The Internal Revenue Service (IRS) generally looks for more than a failure to file tax returns when building a criminal tax evasion case. In most cases, these allegations require the prosecution to establish intentional steps taken to avoid one’s tax obligations. Understanding how the government evaluates intent is critical, particularly when assessing whether conduct crosses the line into criminal tax fraud.
Some examples of actions the IRS may pursue include:
- Keeping two sets of books for accounting purposes
- Making alterations or false entries to financial records
- Concealing assets or income
- Making financial transactions in a way deliberately intended to avoid reporting
Furthermore, the Supreme Court of the United States has stated that any act where the “likely effect of which would be to mislead or to conceal” information from the IRS constitutes an affirmative willful attempt to evade one’s tax obligations. These principles have been applied in some of the most aggressive enforcement actions, including major tax evasion prosecutions pursued by federal authorities.
Does that mean a mere failure to file will not lead to criminal charges?
It is important to clarify that an intentional failure to file taxes is illegal and the IRS will still pursue charges. It is just more likely the charges will result in a misdemeanor as opposed to a felony conviction, which can lead to a different and more severe set of penalties. Although both can lead to prison time, penalties increase significantly when the prosecution can establish that the accused took affirmative actions to evade taxes.
This distinction has been central in numerous criminal cases, including recent tax fraud prosecutions, where concealment and deception elevated the charges.
What if a taxpayer is concerned about compliance with applicable tax laws?
In general, the IRS is focused on compliance. As a result, there are many programs designed to help ensure taxpayers can come into compliance with their tax obligations. Acting early can be critical, as enforcement trends show increased reliance on audits, data analytics, and third-party reporting. In some cases, investigations begin after tips or disclosures, making it important to understand how whistleblowers can trigger tax investigations.
The attorneys at Goldburd McCone are familiar with available compliance and defense options. They can review your situation and provide guidance on the best way to address potential issues while mitigating the risk of criminal charges and long-term consequences.