Whether at the state or federal level, tax fraud is a serious offense that could lead to severe penalties. In today’s blog, we discuss the elements of a tax fraud and tax evasion charge, activities suggestive of these white collar offenses, and the potential penalties following a conviction.
What Constitutes Tax Fraud or Tax Evasion?
Tax fraud or tax evasion is the intentional act of not paying or underpaying your taxes, and it is considered a white collar crime. Tennessee Code Title 67: Taxes and Licenses contains tax laws for income, property, sales, transfer, gas, and other taxes, including the penalties for evading taxes. If a Tennessee resident fails to pay their required taxes or purposefully underpays, the Tennessee Department of Revenue can seek prosecution for tax fraud.
The 3 elements of the federal crime of tax evasion are:
- Actual existence of a due and outstanding liability – must exist in order for the IRS to prove that a taxpayer attempted to avoid the assessment and/or payment of their tax.
- Affirmative act – actual completion of a voluntary and intentional act in order to avoid one’s known legal income tax responsibility including the assessment and/or the payment of a tax.
- Intent/willfulness – any effort or attempt to avoid the assessment and/or the payment of a tax.
Avoiding a tax assessment may include filing a tax return with the intentional neglect to report one’s true income or deductions; evading the payment of a tax may be as simple as failing to pay one’s liability. However, for criminal prosecution of a tax evasion, the IRS is generally concerned with taxpayers who willfully attempt to conceal money or assets that may be used to pay one’s tax liability and could include any of the following:
- filing a false tax return;
- creating false records such as invoices and receipts;
- deliberately destroying records;
- making false statements to an IRS agent;
- claiming false deductions;
- failure to file tax returns;
- concealing bank accounts and/or assets;
- cash structuring;
- failure to make estimated tax payments.
The government must prove that your above actions were knowing; Note that mere carelessness is not tax fraud or tax evasion; the government must prove that your above actions were knowing and intentional. Be aware that the IRS may assess tax evasion charges against an individual, an organization, or even a corporation.
If you engaged in any of the above suspicious activities or suspect that the IRS believes you have engaged in any of these activities, you should speak to an attorney immediately. The actions you take during a tax audit can determine whether or not you are charged with a federal tax offense. For instance, lying or giving evasive answers to IRS investigators, delay tactics, and other actions to mislead IRS agents can lead to a federal criminal charge.
The statute of limitations for the Department of Revenue is within 3 years if they wish to assess taxes on filed returns or 5 years to issue a notice of deficiency for taxes to the taxpayer. However, these statutes of limitations don't apply to fraudulent tax returns or failure to file a return, where an individual could still owe the taxes many years after the fraud occurred.
Penalties for Tax Fraud
Tax evaders can be penalized criminally and civilly. Taxpayers who fraudulently avoid paying their taxes owe both the unpaid taxes and the cost to investigate and prosecute the fraud.
Tennessee Code Section 67-2-121 makes it a Class C misdemeanor to fail to file a tax return and violate any tax regulation. Any corporation that fails to give the Department of Revenue a list of stockholders’ paid dividends is also guilty of a Class C misdemeanor, which carries up to 30 days in jail and a $50 fine. Making a false return with the sole intent to avoid a tax is a Class E felony that is punishable by 1-6 years in prison and a fine of up to $3,000.
Consult Eldridge & Blakney for Legal Guidance
If you suspect you could be under investigation for tax fraud or tax evasion, contact an attorney immediately for legal assistance. Tax-related white collar crimes are not to be taken lightly and could carry significant penalties, depending on the value of your case. The attorneys at Eldridge & Blakney can take a look at your tax assessment and related documents to help you determine your best course of legal action, especially if the IRS are only steps away from you.
Contact our team at Eldridge & Blakney for a free case evaluation today.