Where these cases are often defended
Every case turns on its own facts. Issues that frequently matter include:
- Willfulness. Whether the person acted willfully, or made an honest mistake.
- Reliance. Whether the person relied in good faith on an accountant or preparer.
- The numbers. How agents reconstructed income or calculated the tax loss.
- Review conferences. Whether a conference request gives a chance to address the case before charges.
How Kaufman Legal Group can help
Jason Kaufman has tried more than 90 cases and is a Criminal Justice Act panel attorney in the Southern District of Florida. He also works as a jury consultant. He works with Phil Horowitz, who has practiced criminal defense since 1985 and spent decades on the CJA panel in the Southern and Middle Districts of Florida, and Victor E. Rocha, admitted to The Florida Bar in 1983, who practices in federal courts including the Eleventh Circuit and the Southern District of Florida and speaks Spanish. Together they bring more than 100 years of combined experience.
In tax matters the team can respond to IRS special agents and subpoenas, work alongside your accountant where appropriate, address the case with prosecutors before charges and prepare it for trial. The first consultation is free and confidential.
Sources