Federal Taxes, Fraud and the IRS?

Answer 1

It is the responsibility and legal obligation of every American who earns a sufficient amount of income to file a Federal Tax Return and pay any federal taxes they may owe. While it is okay to develop a strategy to avoid paying federal taxes, if you cross the line and attempt to evade those taxes, you could be subject to both civil and criminal penalties. There are quite a few statutes that the IRS can enforce if you attempt to defraud the Government and avoid paying your fair share of taxes.

While the vast majority of Americans comply with all of the rules and regulations of Federal Tax Law, there are always a small percentage of people that try to avoid paying taxes. Whether it is failing to report income, under-reporting income, taking illegal deductions or any other number of violations of the tax code, if you are audited and found to have not paid your rightful share of taxes, you could be in for some serious consequences.

Before going into any specifics, it is somewhat comforting to know that only a very few cases are considered fraud and carry criminal penalties. For Fiscal Year 2012 (October and November 2011), there were 771 criminal investigations initiated. Of those, there were 410 convictions and 387 people were sentenced to prison, a halfway house, and home detention. The point being, the IRS will come after you criminally if you have perpetrated obvious fraud, but will handle most other cases of under-payment with fines, civil penalties and restitution. So, if you forgot to claim some income, you most likely will be forced to pay the additional taxes and any interest or penalties.

Now, a quick summary of 3 common situations where one can be prosecuted for General Fraud.

ATTEMPT TO EVADE OR DEFEAT TAX (Title 26 USC 7201)

Any willful attempt to evade or defeat any tax liability may be found guilty of committing a felony and subject to:

• Imprisonment not to exceed 5 years
• Fine not more than $250,000 for individuals or $500,000 for corporations
• Both, plus the cost of prosecution

WILLFUL FAILURE TO COLLECT OR PAY OVER TAX (Title 26 USC 7202)

Any person who is responsible for collecting, accounting for and paying over taxes to the IRS and willfully ignores the duty can be subject to penalties and convicted of a felony. They may also receive:

• Up to 5 years imprisonment
• A $250,000 fine for individuals or $500,000 for corporations
• Or both a fine and imprisonment plus the cost of prosecution

WILLFUL FAILURE TO FILE A RETURN, SUPPLY INFORMATION OR PAY TAX (Title 26 USC 7203)

Failure to pay taxes or estimated taxes, make a return, keep proper records or supply information as requested by officials of the IRS and the governing laws, can be found to be guilty of a misdemeanor and subject to:

• Imprisonment of not more than 1 year
• A fine of up to $100,000 for individuals or $200,000 for corporations
• Or both, plus the cost of prosecution