There are several actions that a taxpayer can take that may result in a criminal referral or perhaps just the imposition of the civil fraud penalty. These all fall under the umbrella of tax evasion, but it is broader than that. In fact, there are several different actions a taxpayer can take or fail to take that can result in them being on the wrong side of an IRS inquiry. This blog post will explore the various statutes. Note that the IRS typically has 6 years to bring a criminal action.
The IRS has its own law enforcement arm known as the Criminal Investigation Division (CID). Agents who are part of CID investigate far more than tax crimes; they also investigate money laundering, narcotics, and a vast array of other financial crimes.
Individuals who are paid a visit by a special agent from the CID should immediately obtain counsel and decline to speak with the agent directly. Remember, everything you say can and will be used against you in a court of law and it is a crime to make a false statement to the IRS.
The IRS is currently focused on a number of areas where there is fertile ground for possible criminal referrals. Some of these areas include:
- Abusive preparers
- Bankruptcy fraud
- Corporate fraud
- Employment taxes
- Identity theft
- Fraudulent refunds
- Money laundering
Tax Evasion IRC 7201
Where the government can demonstrate beyond a reasonable doubt that the taxpayer with a deficiency made an affirmative act to evade tax and was willful, a charge of tax evasion may result. Some of the actions that can result in such a finding include filing a false tax return, two sets of books and the destruction of records.
“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
Willful Failure to Collect or Pay over Tax IRC 7202
Where the government can demonstrate beyond a reasonable doubt that the taxpayer was willful in their failure to collect and or pay over taxes to the government, they may be charged under the failure to collect and pay over a section of the code. The most common tax associated with this section is withholding taxes.
“Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
Failure to File Return, Supply Information or Pay Tax IRC 7203
As with the other sections, the government must demonstrate willfulness, in addition, there must be an action that the taxpayer failed to accomplish. This section is a bit more expansive and covers the failure to file returns, provide information or pay tax.
“Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year”.”
False Reporting IRC 7204
The final section we’re discussing is 7204. This section goes to false reporting of information, the most common area that this is utilized is in the providing of false W-2’s to employees. There are however a host of other areas where the law requires the provision of information statements. The willful providing of false statements or not providing statements at all can trigger the imposition of a charge under 7204.
“In lieu of any other penalty provided by law (except the penalty provided by section 6674) any person required under the provisions of section 6051 to furnish a statement who willfully furnishes a false or fraudulent statement or who willfully fails to furnish a statement in the manner, at the time, and showing the information required under section 6051, or regulations prescribed thereunder, shall, for each such offense, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.”
For more information on this topic, please contact a member of Withum’s Forensic and Valuation Services Team.