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Federal Tax Crimes: What You Need to Know

On Behalf of | Apr 13, 2015 | Uncategorized

This month is the filing deadline for 2015 income tax returns, and many individuals are scrambling to find the best tax breaks to reduce the amount they owe or to increase the amount of refund due to them.  Understanding the tax code is difficult, which is why an estimated 17 percent of tax returns have errors.  The difference in unintentional negligence and willful attempt to defraud the Internal Revenue Service (IRS), however, can mean criminal charges for anyone suspected of tax evasion or tax fraud.

Despite the fact that more than 15 percent of taxpayers make mistakes on their income tax returns, only approximately 0.0022 percent of United States taxpayers are convicted of tax crimes annually.  While millionaire celebrities–Martha Stewart, Willie Nelson, Nicholas Cage, and Wesley Snipes, for example–make headlines for tax evasion, the IRS reports that approximately 75 percent of tax fraud is committed by individuals, primarily middle-income earners who under-report their wages or claim deductions to which they are not entitled.  Most tax evasion takes the form of under-reported income, but approximately 7 percent occurs through overstated or false deductions.

A careless or negligent mistake on one’s income tax return is subject to a 20 percent penalty.  For middle-earners trying to keep finances in check, a 20 percent penalty can be significant; however, it is a pittance compared to the 75 percent civil penalty levied for tax fraud. Furthermore, tax fraud is a federal offense, and although only a small percentage of taxpayers are prosecuted and convicted, this translates to more than 2,000 individuals each year who are earn a criminal record for a federal conviction.

How do auditors find fraud? The IRS looks for specific indicators of fraud, and while they may give a taxpayer the benefit of the doubt on small, careless errors, these egregious signs of fraud (two sets of financial books, for example, or claiming non-existent dependents), will likely result in a taxpayer being referred to the IRS Criminal Investigation Division. In some cases, the auditor will assess a civil penalty without reporting the fraud to the CID, but he or she will not tell you whether or not you have been reported for criminal investigation.  In fact, because workloads of auditors and investigators are so great, it may be months or more before you are made aware that you are under investigation.

Most fraud attempts are not as blatant as claiming a non-existent dependent, and IRS auditors and CID investigators often look for indirect indicators of fraud, including bank deposits or expenditures that exceed one’s claimed income.  There may be legitimate explanations for indirect indicators of fraud, and a skillful federal white collar crimes lawyer can demonstrate these explanations in your defense. If you are investigated for tax evasion, tax fraud, or other federal crime, submit the online case review form for a confidential consultation with a federal criminal defense lawyer in Oklahoma.


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