The IRS reported 2,672 convictions for criminal tax violations in the 2016 fiscal year. While criminal tax charges are not common, the penalties —which can include jail time — are severe enough to cause any taxpayer to be concerned.
Most criminal tax penalties can result in a five-year prison sentence and $100,000 fine. You can also be charged with civil penalties for the same violations, and you may have any professional licenses revoked.
Common Criminal Tax Violations
Some common criminal tax violations are:
- Undisclosed Foreign Bank Accounts – The IRS is aggressive in pursuing these cases, particularly in recent years. A failure to file a Foreign Bank Account Report can result in five years in prison and a $250,000, in addition to other civil penalties
- Willful failure to file a tax return or pay tax – Can result in a one-year prison sentence and $100,00 fine
- Tax evasion – Can result in five-years in prison and a $250,000 fine
- Willful failure to collect and pay over tax – Can also result in five years in jail and $250,00 fine
Badges of Tax Fraud
The IRS has a higher standard of proof when pursuing criminal charges and they will look for badges of tax fraud. These include:
•understatements of income;
•failure to file tax returns;
•implausible or inconsistent explanations of behavior;
•concealment of assets;
•failure to cooperate with tax authorities;
•engaging in illegal activities;
•attempting to conceal illegal activities;
•dealing in cash; and
•failure to make estimated tax payments.
In general, you cannot be charged with tax fraud for making a simple mistake. The IRS will need evidence of intentional wrongdoing to support a criminal tax charge. However, it is important to note that your statements to the IRS can be used against you, and can be considered evidence of an intent to defraud the IRS. The IRS can also require your tax preparer or accountant to testify against you.
Tax attorneys, unlike accountants and tax preparers, are prevented from disclosing confidential communications by the attorney-client privilege.
If you have reason to believe that you could be accused of criminal tax violations or tax fraud, you want to be sure that you do not disclose any information to your accountant or tax preparer that could be used against you by the IRS. Therefore you should consult with a tax attorney before you say anything to your accountant or tax preparer.