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Is Tax Fraud a Felony?

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    The IRS has several means for pursuing tax evaders. Some of those means come in the form of felony charges, and others are of a lower, less substantial class, misdemeanors. Whether your noncompliance with the tax code is a federal felony will have serious ramifications on your post prosecution ability to earn a living, credit rating, net worth, and on your very liberty, you are right to have questions.

    In short, whether tax fraud is a felony depends on the willfulness of the offender. If a person knowingly and intentionally takes steps to evade tax law or the IRS, they may be charged with tax fraud crimes that are classified as federal felonies. Where there is no actual or implied evidence of knowledge or intent on the part of the tax evader, the IRS will almost always pursue civil penalties that are generally not felonies.

    Determining whether your circumstances may fall into one category, or another is a difficult undertaking for a layman, and will often require the assistance of knowledgeable dual licensed California Criminal Tax Defense Attorney & CPA. The experienced Tax Attorneys and CPAs at The Tax Law Offices of David W. Klasing can analyze the facts and circumstances of your case and give you the advice you need to protect your financial future, net worth, and liberty. Call us at (800) 681-1295 to set up your consultation or schedule online today.

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    What is the Difference Between a Felony and a Misdemeanor?

    With Tax Crimes there are two general levels of offenses: felonies & misdemeanors. Misdemeanors are serious but don’t carry the same amount of jail time as a felony. That said, federal tax crime misdemeanors do rise to the level of prison time (one year in jail per count), substantial fines, and restitution.

    A felony is the most serious category of federal violation of which a person may be convicted. Federal felonies are subdivided into five classes, referred to as Class A through E felonies. Class A felonies may carry lifetime prison sentences and/or a fine of up to $250,000.

    First-degree criminal tax fraud is a Class B felony. Fines depend on the amount of tax loss to the government with roughly $30,000 of tax loss resulting in up to one year in jail. The average sentence for tax crimes is around 2 years but can be much higher depending on the amount of the tax loss involved, the number of counts involved and whether or not the sentences on each count run concurrently or consecutively. 

    Criminal Tax Fraud vs. Tax Negligence

    Not every instance where you have misled the federal government about your tax issues is a felony. The key element in determining whether a particular instance of tax evasion is a felony is determining the willfulness of the defendant.

    Criminal tax fraud happens when a taxpayer willfully ignores or acts in opposition to tax code and defrauds the IRS. “Willfully” in these terms means that the person must have actual or implied knowledge of the law or a tax law requirement that they intentionally violated through deceptive measures. Proving knowledge can prove to be difficult, which is why IRS agents will often lean towards assessing civil fraud or negligence penalties.

    Civil negligence penalties arise where a taxpayer understates their tax liability or misleads the IRS by accident or through neglect. These civil penalties do not amount to a felony or a misdemeanor, but they can be financially costly. The consequences of civil negligence (20%) or civil fraud penalties (75%) of the taxes that were improperly underreported to the government, plus any additional penalties that the government sees fit to add plus interest back to the original filing date of the return at issue.

    Activities that will suggest to examiners that there may have been willfulness in a tax evasion case might include any of the following evidence:

    • Falsification of documents
    • Multiple financial recording systems or ledgers
    • False identifications, such as Social Security numbers
    • Overstatement of deduction amounts
    • Concealment of income
    • Inappropriate classification of personal costs as business expenses
    • Underreporting income

    Types of Federal Income Tax Fraud Violations

    If you are found to have willfully attempted to evade your tax liabilities or lie to the IRS, you might be facing any number of federal felonies with serious repercussions. Below are just a few of the charges that could be levied.

    Attempting to Evade Paying Taxes (26 USC § 7201)

    A person found guilty under Section 7201 faces a prison sentence of up to five years, accompanied by a fine of up to $250,000 for individuals and $500,000 for corporations. The prosecution may also seek to impose additional monetary penalties to cover the cost of the government’s legal expenses where appropriate.

    Willfully Making Fraudulent Statements (26 USC § 7206(1))

    This felony, which can be charged simultaneously with Section 7201, carries the same monetary penalties but with additional prison time of three years.

    Willfully Failing to File Return or Pay Taxes on Time (26 USC § 7203)

    Unlike the previous two, this is a misdemeanor rather than a felony. The charge carries a prison sentence of up to one year and/or a fine of up to $100,000 for individuals and $200,000 for corporations.

    Need a Tax Fraud Defense Lawyer? Call Us Today

    If you might be in danger of federal tax evasion charges, you don’t have much time to waste. The Dual Licensed Tax Fraud Defense Attorneys and CPAs at The Tax Law Offices of David W. Klasing can present you with the facts and help prepare your best defense. Call to make an appointment at (800) 681-1295 or schedule online today.

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