When Does the IRS File Criminal Charges?
If you have been the subject of an IRS investigation or the IRS has been in touch with you about a potential audit, tax evasion or tax fraud, you should be aware of some basic facts regarding what the IRS can (and cannot) do in terms of filing criminal charges against you. Keep in mind that making an honest mistake on your taxes is not illegal and you will not mistakenly go to jail if that is what happened. The key here is to be knowledgeable and proactive and know when to get help.
First off, remind yourself that IRS agents are not cops. They’re not deputized under any police banner and can’t come and arrest you. Employees of the IRS are in the same boat that anyone else who works for a regular government agency is. Would you ever scare yourself by saying that mail carriers or the Surgeon General were coming to take you away? Of course not! Take a deep breath and remember that making the right decisions with a cool head can help you walk away from a very difficult situation with a cleaner record than you had before.
In fact, there’s a chance that you might not even be in as serious a situation as you think you are.
Statistics for Being Prosecuted by the IRS
When the IRS initiates contact with you over a serious matter (audit, tax evasion, tax fraud), you should definitely take note and be prepared to respond. But do not panic. It is actually very rare for an individual to be investigated for tax fraud (2%) and of those who are, only 20% are actually ever prosecuted (criminally or via a civil suit). Despite the low odds, you want to be aware of the process and the steps to take to avoid criminal charges.
However, you do also want to keep these odds in mind. Chances are that you’re not going to actually even have to spend a single day in court if you take steps now to rectify the situation. It’s a safe bet that a majority of taxpayers who actually do get prosecuted were actively involved in stashing away money and trying to hide it from the IRS to avoid their taxes.
Important Definitions: Tax Fraud vs Tax Evasion
It is definitely a crime to deliberately cheat on your tax return. The IRS does not take this lightly. Individuals who cheat on their taxes most often misrepresent their annual income and indicate that they received less in a year than they actually did. Tax fraud is defined as cheating on your tax return to avoid paying the entire amount due. In order to be prosecuted for tax fraud, the IRS has to prove that you did this intentionally. As you might imagine, this is not an easy task so in any given year about .0020 percent of all taxpayers are convicted of tax fraud. In the rare cases where tax fraud is proven, it is punishable with jail time and large fines. Since the burden of proof always rests on the prosecution, the IRS would prefer to avoid this anyway since they have to fight an uphill battle against whoever they’ve brought suit against.
This is technically a subset of tax fraud and also carries with it similar penalties as tax fraud. Tax evasion isn’t a mistake so much as something someone actively does. If you were evading your taxes, then you’d actively know it. It generally involves a taxpayer deliberately going out of their way to misrepresent the true state of their affairs to the IRS in order to reduce how much they have to pay. This means purposefully claiming less income than you actually made or drastically overstating deductions to reduce your burden. Some people make huge questionable contributions to charities that they sit on the board of and then deduct it, which is a form of tax evasion.
While you might not think of it as tax evasion, making large sums of money in informal or unlawful ventures is a form of it as well. Obviously you can’t pay taxes on money you didn’t legally acquire, so the IRS considers this tax evasion. You may have heard that at one point some high-profile criminals were sent to jail on charges of tax evasion. That’s due to the fact that IRS agents were able to testify under this provision. In some cases, they were the only ones willing to take the stand!
Mistakes Are Just Mistakes
Being negligent or avoiding paying your taxes is not illegal. When you do this accidentally, you are not deliberately concealing income or deliberately lying on your tax return. These are generally honest mistakes and the IRS is trained to understand the difference between tax fraud, tax evasion and negligence, so do not spend too much time worrying about being criminally charged for a mistake.
What You Can Do If You’re Still Concerned
If you are concerned that the IRS may be ready to file criminal charges against you for tax fraud or tax evasion, the best advice is to get help. Consider hiring a tax attorney and/or a tax firm that can help you build a strong case for yourself. The first step in this process is always an audit. It is wise to get help at that point in the process so that, in the event the IRS continues to pursue a case against you, you have representation and a team who can help defend you.
Success Tax Relief is a full service tax firm that specializes in helping clients all over the country prepare for audits. We can also help you decide the best way to proceed if you are concerned that the IRS is planning to file criminal charges. Contact us today and speak with one of our professionals to see how you should move forward.