In late December, Congress passed sweeping changes to the U.S. income tax laws. There was much debate as to who would really benefit under the new tax code but no discussion concerning the continued emphasis on criminal prosecution of tax crimes.
While the tax code may have reduced the number of tax brackets, the complexity of tax returns still poses problems for many. Accountants, tax-return preparers, and large tax-preparation companies will continue helping prepare returns.
The U.S. government contends that we have a voluntary tax system, however, if the Government believes a citizen willfully failed to abide by the voluntary system, consequences include significant civil penalties and time in prison. There are numerous tax crimes set forth by the Federal Government including: tax evasion, false statements on tax returns, failure to timely file tax returns, and hiding assets subject to levy by the IRS.
In determining whether a person has committed a tax crime, one of the major factors considered by IRS criminal investigators is whether the person acted willfully. In a tax prosecution, willfulness has a specific meaning and requires the Government to prove that the taxpayer knew what the law required and intentionally chose to not comply. Given the complexity of the tax laws, it is easy to understand how a person may prepare a tax return that is incorrect but not willfully false.
In bringing a criminal case, the IRS usually considers conduct that is based on more than one year. For example, charging an individual with tax evasion for underreporting income will often involve an investigation that spans 3 to 5 years. Each year in which tax evasion occurs has a maximum term of imprisonment of five years. Therefore, if a person is charged with tax evasion for three separate tax years and convicted of all three counts, a maximum penalty of 15 years in prison is possible.
The failure to timely file a tax return can be a civil or criminal matter depending upon how the IRS interprets the facts. Each year that a person fails to timely file a tax return is a separate crime punishable by imprisonment up to one year. Therefore, if a person is prosecuted for failure to timely file tax returns for three years and convicted, a maximum sentence of three years in prison could be imposed.
The IRS often begins an investigation through its civil branch which seeks to ensure that the correct amount of tax is reported and paid. An IRS audit can result in the IRS finding errors which will justify the imposition of significant civil penalties in addition to the correct amount of tax that should have been disclosed and paid. There are multiple civil penalties, the highest penalty being an additional 75% of any unpaid tax.
All taxpayers have rights when dealing with the Internal Revenue Service. Whether an IRS auditor, IRS tax collector or criminal agent is involved, every taxpayer has a right to representation. IRS agents, both civil and criminal, like all people, can make mistakes which may have a devastating impact on the taxpayer in the form of large civil penalties or criminal prosecution.
While the new tax laws are touted as being simpler, they are not so simple as to avoid the risk of a person being subjected to wrongful prosecution, incarceration, or assessment of improper taxes and penalties. The hiring of a well-experienced attorney, while costly, may in the long run be economical when compared to the alternatives. Likewise, not having experienced legal representation when a civil or criminal IRS agent comes knocking at your door can impact your liberty.
As long as the United States continues to impose the threat of criminal sanctions in relation to the U.S. “voluntary tax system”, citizens must take care to ensure that they are protected against IRS mistakes even under the new tax laws.
By Mark L. Horwitz
Criminal Defense Attorney | Law Offices of Mark L. Horwitz, P.A.
Offices in Orlando and Tampa | P: 407-843-7733
firstname.lastname@example.org | www.mlhorwitzlaw.com