What It Means to Commit Tax Evasion and the Consequences You Can Face
With tax season upon us, many of us find ourselves concerned and worried about committing tax evasion. When someone conceals income or information from tax authorities like the IRS, they have committed tax evasion. This felony uses illegal methods of concealing income or information from tax authorities. The average jail time for tax evasion is three to five years. It is a serious crime that can result in substantial monetary penalties, jail, and prison, depending on the level and kind of evasion. Common tax evasion tactics include:
- Under-reporting or omitting income
When an individual understates or omits their income and earnings, this would qualify as under-reporting. An example of this would be if an individual makes $50,000 a year, reports making $35,000, and does not pay taxes on the difference.
- Participating in sham transactions
A sham transaction is a transaction or series of transactions without economic substance because there is not a business purpose or expectation of profit other than tax benefits. This transaction serves no purpose and does not provide economic benefit.
- Keeping multiple sets of books and making false entries in records
To the IRS, keeping two sets of books is a major red flag. This is because it is a common tactic used to under-report income to the IRS. This will look like a discrepancy to the organization and cause them to question whether you have fraudulent intent. For example, a store owner could use one set of books to reflect the store’s sales and another set that fraudulently omitted some of their cash receipts.
- Claiming false or overstated deductions
If you overstate your deductions, you also understate your tax liability. To claim false deductions and dependents you are not entitled to means to commit tax evasion under federal law. Tax deductions are intended to help taxpayers when they qualify for the deduction, so it is a crime to claim this as a necessity when it is not.
- Hiding or transferring assets and income
This is a specific type of fraud that individuals can commit in a variety of ways, like simple concealment of funds in a bank account to improper allocations between taxpayers. For example, if a corporation makes distributions to a controlling shareholder’s children, it can be considered tax fraud.
- Claiming personal expenses as business expenses
If you deduct personal expenses as business expenses, the IRS may conduct an audit. One option is that they will simply ask you to remove the incorrect deductions and pay the balance. This is a slightly more forgiving area because the IRS is aware that when you mix business and personal expenses, they can sometimes become confused. Simply keeping a proper record of business expenses can help to defend your case in these types of situations.
Do You Get a Criminal Record for Tax Evasion?
If you are charged with tax evasion, it will be reported on your permanent record, and you are subject to criminal charges and substantial penalties. Therefore, if you have are under investigation for any kind of tax fraud, it is important to understand your rights and options. You do not want to find yourself facing this situation alone, and you have certain rights under the law that you need to be aware of. If you are being investigated for tax fraud, you will be notified of the investigation. When this happens, it will be important to contact an experienced IRS tax attorney. Peter Barrett has had success representing clients facing severe tax fraud or evasion charges and will produce the most favorable outcome for every client who finds themselves in this situation.
If you find yourself under investigation for tax fraud, you’ll want the help of a skilled attorney like Peter Barrett. Give us a call at (214) 307-8667 or contact us online to find out how we can help.