Tax Evasion

Federal Tax Evasion

Federal tax evasion is a serious offense under U.S. law, involving the willful attempt to avoid paying taxes owed to the federal government. Governed primarily by 26 U.S.C. § 7201 of the Internal Revenue Code, tax evasion includes acts intended to mislead the Internal Revenue Service (IRS) about an individual or entity’s actual tax liability. Such actions may involve underreporting income, inflating deductions or expenses, hiding funds in offshore accounts, or any scheme that conceals true income to avoid taxation.

The Three Key Elements of Tax Evasion

To establish tax evasion, the government must prove three key elements beyond a reasonable doubt:

(1) A tax deficiency exists, meaning the defendant owes more tax than reported.
(2) The defendant undertook some affirmative act to evade or attempt to evade tax, such as submitting false documents or failing to file a return.
(3) The defendant acted willfully, intending to defraud the government. The “willfulness” element requires proof that the defendant knew their actions were illegal and nonetheless pursued them with an intent to evade taxes. Mere mistakes or misunderstandings about tax obligations generally do not meet the threshold for tax evasion, as they lack the element of willful deceit.

Federal tax evasion is classified as a felony and carries severe penalties. A convicted individual may face up to five years in federal prison, along with substantial monetary fines, typically up to $100,000 for individuals and $500,000 for corporations.

Beyond criminal penalties, individuals convicted of tax evasion may also be required to pay the owed taxes, interest, and substantial civil fraud penalties, which can further increase the financial burden. The IRS also has authority to place liens on property, seize assets, and garnish wages to recover unpaid taxes, making tax evasion financially devastating beyond the criminal implications.

Tax Evasion Charges

Investigations into tax evasion are often conducted by the IRS’s Criminal Investigation Division, a specialized unit trained in forensic accounting and tax law. These investigations may involve subpoenas, interviews, financial record audits, and cooperation with other agencies. In many cases, individuals facing tax evasion charges have attempted complex maneuvers to obscure income sources or disguise taxable transactions.

Taxpayers are advised to consult tax professionals and to ensure accuracy in their filings to avoid costly mistakes. The IRS encourages voluntary compliance, providing programs that allow individuals to correct past filing errors or disclose previously unreported income through initiatives like the Voluntary Disclosure Program. While these programs do not offer immunity from prosecution, they may reduce penalties and help taxpayers avoid the severe consequences associated with tax evasion.

Tax Evasion in California

Tax evasion in California involves the intentional avoidance of paying legally required taxes to the state and is governed by California Revenue and Taxation Code §§ 19705 and California Revenue and Taxation Code 19706. The crime includes actions such as underreporting income, inflating expenses, hiding funds, or failing to file a tax return entirely.

Like federal tax evasion, California’s tax laws require proof of three elements for a conviction: a tax deficiency, an affirmative act of evasion, and willfulness. Prosecutors must demonstrate that the individual knowingly and deliberately attempted to avoid paying their rightful tax obligations.

The California Franchise Tax Board (FTB), alongside the California Department of Tax and Fee Administration (CDTFA), is responsible for investigating and enforcing tax laws. The FTB conducts audits and uses sophisticated technology to identify discrepancies in reported income, especially when there are significant mismatches between state and federal filings. Additionally, they work with the IRS and other agencies to track funds potentially hidden in out-of-state accounts or foreign bank accounts, making it harder for taxpayers to evade detection.

The penalties for tax evasion in California can be severe, which is where California criminal defense lawyer Nate Crowley can help you with his experience in federal and state law.

Consider that California tax evasion is classified as a felony, punishable by up to three years in state prison, along with substantial fines that can range up to $20,000 or more depending on the amount evaded. Convicted individuals are also typically liable for the back taxes owed, interest, and civil penalties of up to 75% of the unpaid tax, resulting in significant financial consequences.

California encourages voluntary compliance and offers programs like the Voluntary Disclosure Program, which allows taxpayers to come forward about past tax discrepancies in exchange for reduced penalties and an opportunity to avoid criminal prosecution. However, intentional tax evasion remains a high-risk offense in California, as the state aggressively pursues tax fraud to safeguard its revenue and fund essential public services.

Accused of Tax Evasion? California and federal criminal defense attorney Nate Crowley can help!

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