When it comes to filing taxes, the line between an honest mistake and criminal conduct can sometimes feel unclear. However, the IRS and federal courts draw a firm distinction between negligence and intentional wrongdoing. While bothtax fraud and tax evasion involve deliberate attempts to avoid paying taxes, they differ in how they're carried out and how they're prosecuted. Jonathan W. McConnell, our founding criminal defense attorney in Wichita, Kansas, at the McConnell Law Firm, is detailing the key differences so you can stay compliant with federal tax law and avoid potential penalties.
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What Is Tax Fraud?
At its core, fraud involves deliberately misrepresenting or concealing material facts in a way that causes harm to another party who reasonably relies on that information. In the context of taxes, fraud occurs when a taxpayer willfully takes steps to avoid paying taxes that are legally owed. This is not the result of a simple mistake or oversight; it is an intentional act of deception carried out to evade tax liability. According to the Internal Revenue Service (IRS), two key elements must be present to establish tax fraud:
— A tax that is due and owing; and
— A clear intent to defraud the government.
Let's See Some Examples!Fraudulent intent typically involves actions such as underreporting income, inflating deductions, or hiding assets, all with the aim of reducing a tax obligation that the taxpayer knows.
Penalties for Tax Fraud
Tax fraud can lead to both civil and criminal penalties, depending on the nature and severity of the offense. Under 26 U.S. C. § 7206, if any portion of a tax underpayment is due to fraud, the IRS may impose a civil fraud penalty equal to 75 percent of the portion of the underpayment that is attributable to fraud. In more serious cases, tax fraud may also be prosecuted criminally, carrying penalties of:
— Up to 5 years in federal prison
— A fine of up to $100,000 for individuals
— A fine of up to $500,000 for corporations
— Reimbursement of prosecution costs, including expenses incurred by federal investigators and prosecutors
What Is Tax Evasion?
Although closely related to tax fraud, tax evasion involves distinct conduct. Tax evasion occurs when an individual willfully underpays taxes or deliberately avoids paying a known tax liability. While it is perfectly legal to reduce taxable income through legitimate deductions, the use of deceit or concealment to avoid paying taxes becomes a criminal offense. It's important to note that failure to file a tax return (even if done intentionally) does not, by itself, constitute tax evasion. Tax evasion requires an affirmative act that demonstrates a taxpayer's intentional violation of a known legal obligation.
Let's See Some Examples!Tax evasion can take many different forms. Common examples include failing to report cash income, transferring money to offshore accounts to hide assets, or neglecting to disclose cryptocurrency holdings, with the intent to mislead the IRS and avoid paying taxes that are legally owed.
Penalties for Tax Evasion
Under 26 U.S.C. § 7201, tax evasion is a felony offense with serious legal consequences. A conviction can result in both criminal and financial penalties, including:
— Up to 5 years in federal prison
— A fine of up to $100,000 for individuals
— A fine of up to $500,000 for corporations
— Reimbursement of prosecution costs, including expenses incurred by federal investigators and prosecutors
*In addition to these statutory penalties, sentencing will also take into account the amount of tax evaded, the defendant's level of involvement, any obstruction of justice or false statements, and the defendant's prior criminal history. Because of these variables, sentencing can vary widely from case to case.
Have You Been Accused?
Have you been charged with tax fraud or tax evasion? We encourage you to contact the McConnell Law Firm as soon as possible. While every case is different, and no conclusions should be drawn without first consulting an experienced criminal defense attorney in Wichita about the specifics of your case, it is always in your best interest to have a skilled attorney by your side from the beginning.
Request a Free Consultation
Do you or a loved one need the assistance of a criminal defense attorney in Wichita? We encourage you to contact the McConnell Law Firm at (316) 243-5903 for a free consultation.
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