The deadline to file your 2019 tax return is Wednesday, April 15, 2020. If you’ve been feeling tempted to fudge the numbers, consider this your warning. There are three important reasons not to cheat on your taxes – starting with the potential for prison time. If you’ve made filing errors in the past, including the failure to file state or federal income tax returns, now is the time to contact an experienced tax compliance attorney at the Tax Law Office of David W. Klasing for help reentering the tax system. By the time the IRS contacts you, it may already be too late.
See our Audit Representation Q and A Library
Whether you are filing a state, federal, joint, corporate, and/or personal income tax return this year, it is imperative that you complete each section fully and accurately. Thanks to continuous improvements in technology, the taxing authorities can detect errors and misstatements with increasing ease, speed, and accuracy – a reality which is reflected in the 91.2% conviction rate achieved by the IRS Criminal Investigation division (IRS-CI) in 2019.
If the IRS does detect any issues, such as tax credits that were improperly claimed, or foreign bank accounts which have not been reported, there could be numerous consequences for the taxpayer. Here are three of the most serious.
First and foremost, tax fraud carries with it a risk of criminal tax prosecution – and prison time. “Tax fraud” is a broad phrase encompassing a host of misdemeanor and felony tax crimes enumerated in the Internal Revenue Code (IRC), including but not limited to:
While each of these offenses has a unique legal definition, all involve an element of willfulness, or deliberate and intentional action by the taxpayer. For more about this topic, see our discussion of the willfulness requirement for tax fraud.
The maximum sentences for the crimes listed above range anywhere from one to five years in federal prison, depending on factors like the severity of the offense and the offender’s criminal history, if any. IRS-CI reported initiating exactly 1,500 tax-related investigations in 2019, leading to sentences for nearly 850 taxpayers. In the past before sequestration the number of prosecutions was closer to 6,500.
Unreported income, concealed bank accounts, false dependents, inflated business expenses, and other erroneous items or compliance issues are likely to trigger a tax audit (as are dozens of other tax fraud red flags, as listed in IRM 126.96.36.199 beneath “Indicators of Fraud”). Tax audits are often the sources of criminal investigations, and moreover, can lead to determinations that you owe the IRS money. See this link on Egg Shell Audits to learn more.
Prison time is seldom the only consequence of tax fraud. Offenders are typically ordered to pay IRS restitution, along with costly criminal fines. For example, 26 U.S. Code § 7201 sets forth a maximum criminal penalty of $100,000 for individuals and $500,000 for corporations.
Civil penalties are separate from criminal penalties and may be imposed in both civil and criminal cases. That means you could be ordered to pay civil penalties in addition to criminal penalties if you are convicted. It also means that you could be ordered to pay civil penalties even if you are not charged with tax crimes, such as the trust fund recovery penalty (TFRP) for employment tax violations or the civil fraud penalty. The scariest part about the civil fraud penalty is that if they have the evidence to assert it, they most likely also have the evidence to criminally prosecute for tax crimes.
Using a computer-generated score called the “Discriminant Function System” or DIF, the IRS can quickly determine which returns most likely contain unusual or concerning items. Whistleblowers, financial institutions, and state taxing authorities, such as California’s Franchise Tax Board (FTB), provide the IRS with even more information about noncompliant taxpayers. Do not be lulled into a false sense of security by recent budget cuts: IRS-CI remains one of the Justice Department’s most aggressive and effective partners, recommending more than 940 cases for criminal tax prosecution in 2019.
If you have unfiled returns, unreported income, undisclosed foreign bank accounts, or other tax compliance issues that are in need of resolution, the Tax Law Office of David W. Klasing can help you correct the errors and mitigate the consequences. Serving California residents, foreign entities, and multinational taxpayers, our IRS tax attorneys and accountants have more than 20 years of combined experience providing tax preparation services, tax audit representation, and criminal tax representation to businesses and individuals. Contact us online to set up a reduced-rate consultation or call our main office in Irvine at (800) 681-1295 for 24-hour tax support.
See our Criminal Tax Law Q and A Library
In addition to our staffed main offices in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here.