What Should I Do if I am Being Investigated for Federal Tax Evasion? (26 U.S.C. § 7201)

Many people confuse “tax avoidance” with “tax evasion.” Tax avoidance means legitimately reducing your personal or business tax liability by structuring your financial transactions to reap maximum legal tax benefits. Tax avoidance is lawful and it is encouraged by the Internal Revenue Service.

However, tax evasion is a deliberate attempt to escape a lawfully imposed tax, usually by some form of deceit or fraud. Most people who commit tax fraud either fail to disclose all of their reportable earned income, overestimate deductions or hide money and its interest in offshore accounts.

Additionally, people involved in criminal enterprises often engage in tax evasion because reporting their true personal incomes would serve as an admission of guilt and could result in additional criminal charges. People who attempt to report these earnings as coming from a legitimate source can also face charges of money laundering.

Tax evasion can be prosecuted by the U.S. Attorney General’s Office as a federal crime.

Our attorneys at Wallin & Klarich want you to be aware that tax evasion is a form of tax fraud that can lead to harsh consequences. We are available to help you avoid the serious ramifications of a tax evasion conviction.

What is Federal Tax Evasion? (26 U.S.C. Section 7201)

Under the Internal Revenue Service Code, it is a crime to willfully attempt in any manner to evade or defeat any tax lawfully imposed. Tax evasion is a specific intent to reduce your tax liability by deceit, disguise or concealment.

If you are convicted of this federal offense, you can be fined up to $100,000 ($500,000 in the case of a corporation), sentenced to serve up to five years in prison, or both.

You will also be ordered to pay any outstanding taxes for which you are lawfully accountable, and typically assessed penalties and interest on any tax burden you still owe.

Examples of Tax Evasion

According to the IRS, some of the most common forms of criminal tax fraud include:

• Failure to report lawfully earned income: Under-reporting income is the most common form of tax evasion by individuals, but is also practiced by businesses. Individuals and companies receiving legitimate cash earnings may be tempted to fail to disclose these payments when filing a return;
• False claims for deductions or depreciation: For example:
  • Claiming a personal expense as a business expense;
  • Overstating a travel expense; and
  • Taking a large deduction for a charitable contribution without substantiation.
• Failing to report income in an offshore account: Attempting to conceal income from the government by moving it to a foreign bank;
• Fraudulent tax shelter and trust schemes;
• Engaging in a “sham transaction:” For example, a corporation makes dividend payments to stockholders but calls them “interest” in an attempt to disguise the payment as a qualified interest deduction.
• Making false entries in accounting ledgers: Engaging in accounting irregularities, such as a business’s failure to keep adequate records, or a discrepancy between amounts reported on a corporation’s return and amounts reported on its financial statements generally demonstrate fraudulent intent; and
• Sales tax fraud:
  • Retailers collect sales tax reimbursement from their customers on sales but intentionally fail to report and pay the tax collected; and
  • Retailers intentionally fail to report all retail sales on which sales tax is due.

How is Tax Evasion Investigated?

Typically, a criminal tax case is investigated by the Internal Revenue Service Criminal Investigation Division (CID). CID special agents suspecting fraudulent tax activity will conduct a thorough investigation before deciding to recommend your case for prosecution.

CID Special agents may attempt to interview you, as well as your family, friends and professional colleagues. Special agents will also conduct an exhaustive review of your financial records looking for suspicious accumulation of wealth, unexplained assets and other signs of fraud.

Once a CID investigation is completed and the special agent in charge of the case recommends prosecution, the IRS conducts two more levels of review before a final decision is made to forward the case to the United States Department of Justice Tax Division for prosecution.

Federal prosecutors will re-examine your case and decide whether to prosecute your case. If you are selected for prosecution, your case will be sent to the local U.S. Attorney’s office for formal indictment.

What Should You Do if You Are Arrested on Charges of Tax Evasion?

If you are facing tax fraud charges such as tax evasion, you would be wise to seek representation by an attorney who is experienced in tax fraud defense. You should avoid discussing your case with anyone, especially IRS investigators, without the benefit of legal advice.

Evidence of tax evasion doesn’t necessarily mean you will be prosecuted or convicted. Your attorney may be able to convince federal investigators or the attorney prosecuting your case that you made serious mistakes, but did not intentionally try to evade paying your taxes.

Contact Wallin & Klarich Today If You Are Facing Tax Evasion Charges

If you or someone you love is facing charges of tax fraud such as tax evasion, you should speak with one of our attorneys at Wallin & Klarich as soon as possible.

Our attorneys at Wallin & Klarich have over 40 years of experience in federal court successfully defending our clients facing tax fraud charges. Hiring an attorney from Wallin & Klarich to represent you is your best chance to avoid the serious consequences of a federal tax fraud conviction.

With offices in Los Angeles, Sherman Oaks, Torrance, Tustin, San Diego, Riverside, San Bernardino, Ventura, West Covina and Victorville, our attorneys at Wallin & Klarich are conveniently located near you to help you fight charges of federal tax fraud. We will evaluate and employ every available defense strategy to help you obtain the best result possible in your case.

Call us today at (877) 4-NO-JAIL or (877) 466-5245 for a free telephone consultation. We will get through this together.