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Differences Between Criminal Tax Evasion and Civil Tax Fraud

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    Generally, there are two main types of federal tax fraud punishment you could face. You may be faced with civil tax fraud, usually punished only with fines. Additionally, you can be investigated for criminal tax evasion or other tax crimes, which can be punished with imprisonment and restitution.

    In some instances, the same conduct that constitutes criminal tax evasion may also be deemed civil tax fraud, and vice versa. The Internal Revenue Service (IRS) will usually determine whether to impose civil penalties, criminal penalties, or both. If you are merely at risk, or currently being accused of tax fraud or tax evasion, our dual licensed Tax Attorneys & CPAs are extremely experienced and successful at avoiding both civil tax fraud penalties and criminal tax investigation and prosecution.

    Seek help with your tax latent or critical criminal tax exposure issues by contacting our Dual Licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Our phone number is (800) 681-1295 or you can schedule a reduced rate initial consultation online here.

    If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal tax prosecution.

    Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

    It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

    Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

    As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

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    What is Civil Tax Fraud?

    You can face civil tax fraud penalties that amount to 75% of the additional tax the government asserts that you owe in an audit, criminal tax investigation, appeal, collection action or other action. The government need only present clear and convincing evidence that you willfully filed a tax return with incorrect information or willfully neglected to file a tax return.

    For there to be civil tax fraud, the government must show that you intended to fraudulently escape your tax obligations. For many criminal offenses, ignorance of the law is not an excuse or defense. However, this is certainly not true in tax law. For instance, as it pertains to civil tax fraud, willful intent is legally distinguished from mere negligence, inadvertence, and reliance on incorrect technical tax advice. The scary part here is the same behavior that can earn you a civil fraud penalty can easily lead to criminal tax prosecution and incarceration.

    Several potential defenses are available if you are faced with civil tax fraud penalties. Our Dual Licensed Tax Attorneys and CPAs can help identify the right strategy for your case.

    What is Criminal Tax Evasion?

    Similarly, any willful attempt to get out of your tax obligations that could result in a civil fraud penalty will also constitute criminal tax evasion. There is a wide range of activities that constitute tax evasion. For example, you may face criminal penalties for making false statements to the IRS, concealing assets from the IRS, or failing to file your tax returns.

    Taxpayers can be held accountable for both civil tax fraud and criminal tax evasion with respect to the same conduct. In other words, it is up to the government to decide which types of tax offenses defendants will be charged with and how that behavior will be punished, civilly or criminally.

    As previously discussed, the government must only present clear and convincing evidence that civil tax fraud occurred. However, for a criminal tax evasion conviction, the prosecution must prove guilt beyond a reasonable doubt. This is a very strict standard. Still, defending against accusations of tax evasion can be a complex, expensive and emotionally taxing process. It is also worth noting that most criminal tax convictions are a result of the plea-bargaining process and thus rarely require an actual trial.

    Lastly, another major difference lies in the penalties assessed for criminal tax evasion versus those imposed on civil tax fraud defendants. While civil tax fraud usually only results in monetary fines, those convicted of tax evasion can face various forms of punitive action, including imprisonment & restitution for the financial harm caused the federal and state governments. Not only do such punishments serve to penalize tax evaders, but they also deter others from committing similar crimes in the future.

    Examples of Criminal Tax Violations

    A wide range of conduct may be considered criminal tax evasion. Contact our Dual Licensed Tax Attorneys and CPAs for help defending against accusations of any of the following crimes:

    Failure to File Tax Returns

    If you knowingly did not file your tax returns to evade your federal income tax obligations, you may face criminal tax penalties, including a prison sentence of up 3 to 5 years per count if Spies Evasion factors are present in your fact pattern plus restitution for the tax loss you caused the federal and state governments.

    Underreporting Income

    Another example of criminal tax evasion involves intentionally underreporting your taxable income. This can be accomplished through underreporting income, overstating deductions or claiming credits you are not entitled to. You may be criminally prosecuted if the government can prove you fraudulently understated your taxable income on your income tax return returns. Even leaving off insignificant amounts of taxable earnings can lead to serious exposure as there is no de-minimis rule for income tax evasion.

    Failure to Disclose Foreign Assets

    U.S. citizens must report all foreign assets generating taxable U.S. income on their income tax returns to the IRS (and most States) and must report foreign financial accounts totaling to $10,000 or more to FinCen on FinCen Form 114. Many people believe they can evade income taxes on offshore investment or business income by omitting the taxable from their U.S. income tax returns and storing it in unreported overseas financial accounts (Offshore brokerage and bank accounts for the most part). However, failure to report / disclose such offshore assets can very easily result in criminal tax investigation and prosecution. We have tons of experience removing the criminal tax and offshore information reporting fraud exposure for these issues.

    Unreported Digital Asset Income

    All digital assets, such as cryptocurrencies, must be reported on your income tax returns. You may be charged with a crime if you do not accurately report your digital assets. We have deep experience in this issue.

    Employment Tax Fraud

    Businesses owners, management, accounting personnel and anyone determined to be a responsible party for employment tax fraud can face criminal tax investigation & prosecution. There are several common types of employment tax fraud scams. For example, some employers will engage in a practice known as “pyramiding,” where they will withhold payroll taxes from employees without any intention of remitting them to the Internal Revenue Service (IRS) or state taxing authority. Furthermore, some employers fraudulently attempt to avoid having to deal with payroll taxes altogether by paying employees cash and failing to report their wages to the government on either a W2 or 1099. This can easily be charged as aiding and abetting the income tax evasion of the employee or independent contractor.

    How to Avoid Being Charged with Criminal Tax Evasion or Facing Civil Tax Fraud Penalties

    With the help of the right tax professional, you can easily employ tax filing practices that will insure you avoid criminal tax evasion charges and civil tax fraud penalties. For example, you should check the credentials of your tax preparer. The Internal Revenue Service (IRS) regularly brings criminal tax charges against overly aggressive tax preparers and their clients for filing false returns.

    You should always present true accurate and complete information to your preparer and avoid any tax planning strategy that appears “too good to be true”. Furthermore, you should review every line of your tax return before filing it and you should speak up immediately if you suspect there are problems with your tax returns. Beware that there are tax preparers out there that believe you want to cheat and may do so on your return even without your knowledge under the mistaken belief that is what you want. If the IRS contacts you regarding an audit, investigation or even a mundane issue with your returns, you should reach out to our office immediately. Thankfully, if you hired a carless, clueless, or overly aggressive tax preparer, you could always contact our Dual Licensed Tax Attorneys and CPAs for help resolving any issues that have arisen pre or post IRS involvement. Our legal team has tons of experience dealing with a wide range of taxpayers’ concerns. We can efficiently assess your case and explain the appropriate next steps.

    Our Attorneys Can Help Prevent Accusations of Tax Crimes or Civil Tax Fraud Penalties

    Hopefully before, but also after, being accused of tax crimes and facing Civil Fraud Penalties, get help from our Dual Licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing by calling (800) 681-1295 of clicking here to schedule a reduced rate initial consultation.

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