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The “Degrees” (Categories) of Tax Evasion Explained

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    Civil and criminal tax fraud charges are brought where the tax code violations were willful but differ in their severity and are difficult to prove. Criminal tax fraud, or “tax evasion” as we refer to it, can result in prison time.

    If you are concerned that you might be facing tax evasion or fraud charges from the IRS, you will need the advice of skilled criminal tax defense counsel. The experienced Tax Attorneys and CPAs at The Tax Law Offices of David W. Klasing can break down your situation and put your mind at ease. For more information about how our services could benefit you, give us a call at (800) 681-1295 or schedule online.


    If you have made an honest mistake in failing to pay taxes or file appropriately or timely, the IRS may feel that your conduct is enough to civilly penalize but not enough to criminalize. Negligence requires that the taxpayer has made a careless mistake. There is no intent requirement for negligence in tax evasion.

    If an IRS auditor has determined that you were negligent in failing to file in compliance with the Internal Revenue Code, they will most often assess a monetary penalty which correlates with the nature of the noncompliance. Considerations will include the size of the amount improperly underpaid, and the circumstances of the negligence involved. Usually, the penalty will work out to be roughly 20% of any additional tax liability assessed because of the negligent filing.

    Civil Tax Fraud Explained

    The government may impose more severe penalties for taxpayers who willfully engage in fraudulent conduct with the purpose of defrauding the IRS or avoiding paying taxes that are rightfully owed. To prove fraudulent dealing by a taxpayer, the IRS must demonstrate by clear and convincing evidence that at least some portion of the taxpayer’s failure to meet their responsibility is due to their fraudulent conduct.

    The IRS may impose a penalty of 75% of the underpayment that is attributed to the taxpayer’s fraud. If the entire tax return is proven to be influenced by fraud, then the penalty may be 75% of the entire additional balance due. The taxpayer through counsel may be able to argue this down to a 20% negligence penalty through a showing by a preponderance of the evidence that not all the underpayment was influenced by the fraud. The truly scarry reality of the civil fraud penalty is if the government has the evidence to support a civil fraud penalty, it has the evidence to criminally prosecute. If you find yourself facing the possibility of a civil fraud penalty you would be best served hiring competent criminal tax defense counsel to mitigate the possibility of facing a criminal tax prosecution.

    Criminal Tax Fraud Explained

    The statutes governing criminal tax fraud, or tax evasion, contain elements that are like those found in the statutes governing civil tax fraud. There are three key differences between the two. The first is that the burden for proving criminal tax fraud is much higher than for proving civil tax fraud. Secondly, criminal tax fraud often results in prison time. Third, there is an applicable statute of limitations that governs when criminal tax fraud charges may properly be brought.

    To prove criminal tax fraud in a court, the government must demonstrate beyond a reasonable doubt that there was a willful evasion of tax liability on the part of the defendant. This could occur either be in the form of fraudulent tax assessment or fraud surrounding the duty to pay the taxes that were duly assessed.

    Key Differences Between Criminal and Civil Tax Fraud

    Whether the government will decide to press charges under civil or criminal statutes in each case depends on their assessment facts and circumstances each individual case. Below is an explanation of the rationale that divides criminal and civil tax fraud charges.

    Burden of Proof for Civil and Criminal Tax Fraud

    The burden of proof is a legal burden that the prosecution must meet in making their arguments to win the case. The burden of proof varies depending on the case law at issue in the case at bar. For civil tax fraud, the government is merely required to prove their case with “clear and convincing evidence.” In non-legal terms, this means that the IRS must convince a jury that the defendant is more likely than not guilty of the criminal charges brought by the IRS and prosecuted by the Income Tax Division of the Department of Justice.

    In contrast, the criminal tax fraud statutes require that the government prove their arguments “beyond a reasonable doubt.” This is the highest evidentiary burden on the prosecution available. It means that, to convict the defendant, the jury cannot have a reasonable doubt in their mind over the defendant’s guilt as to the criminal charges levied against the defendant. This difficult burden is required for criminal tax fraud cases because the resulting sentence often includes significant prison time & restitution.

    Statute of Limitations in Civil and Criminal Tax Fraud

    The statute of limitations is the time limit imposed by law on the length of time during which the government may bring a particular civil or criminal case against someone. If a case is brought after the appropriate statute of limitations has expired, the court will most likely throw the case out at least to any criminal charges outside of the statute. 

    If you are ever approached by the criminal investigation of the IRS or find yourself under an eggshell or reverse eggshell audit, beware of the concept of the “last affirmative act”. If the last affirmative act of a tax crime occurs within the statute of limitations the crime falls within the statute of limitation ever if most of the crime took place prior to the expiration of the statute of limitations. Lying about a crime that took place before the statute of limitations ran qualifies as the last affirmative act of the crime that occurred prior to the running of the statute of limitations. This will effectively bring the entire crime back to within the statute of limitations. 

    For most civil tax fraud cases, there is no applicable statute of limitations. This means the government is unrestricted by time in their ability to bring civil tax fraud cases. However, most criminal tax fraud laws carry either a five or six-year statute of limitations depending upon the type of crime charged. In other words, the government has five or six years from the time that the noncompliance is discovered to bring their case. If an otherwise criminal case of tax evasion occurred outside of the statute of limitations, the government will often instead attempt to bring a civil tax fraud case. Additionally, once tax fraud is established, the statue of limitations becomes open back to the dawn of time to go back and civilly collect on prior tax fraud even where it occurred in a “closed” tax year.

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    The Tax Law Offices of David W. Klasing have the experience necessary to educate you on the finer points of civil and criminal tax law and to successfully mitigate the enforcement actions of the federal and state taxing authorities while protecting your liberty and net worth. To set up a reduce rate initial consultation, give our offices a call at (800) 681-1295 or schedule online here.

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