Awards & Recognition
In 2016, the Internal Revenue Service (IRS) announced that the federal government incurred an average annual tax loss of over $450 billion. In an effort to recoup lost funds and curb criminal tax evasion and related activity, the IRS, acting alongside state and federal agencies like the FBI, the Justice Department, and the California Franchise Tax Board (FTB), works aggressively to enforce laws by targeting tax evasion. Through tax audits, egg shell audits and criminal tax investigations, the IRS uncovers thousands of instances of tax evasion each year – and in a majority of these cases, the taxpayer receives civil fraud penalties, is criminally prosecuted, or both. Tax evasion cases are especially likely to arise during the early and middle months of the year, when the IRS receives and processes the bulk of the nation’s annual income tax returns.
The Santa Barbara tax fraud lawyers at the Law Office of David W. Klasing have been representing clients in misdemeanor and felony tax evasion cases for over 20 years, and are thoroughly prepared to devote our time, our knowledge, and our extensive network of resources to handling every aspect of your case, from explaining and upholding your rights, to acting on your behalf in all dealings with the IRS or California taxing authorities (Franchise Tax Board “FTB” California Department of Tax and Fee Administration “CDTFA”, formerly the BOE, or California Employment Development Department “EDD”) or federal or California law enforcement, to fighting tirelessly for the greatest possible reduction of the penalties that you or your loved one is facing. If you or a family member has been charged with tax evasion, arrested for tax evasion, or is being audited or criminally investigated for tax evasion, contact our law offices right away by calling (805) 200-4053 or (800) 681-1295 or contacting us online for a reduced-rate initial consultation.
What is Considered Tax Evasion by the IRS?
Tax evasion can take many forms. However, at the most basic level, tax evasion can be described as any “willful” (intentional) action, whether undertaken by an individual or a business, for the purpose of paying less in taxes than is actually and rightfully owed to state or federal tax authorities.
To make a federal case for a charge of attempt to evade tax, the government must prove each of the following elements of the crime beyond a reasonable doubt:
- a tax deficiency exists (a return was filed with an understated tax liability or tax was owed and no return was filed)
- the defendant engaged in an affirmative act that constituted an attempt to evade or defeat the tax
- the defendant’s affirmative act was willful
This can be accomplished through a variety of means, with some of the more common examples including the following:
- Concealing domestic or foreign bank accounts and the taxable income associated with them
- Improperly claiming deductions or credits
- Intentionally failing to file a return
- Padding (overstating) business expenses
- Submitting false information (e.g. incorrect numbers, stolen identities)
- Intentionally underreporting income
Though tax evasion often involves income taxes, other types of tax liabilities can also give rise to civil penalties and/or criminal charges if deliberately skirted by the taxpayer. To use a common example, business owners are often charged with employment tax fraud or payroll tax fraud – a crime technically known as “willful failure to collect or pay over tax” under 26 U.S. Code § 7202 – after deliberately failing to withhold and remit trust fund taxes to the IRS (i.e. Medicare and Social Security taxes). This may be accomplished by paying employees “under the table” (in cash), filing falsified payroll tax returns, or failing to file such returns.
Civil and Criminal Consequences of Tax Evasion
There can be dire consequences for committing tax evasion, both on civil and criminal fronts. Civil penalties – which can arise from a host of violations, such as failure by individuals or corporations to pay estimated income tax, failure to file correct information returns, and failure to make deposit of taxes – may include the following:
- A delinquency penalty (failure-to-file penalty) of up to 5% of the unpaid amount, per month the unpaid tax is still due
- A failure-to-timely-deposit penalty ranging anywhere from 2% to 15%, depending on the circumstances
- A fraud penalty of up to 75% of the underpayment
- An accuracy-related penalty of up to 20% of the underpayment
Unsurprisingly, the criminal penalties for tax evasion can be even more debilitating – not only in terms of financial damage, but further, the emotional and professional toll of being incarcerated and separated from one’s family, receiving a criminal record, and potentially losing one’s job or business. The criminal penalties for evading tax, which are set forth under 26 U.S. Code § 7201 (attempt to evade or defeat tax), may include the following, depending on the case:
- A maximum fine of $100,000 (increased to $500,000 for corporations)
- A maximum sentence of up to five years in prison
- Court orders to pay restitution to the IRS, which can greatly outweigh the maximum $100,000 fine
- Up to three years of supervised release upon release from prison
Voluntary Disclosures Can Reduce Tax Evasion Penalties
There are several strategies for mitigating the penalties that can be imposed for tax evasion, such as making a domestic or offshore voluntary disclosure. However, like any strategy designed for the purpose of damage control, voluntary disclosures must be thoughtfully planned and carefully executed for maximum benefit. This is because the efficacy of a voluntary disclosure will depend heavily on several factors, including:
- How cooperative the taxpayer is with the IRS
- The accuracy and completeness of the information contained therein
- When the disclosure is received by the IRS (for example, whether a criminal investigation has been initiated or not)
- Whether the taxpayer acts in good faith
Taxpayers must also consider the fact that there are several different types of voluntary disclosures, including “loud” disclosures, in which the taxpayer formally announces his or her noncompliance (and intent to correct it), and “quiet” disclosures, in which the taxpayer essentially amends or files the problematic return with appropriate payment and hopes the issue will not invite a deeper investigation. While both approaches have proponents within the tax community, our tax evasion lawyers in Santa Barbara typically recommend loud disclosures where feasible. However, each situation must be evaluated on a case-by-case basis.
Santa Barbara, CA Tax Evasion Defense Attorneys for Individuals and Corporations
If you, your husband or wife, or your business has been accused of engaging in tax evasion, especially if this took place in open divorce court, an informant or a whistleblower is involved, it is absolutely imperative that you consult with an experienced tax evasion attorney for legal help immediately. Unlike a Certified Public Accountant (CPA), who is primarily equipped to handle financial tax planning and compliance, an attorney or dually certified attorney-CPA is well-versed not only in state and federal tax laws, but also in court procedures, legal precedents, and criminal tax defense including the use of protections against unreasonable searches and self-incrimination available under federal constitutional law. This enables a stronger, more rigorous defense, improving the odds of a case dismissal, significant civil and criminal penalty reductions, or other favorable outcomes. Additionally, a tax lawyer provides the advantage of the attorney-client privilege, which can be instrumental in defending and building a criminal tax defense or when negotiating with the IRS. Don’t let the tax professional that you turn to for help be forced to turn witness against you. Only discuss criminal tax issues with a criminal tax defense attorney. Also, be aware that you have a conflict of interest with the original preparer of the return at issue. Throwing you under the bus will protect their reputation while putting you at extreme risk of criminal tax prosecution.
The Santa Barbara tax fraud attorneys at the Tax Law Office of David W. Klasing have experience handling most types of potential misdemeanor and felony tax evasion charges, including federal income tax evasion, state income tax evasion, employment tax evasion, sales tax evasion, corporate tax evasion, cryptocurrency and Bitcoin tax evasion, offshore tax evasion, and divorce tax evasion. We can also provide assistance with related tax matters, such as unfiled or delinquent tax returns, undisclosed foreign accounts and related foreign taxable income, and tax preparer liability. For a reduced-rate initial consultation, call our tax offices immediately at (805) 200-4053 or (800) 681-1295, or contact the Tax Law Office of David W. Klasing online.
Santa Barbara Tax Law Offices
For any of your tax planning compliance and controversy needs in Santa Barbara, contact the Lawyers at The Tax Law Offices of David W. Klasing today. Our experienced Tax Lawyers offer a reduced-rate consultation on new cases or engagements. Call 805-200-4053 or 800-681-1295 or contact us online today to schedule a reduce rate initial consultation at our Santa Barbara tax law offices, or at one of our other convenient locations across Southern California.
