Tax evasion refers to the willful underpayment of taxes. There are several different forms of tax evasion, and perpetrators can face expensive fines and even jail time.
For instance, former Los Angeles City Councilmember José Huizar pleaded guilty to tax evasion charges in addition to charges of racketeering and conspiracy on January 20, 2023. Huizar is facing up to 13 years in prison for his crimes and has forfeited $129,000 in cash that law enforcement found while searching his home.
If you have encountered a tax issue related to your state or federal returns, you can contact our law firm for help finding a resolution. Connect with our team at the Tax Law Offices of David W. Klasing by calling (800) 681-1295 or click here to schedule a reduced rate initial consultation. Our experienced Dual Licensed Tax Attorneys and CPAs are ready willing and able to provide the support you need.
Los Angeles Politician Pleads Guilty to Racketeering, Conspiracy, and Tax Evasion Charges
José Huizar was a City Councilmember in Los Angeles who abused his position to enrich himself and others. He was the head of a bribery and money laundering scheme in which he accepted more than $1.5 million in cash, gambling chips, escorts, and other services in exchange for supporting a downtown hotel project.
Huizar pleaded guilty to racketeering, conspiracy, and tax evasion. The charges he faced could have carried up to 25 years of jail time. However, as part of Huizar’s plea agreement, the prosecution has stated that they will request no more than a 13-year prison term. Furthermore, the government will seek over $1 million in restitution for the city.
Do You Need to Include Illegally Acquired Income on Your Tax Filings?
The Internal Revenue Service (IRS) also expects you to include illegally acquired income on your tax filings. For example, politicians like José Huizar who have illegally obtained money through bribes must still include those funds on their tax returns. Failure to report income from illegal activities will constitute a form of tax evasion and can carry criminal tax penalties.
What Constitutes Tax Evasion?
Tax evasion occurs when taxpayers fraudulently withhold or misstate information about their offshore or domestic bank accounts, income, or other financial assets so they can fraudulently pay less tax. Tax evasion commonly involves understating income, overstating deductions, or claiming credits the taxpayer is not entitled too. The Internal Revenue Service (IRS) treats instances of tax evasion very seriously, and perpetrators can face severe fines and prison time. The following are all common examples of activities that constitute tax evasion:
Underreporting Income
Personal income plays a major role in determining peoples’ tax obligations. Accordingly, many people fraudulently underreport their income in order to pay less tax. Beyond blatantly misreporting your income, you can also underreport your earnings through a process called “structuring.” Structuring involves artificially lowering your withdrawals, deposits, and transfers to a point where they are below bank cash reporting requirements. Since structuring is performed to avoid the detection of taxpayers’ actual income, it is a crime. Furthermore, it has been aggressively prosecuted by the IRS especially since the establishment of the Foreign Account Tax Compliance Act (FACTA). If you have encountered an issue with the IRS regarding the underreporting of income, you can seek help from our Dual Licensed Tax Attorneys and CPAs.
Falsifying Records
Another form of tax evasion involves falsifying records. A common way that taxpayers falsify their records is by lying to or omitting information from their tax preparer. Usually, a tax preparer will send their client a questionnaire to complete. The answers to this questionnaire will supply the accountant with all the numbers needed to file their client’s tax return. Willfully misrepresenting information on these questionnaires is conduct that constitutes tax evasion.
Evasion of Payment
Fraud in the face of IRS collection efforts is also a type of tax evasion called evasion of payment. Transferring assets to third parties or keeping your funds in another person’s bank accounts, constantly moving banks deposits around, lying on collection information statements & hiding assets from IRS Revenue Officers are examples of activity that constitute evasion of payment.
Illegally Assigning Income
Additionally, people can evade their tax obligations by illegally assigning income to others. For example, you may deliberately assign income to a family member to illegally reduce the taxes you personally owe. While it is permissible to give monetary gifts, reassigning income for the purpose of avoiding your tax obligations can constitute income tax evasion especially if the relative pays taxes at a lower graduated tax bracket than you would have. If the IRS is investigating you or auditing you and you illegally assigned income, you can reach out to our law firm for help. Our Dual Licensed Tax Attorneys and CPAs can review your case and determine the appropriate next steps.
What Are the Defenses to Alleged Tax Evasion?
If you have been accused of tax evasion, or you fear you may be, our law firm can help build your defense or mitigate the risk entirely though an offshore or domestic voluntary disclosure. There are several potential defenses to charges of tax evasion. Our Dual Licensed Tax Attorneys and CPAs can help determine if one of the following defenses may be effectively utilized in your case:
Honest Mistake
A common defense to tax fraud involves alleged culprits arguing that they made an honest mistake. Only willful avoidance of tax obligations should warrant criminal tax penalties, but a taxpayer’s actions can easily be misinterpreted. If may be difficult to prove that your mistake that reduced your tax liability was not made intentionally, resulting in you being charged with a tax crime. Aid from our Tax Defense Attorneys, and our history of success, is highly valuable when gathering, analyzing, and presenting evidence to support such a defense.
Non-Taxable Source
In an audit or criminal tax investigation, all deposits to accounts controlled by a taxpayer are considered income unless the taxpayer can prove it is not. Thus, taxpayers occasionally attempt to defend against tax evasion charges by asserting that the funds at issue were from a non-taxable source. Our Dual Licensed Tax Attorneys and CPAs can help accused taxpayers identify whether this defense can be applied in their cases.
Living off Stored Cash
There is no law against hoarding and storing large amounts of cash in your home instead of a bank. However, the IRS tends to equate a cash hoard with income tax evasion. If the Internal Revenue Service (IRS) uses bank deposits, net worth methods, or expenditures as methods of proving tax fraud in your case, then you may be able to argue that you have been living off of stored cash.
If You Fear Being Charged with Tax Evasion, our dual licensed Tax Lawyers & CPAs Can Help
If you have encountered a tax issue related to your state or federal returns, seek assistance from our team of Dual Licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing by dialing (800) 681-1295.
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 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, Kovel CPAs 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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