Tax Evasion

Overview of Federal Tax Evasion Charges

Tax evasion is a serious federal crime involving the willful attempt to evade or defeat tax payments owed to the United States government. It is prosecuted under 26 U.S.C. § 7201, which criminalizes intentional acts to avoid paying taxes, including hiding income, inflating deductions, and engaging in fraudulent tax schemes.

The Internal Revenue Service (IRS), through its Criminal Investigation Division, aggressively pursues tax evasion cases, often in collaboration with the Department of Justice (DOJ). Tax evasion charges can arise in both individual and corporate settings and may involve failure to report income, underreporting income, or inflating business expenses to reduce taxable income.

Elements of Tax Evasion

To convict a defendant of tax evasion under 26 U.S.C. § 7201, the prosecution must prove the following elements beyond a reasonable doubt:

1. Owed Taxes: The defendant must owe federal taxes that are legally required to be paid. This element typically involves a review of tax returns and financial records to determine whether the defendant underreported income or claimed false deductions.
2. An Attempt to Evade or Defeat Taxes: The defendant must have willfully taken steps to evade or defeat tax payments. This can include filing false tax returns, hiding assets, or engaging in other fraudulent conduct designed to reduce or eliminate tax liability.
3. Willfulness: The defendant must have acted willfully, meaning they knew they owed taxes and intentionally attempted to avoid paying them. Negligence or mistakes in filing taxes do not constitute tax evasion; the defendant’s actions must have been done with the intent to evade taxes.

Common Types of Tax Evasion

Tax evasion can take many forms, and federal prosecutors target a variety of fraudulent activities related to tax avoidance. Some common forms of tax evasion include:

• Underreporting Income: One of the most common forms of tax evasion is the failure to report all sources of income on a tax return. This may involve concealing income from side jobs, rental properties, or other sources that are not properly documented.
• Claiming False Deductions or Credits: Some individuals or businesses attempt to evade taxes by inflating deductions or claiming tax credits they are not entitled to. This can involve falsifying business expenses, charitable contributions, or other deductions that reduce taxable income.
• Offshore Tax Evasion: Some taxpayers hide assets in offshore accounts to avoid paying U.S. taxes. The Foreign Account Tax Compliance Act (FATCA) requires U.S. citizens and businesses to report foreign bank accounts, and failing to comply with these requirements can lead to tax evasion charges.
• Failure to File Tax Returns: Simply failing to file a tax return when required can lead to tax evasion charges if the taxpayer owes taxes. The IRS has the authority to investigate nonfilers and assess penalties for failing to meet tax obligations.
• Business Tax Evasion: Businesses can also face tax evasion charges for failing to report revenue, overstating expenses, or improperly classifying employees to reduce tax liability.

Penalties for Tax Evasion

Tax evasion is a felony offense under federal law, and a conviction carries significant penalties.

Under 26 U.S.C. § 7201, a conviction for tax evasion can result in:

• Up to 5 years in federal prison.
• Fines of up to $100,000 for individuals or $500,000 for corporations.
• Restitution to the government for unpaid taxes, penalties, and interest.
• Additional civil penalties imposed by the IRS, including a 75% fraud penalty on the underpayment of taxes.

In addition to criminal penalties, the IRS may also impose civil penalties for tax evasion, including fines, interest, and the potential seizure of property or assets to satisfy unpaid tax liabilities.

Federal Sentencing Guidelines for Tax Evasion

Sentencing in federal tax evasion cases is guided by the United States Sentencing Guidelines, which consider factors such as the amount of tax evaded, the duration of the evasion, and the defendant’s role in the scheme. The more significant the financial loss to the government, the higher the potential sentence under the guidelines.

The guidelines also account for whether the defendant cooperated with investigators or took steps to obstruct the investigation. Defendants who provide substantial assistance to the government in uncovering additional tax fraud may receive a reduced sentence under 18 U.S.C. § 3553(e).

In United States v. Booker, 543 U.S. 220 (2005), the Supreme Court held that the Sentencing

Guidelines are advisory rather than mandatory, allowing judges to impose sentences based on the specific facts of the case. However, judges often rely on the guidelines when determining appropriate sentences in tax evasion cases.

Common Defenses to Tax Evasion Charges

Several defenses may be available to individuals facing tax evasion charges, depending on the facts of the case and the strength of the government’s evidence. Some common defenses include:

• Lack of Willfulness: Tax evasion requires proof that the defendant acted willfully in attempting to evade taxes. The defense may argue that the defendant made an honest mistake or misunderstood the tax laws, rather than intentionally attempting to defraud the government.
• Insufficient Evidence: The defense may challenge the sufficiency of the government’s evidence, particularly if the IRS’s calculations of underreported income or inflated deductions are inaccurate. If the prosecution cannot prove the amount of taxes owed beyond a reasonable doubt, the defense may file a motion to dismiss the charges.
• Reasonable Reliance on Tax Professionals: In some cases, the defense may argue that the defendant relied on the advice of a tax professional, such as an accountant or tax attorney, in filing their tax returns. If the defendant acted in good faith based on professional advice, this may negate the willfulness element of tax evasion.
• Filing Amendments or Corrections: In cases where the defendant has voluntarily amended their tax return or taken steps to correct errors before the IRS initiated an investigation, the defense may argue that these actions demonstrate a lack of intent to evade taxes.

Case Example: United States v. Cheek

In United States v. Cheek, 498 U.S. 192 (1991), the Supreme Court addressed the issue of willfulness in tax evasion cases. The defendant, John Cheek, argued that he did not intentionally evade taxes because he believed the federal tax laws were unconstitutional. The Court held that a defendant’s belief in the constitutionality of tax laws, even if mistaken, could negate the willfulness element of tax evasion if the belief was genuinely held.

This case highlights the importance of the willfulness requirement in tax evasion prosecutions and underscores the complexity of defending against such charges.

The Importance of Experienced Legal Defense

Tax evasion cases often involve complex financial transactions, detailed tax records, and voluminous evidence. Defending against tax evasion charges requires a thorough understanding of federal tax laws, accounting practices, and the IRS’s investigative techniques.

At Hofland & Tomsheck, board-certified federal criminal defense attorney Josh Tomsheck has extensive experience representing individuals and businesses in high-stakes tax evasion cases. Our legal team will carefully review your financial records, challenge the IRS’s evidence, and develop a strong defense strategy to protect your rights.

Contact Hofland & Tomsheck for a Free Consultation

If you are facing federal tax evasion charges, contact Hofland & Tomsheck today at 702-895-6760 for a free consultation. We will review the details of your case, explain your legal options, and develop a strategic defense plan to protect your future. Let our experienced legal team fight for you in federal court.