Income Tax: Criminal vs. Civil Violations

Few people would debate the fact that the U.S. Tax Code is the most complex set of laws, rules, and regulations that anyone ever deals with. We know this to be true because tax experts, CPAs, tax consultants, and IRS revenue agents might all give different answers to the same question about how to interpret the tax law. 


If that’s true, then how can average, hard-working taxpayers be expected to fill out their tax returns without mistakes, and to always pay the precise amount of tax that they owe? The simple answer is that the government does not expect everyone’s tax returns to be error-free.  


Instead, the IRS and Department of Justice expect every person to file a tax return who is required to, and for each person to make a genuine, good faith effort to determine what their tax liability is and to pay it when scheduled. Failure to meet these expectations can lead either to Civil Tax Law Violations or Criminal Tax Law Crimes. 



Tax Law and Criminal Defense Expertise Needed 


Navigating the tax laws with expert tax law expertise or an experienced federal criminal defense lawyer is not only risky, but it can also be dangerous. Becoming the focus of an IRS fraud audit, or worse, an IRS tax evasion investigation can dominate your life and result in serious anxiety for many months, sometimes years. Working with a certified criminal defense lawyer who has experience distinguishing between what constitutes a civil tax offense from what may lead to criminal prosecution for tax evasion is essential. 


It is not advisable for a person under suspicion of wrongdoing by the IRS or the DOJ for violation of federal tax laws to engage any attorney who has limited experience in federal court or handling such complex legal issues.  


Learn More > Defending Tax Crimes  


What’s the Difference Between a Civil Offense v. a Crime? — Intent 


Underreporting the amount of tax you owe can be the result of negligence or deliberate design. Whether the government can prove the fraud beyond a reasonable doubt or only by clear and convincing evidence can mean the difference between paying a civil fine and going to prison. 


Determining the taxpayer’s state of mind in misreporting a tax obligation is also key to sending a case to a civil enforcement division or a criminal prosecution unit. 


Unintentional or innocent tax reporting errors can be indicated by auditors recognizing that the taxpayer’s underpayment of taxes resulted from a miscalculation, an error filling out a complex tax form, or the absence of a pattern of deceptive entries in the tax return. They may even have relied on incompetent or incorrect professional tax advice. Cases like these will not result in prosecution either civilly or criminally. 


Intent to knowingly evade the payment of taxes owed is often indicated by the entry of a series of coordinated misstatements, a pattern of deception, a history of similar evasive conduct, an attempt to hide earnings that were not reported as income, or financial transactions consistent with an effort to disguise taxable income as either non-taxable or nonexistent. 


The problem with government investigators and IRS revenue agents making these distinctions between civil negligence and criminal intent is often a function of the strength of the evidence they discover or develop. Their best judgment based on the information they have available, subject to their own biases, determines if they conclude you were merely careless, intentionally misleading, or criminally evading taxes.  


Experienced, skillful tax fraud and tax evasion defense lawyers need to contest any unfounded conclusions and highlight the evidence that is inconsistent with their client’s having any criminal intent. In many cases, what is alleged to be criminal conduct is later negotiated down to a civil complaint with the assistance of a qualified criminal defense attorney. Other civil fraud allegations can be revealed to have been mere errors made in good faith. 


Civil Tax Fraud Penalties v. Criminal Tax Evasion Penalties 


While civil tax fraud is not punishable by imprisonment, the penalties are still painfully severe. 

  • Civil fraud penalties can include a penalty of up to 75% of that part of the unreported or underreported sum that clear and convincing evidence attributes to intent to avoid a known tax obligation, plus full payment of the tax owed, plus interest, and costs of the government’s collection efforts. 
  • The civil penalty does not apply to “inadvertence, reliance on incorrect technical advice, sincere differences of opinion, negligence, or carelessness. 
  • Criminal tax evasion penalties vary depending on which federal statute was violated by the criminal conduct. 
  • Tax evasion penalty — $250,000 fine and up to 5 years in federal prison 
  • Filing a false return — $100,000 fine and up to 3 years in federal prison 
  • Failing to file a return — $25,000 fine and up to 1 year in prison for each year not filed 
  • Scheme or pattern of criminal tax violation involving $100,000 in a 12-month period pays a $500,000 fine and up to 10 years in federal prison 


Other Related Crimes 


Tax-related crimes are rarely filed against a defendant in a vacuum. An intentional scheme to hide taxable income from the IRS and to evade paying taxes on the income typically involves filing false documents with banks, holding the money in accounts that were established to disguise the true source of the funds, or involving others in the plan to assist in the tax evasion. 


These and other similar activities could result in an indictment including charges of conspiracy to commit tax evasion, money laundering, conspiracy to defraud the government, and other statutory violations, depending on the circumstances of the case. 


Learn More > Defending Against Fraud Charges in Florida  


Experienced Tax Fraud and Tax Evasion Defense Lawyers  


At Tampa’s Stechschulte Nell, Attorneys at Law, federal tax evasion and tax fraud charges are handled with expertise and precision. As any qualified federal tax crime defense lawyer does, we conduct a thorough and comprehensive investigation and study every available document and financial record to develop evidence that challenges the government’s theory of guilt, and to establish substantial doubt in the minds of any judge or jury. 


Call Stechschulte Nell for a case review today; 813-280-1244. 


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