In addition to imposing civil tax penalties, the government is empowered to investigate and prosecute tax offenders criminally. Criminal tax conviction can lead to potentially disastrous consequences for the taxpayer. Criminal tax penalties include large monetary fines and incarceration in federal prisons.
Usually any voluntary and intentional conduct to evade tax the likely effect of which is to mislead the IRS or conceal assets is defined as a federal tax crime. The Internal Revenue Code (Tax Code) Section 7201 broadly defines a tax crime as any willful attempt to evade or defeat tax. Therefore, failure to file a required tax return (unfiled tax returns or delinquent returns), or any type of tax underpayment or underreporting of income can potentially result in criminal tax investigation by the IRS. Under Section 7202 of the Tax Code, any willful failure to truthfully “collect, account for, and pay over” the required tax is a felony which subjects the offender to criminal prosecution and criminal penalty for tax evasion. Accordingly, a business owner who fails to collect payroll taxes or having collected them, fails to timely remit them to the government may be subject to criminal sanctions. Although a civil trust fund recovery penalty or income tax underpayment penalty is usually imposed in similar cases, by law the IRS is free to pursue criminal sanctions if there is evidence that the failure to collect or pay over payroll taxes was intentional and qualified as criminal tax violation.
Similar to other criminal cases, the burden of proof that the taxpayer’s tax evasion was willful and qualified as tax fraud belongs to the government. To obtain criminal conviction in a tax case, the government needs to prove that the evidence of criminal tax fraud was beyond reasonable doubt.
If you are concerned that your attempts to minimize your taxes may have potentially exposed you to criminal tax investigation by the IRS or if you have received any communications from the IRS to that effect, contact Kamyar Mehdiyoun, tax litigation lawyer in Rockville, Maryland. We are a tax law firm specializing in tax controversy. Our experience in tax litigation defense and also in tax fraud and tax evasion defense can help you achieve a favorable conclusion to your tax controversy case.