Tax crime is a serious offense that the agency saddled with the responsibility of auditing individuals’ and businesses’ earnings frowns upon. When found guilty of a tax crime, you can be prosecuted or sent to jail.
There are two major offenses associated with tax remittance ― tax evasion and tax fraud. Tax evasion is when a taxpayer intentionally misrepresents or omits data to avoid paying their full liability. While tax fraud is a broader term that refers to other unlawful activities of an individual or business to avoid paying any tax or reduce their total tax liability.
Some tax fraud activities include filing false tax returns, falsifying documents, and bribing tax officials.
Accusations of tax fraud can be serious matters with significant legal consequences. The punishment can be punishable by civil means—in the form of a fine, or criminal—in the form of a jail term, or sometimes both.
However, tax avoidance can be leveraged to significantly reduce your tax liability. Tax avoidance is legal, but tax evasion and fraud are not.
If you are accused of a tax crime, it is vital to take immediate action. The best way to take necessary actions is by first understanding your rights and the gravity of such an accusation.
Right to remain silent
You have the right to remain silent when accused of a tax crime. Consult with a tax attorney before making any statements to authorities to avoid self-incrimination.
Right to impartial investigation
When accused of tax fraud, the government is burdened with the responsibility of proving beyond a reasonable doubt that:
- The defendant indeed earned a substantial income that was not declared in their tax filing.
- The defendant made an affirmative attempt to evade or defeat an income tax.
- The defendant willfully attempted to evade and defeat the tax.
To establish this, evidence of a detailed investigation must be presented, and you also have the right to present evidence to prove the tax assessment is incorrect.
Right to a fair hearing
You are considered innocent until declared otherwise by a court of competent jurisdiction. You have the right to be treated fairly throughout the legal process.
Right to legal representation
Tax fraud is a serious offense. It is essential you get a tax attorney as soon as possible to protect your rights and guide you throughout the defense.
Depending on the complexity of the case, your lawyer might need to apply for bail, and in the event you cannot raise the bail amount, you can always use a bail bond service like Fianzas.
This can save you from jail pending your trial. The court typically sets bail to ensure defendants always appear on trial dates.
Right to appeal
Even when found guilty, you have the right to appeal a tax fraud case verdict up to the Supreme Court.
A typical example is the Cheek v. United States case. The defendant, Cheek, was prosecuted for not filing tax returns over a seven-year period. He, however, argued that since he was ignorant of the law, his actions were not “willful.”
After he was convicted by the trial court based on the fact that mistakes of law were no defense unless they were “objectively reasonable,” Cheek exercised his right of appeal up to the Supreme Court, where the court ruled that subjective ignorance of the law can be a defense to criminal tax fraud.
Legal consequences of tax fraud and tax evasion
The legal consequences of tax fraud and evasion vary based on the jurisdiction prosecuting the case.
According to the Internal Revenue Service (IRS), tax evasion is punishable by up to five years imprisonment and a $250,000 fine. The fine for corporations can be up to $500,000.
Tax fraud has fewer consequences. Failure to file a return could be punished by one year in prison and a $100,000 fine for individuals or a $200,000 fine for corporations.
Taxpayers convicted of tax fraud or evasion may lose certain privileges, such as the ability to obtain a passport or hold a public office.
It may also damage your reputation, including your career and the ability to obtain loans or credit.
What to do if accused of a tax crime
Do not make the mistake of ignoring a tax crime target letter, thinking the charges will go away. The more you delay to act, the more it becomes problematic for you.
If you are under investigation for tax fraud or tax evasion, it is important to take the following steps:
1. Thoroughly read the target letter
Read through the target letter received and note the accusations leveled against you and any requests.
Even though some requests might seem easy and harmless to fulfill, do not respond until you talk to a lawyer.
2. Statute of limitations
Check the statute of limitations for tax fraud or tax evasion in your area. Generally, in the United States, the statute of limitations for tax evasion is 6 years while there is none for tax fraud when prosecuted for a civil offense.
3. Contact a lawyer
Navigating the legal proceedings is best done with a tax attorney by your side. They can provide invaluable advice and, in some cases, negotiate a settlement or plea deal to mitigate potential penalties.
4. Do not destroy evidence
Collect all relevant financial records that could help your case, including bank statements, tax returns, receipts, and contracts.
Resist the urge to destroy any evidence, even if you think they might incriminate you. Instead, discuss with your lawyer how best to handle it.
5. Do not speak to anyone or share details of the case online
Some tax fraud cases may involve more than one defendant, which may include your business associates or other business entities.
Resist the temptation of talking to them, as what you say might be used against you. Likewise, never post about the case online, except maybe as a business, you are doing it in reaction to a press statement the government released to the media.
