A 2020 Brief Guide to Tax Evasion and Penalties
Taxpayers must pay their state and federal taxes according to current tax laws and cannot avoid these responsibilities by failing to file complete a return. The Internal Revenue Service will start their investigation by initiating an audit. If there are any discrepancies between the information on the returns and the individual’s earnings, the IRS can take legal action against the taxpayer. For example, the taxpayer could be arrested for tax evasion. With tax evasion, there are two standard classifications for the infraction. Reviewing tax laws shows the individual what could happen if they are convicted.
What is Tax Evasion?
Tax evasion is the deliberate failure or refusal to pay taxes. The individual evaded their tax payments by refusing to file a tax return or by using excessive tax deductions to reduce their income and avoid paying any tax implications for their earnings from their job or profits from a business venture. The Internal Revenue Service can initiate an investigation and audit the taxpayer to collect information from their tax records if they filed, or the agency can search financial records to find any income that wasn’t reported to the IRS through tax return. Tax evasion is a criminal offense, and the individual could face prison or hefty fines for the infraction.
What Court Handles the Tax Evasion Case?
With tax evasion, the IRS can classify an offense as either civil or criminal. With civil cases, the implications show that the taxpayer made an error on their tax returns and will be required to repay any amount they owed the IRS. This could be errors committed by a tax preparer’s office or software used by the taxpayer to complete their tax returns. With criminal cases, the individual is accused of deliberate actions to avoid paying any taxes for their earnings or profits. If the IRS initiates a civil case against the taxpayer, the individual will not face prison or jail time for the mistakes.
What are the Penalties for Tax Evasion?
With tax evasion penalties, the taxpayer receives penalties according to the case classification and how much they owed in taxes. For example, in a civil case, the taxpayer could face penalties if they didn’t file their tax return. The initial penalty is around 5% of the taxes the taxpayer would have owed each month to the IRS, but tax returns with fraudulent information could lead to penalties as high as 75% of the taxes owed. The IRS will launch an investigation to find out if the individual just failed to file or inflated their tax deductions to avoid paying their taxes.
With tax evasion in criminal court, the individual must be charged with a criminal infraction. This could include any number of possibilities that could lead to willful tax evasion or fraud. Examples are failing to report all income, inflating their expenses, false statements to investigators.
The penalties for criminal tax evasion start with a prison sentence based on how much money the taxpayer owed. The average prison term for one offense is around five years, but if the individual committed tax evasion for several years, the prison sentence could reach upward to 20 years or longer. The maximum fines for the infraction are $250,000 for individual taxpayers and $500,000 for larger businesses. The court imposes fines according to the total number of infractions for which the individual is accused.
What is Restitution in a Criminal Tax Evasion Case?
With criminal tax evasion, restitution is the amount of taxes the individual owed to the IRS and failed to pay it. The restitution could include all years in which the individual didn’t pay their taxes. There isn’t a current cap on the total amount they will pay for the overdue taxes, and the IRS can take action to collect restitution if the taxpayer doesn’t make any attempt to pay it.
Additionally, the court could make the taxpayer the full cost of prosecuting them, which could equate to several thousand dollars. The individual must pay their own attorney fees in addition to all costs ordered by the court.
After they are released from Prison
The individual could be placed on probation after completing their prison term. Typically, they will not be on probation for up to twelve months. However, if the individual was convicted of several infractions, they may also face restrictions after they are paroled from the prison. The IRS could impose restrictions on a business and require more regular reporting for their profits, and they could require the business owner to meet with an IRS agent regularly.
Hiring an Attorney
Anyone who is accused of tax evasion should see legal representation because they may not understand all laws pertaining to their case. A tax attorney can review all documents and evidence to build the individual an effective defense. An attorney can help the individual if they are accused of tax evasion or tax fraud, and it is possible to review the individual’s tax records to find proof that the individual isn’t guilty.
It is recommended that the individual discuss their case with an attorney as soon as they receive any notices from the IRS for an audit or any investigation. A lawyer could help them keep the matter out of court if the individual doesn’t owe a hefty amount to the IRS.
Taxpayers could find themselves charged with tax evasion or fraud if they do not file their taxes or deliberately embellish their deductions. It is illegal to add business deductions for any expenses that are fabricated or the individual doesn’t have receipts to substantiate. The IRS can initiate an audit to review the tax forms and determine if the individual has evaded their responsibilities to the federal or state IRS. With evasion, the case will be either civil or criminal. Its classification determines if the individual will be charged with criminal charges or face prison time and hefty fines. Reviewing the case and tax laws with an attorney could help the individual avoid a conviction.