Awards & Recognition
Tax evasion, also known as criminal tax fraud, is the illegal act of a taxpayer attempting to reduce their tax obligation by purposefully reporting false information. Federal law categorizes tax fraud into various crimes based on the nature of the taxpayer’s fraudulent actions, the most severe being tax evasion. The penalties for tax fraud depend significantly on whether the government can prove that the taxpayer’s actions were deliberate. In other words, prosecutors can charge intentionally noncompliant taxpayers with more severe tax crimes, such as tax evasion, if they can demonstrate beyond a reasonable doubt that the defendant knew they were committing or helping someone else commit a tax fraud offense. Convictions for tax evasion often result in heavy fines and prison time.
In San Francisco, when the IRS accuses you of tax fraud, it would be wise to seek the help of an experienced Tax Fraud Defense Attorney to defend yourself. If the government has not yet approached you, it is often advisable to employ a strategy known as voluntary disclosure. If a San Francisco taxpayer has willfully committed tax evasion, such as not filing foreign information returns or intentionally evading U.S. income tax on offshore income, the route to absolution is possible through a domestic or offshore voluntary disclosure. By self-reporting these discrepancies before the IRS launches an audit or criminal tax investigation, there’s a nearly guaranteed opportunity to return to tax compliance without criminal tax prosecution. This approach not only averts potential criminal tax prosecution but also often results in reduced civil penalties.
However, voluntary disclosure must be approached correctly, with guidance from an experienced dual-licensed San Francisco Tax Evasion Attorney & CPA, to ensure the IRS accepts your account. A Tax Attorney can negotiate on your behalf to arrange an installment agreement, allowing you to pay what you owe over a reasonable timeframe if you cannot pay the total amount immediately.
The IRS Imposes Severe Tax Penalties for Tax Evasion
Though tax crimes are nonviolent, offenders are subject to some of the nation’s harshest criminal tax penalties. Many tax offenses are felonies prosecuted in federal court, typically handing down longer sentences and more significant fines than in California state courts. For instance, the federal statute for tax evasion establishes a maximum sentence of five years in federal prison, alongside fines of up to $100,000 for individuals. Additionally, these criminal fines can be compounded by IRS restitution orders, potentially amounting to thousands or even millions of dollars, depending on the offense’s nature and severity. A tax-related conviction can also result in a permanent felony record, making it challenging to find employment, obtain loans, rent properties, purchase or own a firearm, travel abroad, or access other life opportunities.
If an individual is caught attempting tax evasion during a civil audit or through a criminal tax investigation, they will, at best, face civil consequences and, at worst, criminal consequences. Civil consequences can include a whopping 75% fraud penalty on the additional income tax assessed, additional interest on the penalty, and additional taxes due back to the original filing date of the affected return. While criminal tax penalties generally carry a 5 or 6 -year statute of limitations, civil penalties can accrue indefinitely where fraud is asserted.
Suppose the IRS asserts that an individual under-reports their income by 25% or more. In that case, the IRS can examine six years of tax returns instead of the standard three years of returns open to examination under the regular statute of limitations. Where the IRS can prove a willful intent to evade paying taxes existed, they can go back as far as they wish, without limitation, conceivably back to the beginning of a taxpayer’s adult life.
Criminal tax charges may be levied against an individual within six years of the date that the tax return was, or should have been, filed. Evasion carries with it a potential five-year prison sentence for each count. Each tax year where income tax evasion is proven is a single count. Ordinarily, the U.S. Attorney’s office will not prosecute a tax crime unless a three-year pattern of evasion can be established. Thus, at a minimum, income tax evaders stare at a potential 15-year jail sentence if convicted. This sentence can often be pleaded down to one count if the government is spared the burden of taking the issue to trial. Additionally, non-filers can be fined up to $25,000 per year and face the potential of serving one year in federal prison for each year of non-filing.
Comprehensive Tax Evasion Defense by the Tax Law Offices of David W. Klasing in San Francisco
At the Tax Law Office of David W. Klasing, our dual-licensed San Francisco Tax Evasion Attorneys and CPAs represent defendants charged with misdemeanor and felony tax crimes, including CPAs and tax preparers. Our tax evasion attorneys can protect your rights, prepare you for court hearings, manage your legal documentation, and fight to reduce your penalties if charged with tax evasion, offshore tax evasion, willful failure to file a tax return, payroll tax fraud, making false statements, or other tax crimes. When facing high-risk tax audits from agencies like the IRS, CDTFA, EDD, or FTB, certain red flags, such as destroyed records, underreported income, badges of fraud, or unfiled returns, can intensify the examination, potentially leading to high-risk eggshell and reverse eggshell tax audits.
Residents and businesses must be aware of potential criminal tax violations and the signs indicating they might be under a rigorous investigation by the IRS’s Criminal Investigation Division (CID), especially when there’s a history of blatantly cheating on federal tax returns. International tax evasion schemes utilizing remote tax havens are also easily detected by the IRS, which collaborates with tax and law enforcement agencies globally and across the United States. Understanding the stages of an audit, criminal tax investigation, tax crime indictment, and prosecution, as well as recognizing red flags that may interest the IRS or California Franchise Tax Board (FTB), California Department of Tax and Fee Administration (CDTFA), and the Employment Development Department (EDD), is crucial.
If you or your small business has been selected for a tax audit in San Francisco, and you are concerned about a criminal tax investigation resulting from or occurring alongside the audit, engaging our dual-licensed San Francisco Criminal Tax Defense Attorneys and San Francisco IRS Tax Fraud Defense Attorneys & CPAs services at the onset of a high-risk audit/criminal tax investigation will maximize the possibility of a favorable outcome without escalating to criminal tax charges. We have never had a federal or California audit client criminally prosecuted for tax crimes.
How Can I Defend Against a Tax Evasion Charge in San Francisco?
There are several rather technical defenses against a tax evasion charge. In a corporate context, one common issue is whether a distribution received by a taxpayer is taxable income or merely a return on the shareholder’s investment. To successfully prosecute tax evasion, the government must prove three factors beyond a reasonable doubt: attempt, willfulness, and that the tax was “due and owing” (i.e., the taxpayer had a tax liability). It is this last element that we focus on.
Taxpayers and their attorneys can defend against all three of these elements. However, creative defenses often involve showing that the taxpayer did not have a tax liability. The IRS’s Tax Crimes Handbook anticipates that a taxpayer will launch a defense against the “tax due and owing” element.
For instance, in a corporate context, a taxpayer’s counsel might argue that a distribution is not taxable income because it is simply a return of a portion of the taxpayer’s capital investment in the corporation. To argue the contrary, the IRS must prove that the corporation possessed accumulated earnings and profits (E&P) during the distribution. A shareholder receives taxable income only when the C corporation distributes earnings and profits. Therefore, as a technical defense against the IRS’s charge that a shareho
lder/taxpayer committed tax evasion, a taxpayer’s counsel could attempt to prove that the C corporation lacked accumulated earnings and profits at the time of the distribution.
Can California State Tax Agencies Also Discover Tax Evasion?
If a California FTB, CDTFA, or EDD employee reviewing a return notices something suspicious, the matter might be referred for an audit or criminal tax investigation. These agencies extensively train their agents to look for “badges of fraud,” indicators on the return or the client’s records suggesting the taxpayer is trying to defraud a California tax agency. Some badges of fraud include obvious understatements of income, substantial business deductions for personal expenses, attempts to conceal foreign or offshore bank accounts, dealing in cash, using Zapper software, making flashy and expensive purchases while claiming a meager income, and failure to cooperate with FTB, CDTFA, or EDD agents.
Tax Evasion Defense Lawyers in San Francisco, California
At the Tax Law Office of David W. Klasing in San Francisco, we are dual-licensed Tax Evasion Defense Attorneys, CPAs, and EAs with nearly three decades of combined experience handling felony cases. With an award-winning team that features former public auditors, we have an insider perspective on how the IRS builds cases, making our firm a formidable ally in the fight against tax evasion charges.
We can work to enter you into a voluntary disclosure program before the IRS and California tax agencies begin auditing you or open a criminal tax investigation. If it is too late for this, we will leave no stone unturned, fighting to mitigate the damage and limit your criminal tax exposure as much as possible. We will work to resolve with the most significant possible reduction of civil assessments of additional tax penalties and interest and other unwanted criminal tax consequences that threaten your future. If you do not wish to take a deal that would result in a pre-indictment disposition of your case, we are always ready to fight for you at trial.
Contact us online today to schedule a reduced-rate tax consultation or call the Tax Law Office of David W. Klasing at (415) 287-6568 or (805) 617-4566. With tax offices conveniently located in San Francisco, we provide efficient and responsive service to businesses throughout the county and beyond. Note that consultations out of our San Francisco office are by appointment only.
Our San Francisco office is conveniently located at:
1390 Market St #200,
San Francisco, CA 94102
(415) 287-6568
