What’s the Difference Between Tax Fraud & Tax Evasion?

The IRS processed over 164 million tax returns for the 2021 tax year. With that many returns filed by individuals from every walk of life, from every educational background, including professional tax preparers and novices doing their own taxes for the first time, hundreds of thousands of errors are discovered.  


It is not a crime to make a mistake on your tax return. It is a crime to file an incorrect tax return with the intent to defraud the government. If the IRS can prove that a tax filer has committed any one of several criminal acts related to their tax return, the U.S. Department of Justice can and will file federal criminal charges against that person. 


The difference between tax fraud and tax evasion is that tax evasion is only one type of tax fraud. Tax fraud includes any intentional cheating on a tax return or other tax filings in an attempt to avoid paying the entire tax lawfully owed.  



Among the many ways someone can commit tax fraud are the following: 


  • Misstating material facts to claim tax deductions or credits they are not entitled to, 
  • Intentionally failed to file a tax return, 
  • Intentionally failed to pay a tax debt, 
  • Purposely created false documents to support an incorrect tax return,
  • Prepared and filed a false return, 
  • Intentionally failed to report all income received, 
  • Knowingly failing to file payroll reports, 
  • Intentionally failing to report cash payments made to employees (or other forms of taxable income), 
  • Purposely failing to withhold employee FICA contributions from paychecks, 
  • Failing to declare taxable income, 
  • Conspiring to commit any of the foregoing with one or more persons. 


Negligent Tax Errors 


Anyone who makes an honest or careless mistake on any document filed with the IRS need not worry about criminal prosecutions. Of course, errors on tax returns or late filings that involve overdue or underpayments can result in the IRS assessing financial penalties.  


The law prohibits a criminal conviction unless the government proves beyond a reasonable doubt that the false statement, under-reporting of income, failure to file a return, failure to pay, or other noncompliance was committed by the taxpayer knowingly and with intent to defraud.  


The taxpayer’s fraudulent intent can involve actions designed to evade the payment of taxes they believe they owe or to obtain credits or other beneficial tax treatment for which they do not qualify. 


Conflicting Perceptions of a Taxpayer’s Actions 


Determining the difference between an intentional “error” benefiting the taxpayer and one that is caused by mistake, negligence, or misunderstanding is sometimes open to disagreement. It is in these cases in which facts may be open to interpretation that the expertise of an experienced tax attorney is essential. 


Government auditors, revenue agents, or other federal law enforcement investigators may draw incorrect conclusions from the documents and other material they examine relating to an unpaid tax or an undue credit received by the taxpayer. Despite a taxpayer’s attempt to explain away a discrepancy, prosecuting officials tend to view nuanced fact patterns in the worst light. 


What Should You Do If You Are Under IRS or Other Federal Investigation? 


Whenever federal agents contact an individual or corporation in a tax-related matter, the taxpayer should immediately contact a skilled criminal defense lawyer with extensive tax law experience.  


Many people yield to their reflexive response to speak with government agents to explain the issues at the center of the investigation. But attempting to represent your own legal position, regardless of whether you have acted improperly, is never a wise decision.  


While it may seem to some as an unnecessary precaution, taxpayers or others who are contacted by federal authorities should reach out to an experienced criminal defense attorney near them. Attorneys who regularly interact with federal government agencies and who represent clients who are under audit or investigation will communicate with officials in a constructive manner. 


A skilled criminal defense tax attorney knows what questions to ask and what information to offer. Your attorney will be able to review your records and tax documents and speak to you in total confidence. Based on what your tax attorney discovers in discussions with you and by examining your records, in addition to what they learn from government agents, your attorney will provide you with valuable legal advice on what course of action to take next. 


It is entirely possible that your counsel will be able to share information the government has not yet learned that will exonerate you entirely. In other cases, a knowledgeable defense lawyer with tax law experience will be able to highlight important information that will undercut the prosecution’s confidence, creating doubt as to their ability to win a conviction. 




Do not confuse tax avoidance with tax evasion. Tax avoidance is the lawful exploitation of available loopholes or exceptions existing in the U.S. Tax Code. Thousands of tax lawyers, CPAs, and other professionals practice tax avoidance on behalf of their clients every day. It is no crime to take advantage of provisions in the law created by Congress or resulting from guidance documents issued by the IRS or rulings in the U.S. Tax Court. 


No person is required to pay one cent more in tax  

to the government than they legally owe.  


When a taxpayer’s conduct exceeds the lawful bounds of tax avoidance and slips into the fog of tax evasion, the person becomes subject to prosecution for a misdemeanor or felony.  


A misdemeanor conviction for a tax crime can still carry a fine of up to $100,000 for an individual or $200,000 for a business defendant.  


Felony tax crimes carry a prison sentence of up to 5 years and a fine of $100,000 up to $500,000 for a business defendant. An example of a criminal tax offense carrying a serious penalty, filing a fraudulent tax return can result in a prison sentence of up to 3 years in federal prison and $100,000. 


NOTE: The court may impose these penalties on each individual count. If a federal indictment in a tax fraud case includes multiple counts of alleged crimes, the court can impose multiple fines and prison terms. 


Learn More > Defending Tax Fraud  


Florida Tax Crime Defense  


If you need experienced criminal defense counsel in a tax-related investigation, contact the board-certified federal defense lawyers at Stechschulte Nell, Attorneys at Law in Tampa. 


We are ready to defend your case. Call 813-280-1244 today.  

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