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Tax Fraud: Conviction & Its Consequences — Civil and Criminal Penalties

Table of Contents

    Date: 04/22/12

    One of the first question a client, who is under IRS audit or who has cheated on his taxes, asks is what the consequences will be if he or she is caught. It’s an important and good question. But, as this blog post shows, it’s difficult to give firm answers in this area. Nevertheless, this post provides an overview of the penalties–both criminal penalties (Part 1) and civil penalties (Part 2).

    The courts abide by sentencing “guidelines” which use a points system or “levels.” The following is the government’s guidelines to determine how long someone convicted for tax fraud may spend in jail.

    The “points” system is rather complex to explain, save that it is very easy to acquire “points.” One of the goals of your defense attorney is to minimize the number of points you acquire. If you find yourself in a situation of being under audit by the IRS or you have committed tax fraud in the past, we can help.

    There are other, collateral consequences of being convicted of a tax crime. In the first place, aside from being forever labeled as a convicted felon for tax fraud, you may suffer a number of civil disabilities, like the loss of the right to vote or hold public office. Further, you may find it difficult to obtain many jobs, keep any professional licenses you may have (or want to acquire); it may preclude you from buying certain forms of insurance, and even from receiving pension benefits. These collateral consequences will vary according to the State where you reside.

    [2] The Top Six Criminal Penalties.

    There are too many criminal tax penalties to list here, but the following five are among the most common:

    Tax Evasion: The willful attempt in any manner to evade or defeat tax or the payment of such tax. This is punishable by a fine of up to $100,000 in the case of individuals (and up to $500,000 in the case of corporations) or imprisonment up to five years, or both, plus the costs of prosecution. It is also described as a felony per IRC § 7201.

    Fail to Pay Tax, or File a Return: The willful failure to pay estimated tax, file a tax return, or supply information. Section 7203 calls this a misdemeanor, and it is punishable by a fine of up to $25,000 ($100,000 in the case of corporations), or imprisoned up to one year, or both, plus the costs of prosecution for each occurrence. For example, a non-filer that has not filed a return in 10 years could theoretically (but not commonly) serve a 10 year jail sentence.

    Signing A False Return: The willful subscribing (signing) of a return made under penalties of perjury, where the signor does not believe the information is true and correct as to a material matter. IRC §7206(1) describes this as a felony and is punishable by a fine up to $100,000 ($500,000 in the case of corporations) or imprisoned not more than three years or both, plus the costs of prosecution.

    Employment tax fraud: Employment tax offenses, which are described in IRC § 7204 (fraudulent statement or failure to make statements to employees), IRC § 7205 (fraudulent withholding exemption certificate or failure to supply information), and IRC § 7215 (offenses with respect to collected taxes).

    Tax Obstruction: One’s attempt to interfere with the administration of the internal revenue laws by “corruptly or by force or threats of force . . . obstructs or impedes or endeavors to obstruct or impede, the due administration of the [tax law],” which is described in IRC § 7212(a), is a felony. It is punishable by a fine up to $5,000, or imprisoned up to 3 years, or both.

    [3] Civil Penalties.

    Not only are there criminal penalties; there are also civil penalties for tax fraud. The civil penalties are called “Additions to the Tax, and Additional Amounts, and Assessable Penalties.” These penalties can be found in Chapter 68 of the IRC. These penalties include the following:

    delinquency penalties (IRC §6651)
    failure by individuals to pay estimated income tax (IRC §6654)
    failure by corporations to pay estimated income tax (IRC §6655)
    failure to make deposit of taxes (IRC §6656)
    certain accuracy-related penalties (IRC §6662)
    failure to pay over collected taxes and to file information returns (IRC §§ 6671 thru 6716)
    failure to file correct information returns (IRC §6721)
    failure to furnish correct payee statements (IRC §6722)
    failure to comply with other information reporting requirements, and a penalty waiver standard, which has its own definitions and special rules (IRC §6724).

    If you think you’ve committed any of the above offenses and the IRS is after you, we can help; and if the IRS hasn’t yet discovered your offense, you’re best option is to come clean before the IRS discovers it if you are not presently under audit. Note: If you have committed one of the 5 offenses above and presently find your self under audit, seek qualified legal tax counsel immediately.

    Each case is unique and it’s impossible to list all possible outcomes and options in a cookie-cutter fashion, but after hearing the specifics of your case, we can inform you of your legal options, and provide you with rigorous defense as we do with all our clients.

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