In the U.S., every individual and business is required to pay a variety of local, state, and federal taxes. When you fail to do so, you or your business can face severe penalties. Tax evasion and tax fraud are both criminal charges that occur when an individual or business violates their legal tax responsibilities. While these terms may sometimes be used interchangeably, there are substantial differences between the two that are important for any taxpayer to know.
What Is Tax Fraud?
Tax fraud is defined as the willful act of trying to avoid tax liability by violating tax laws in some way. The key term in this definition is “willful,” meaning the prosecution has to prove that an individual intentionally and voluntarily committed these actions to avoid their legal responsibilities. Tax fraud is a more general term that encompasses any sort of illegal activity that an individual may perform to get out of their legal tax duties. It’s known as tax fraud because if an individual willfully fails to pay what they owe, they defraud the federal government.
Examples of tax fraud include, but are not limited to:
- Falsifying information on tax reports
- Failing to file tax reports for multiple years
- Creating false documents or other records
- Failing to report your income in full
- Putting property in another person’s name even though it remains yours
- Concealing information
- Destroying information
- Using a false social security number
- Claiming false deductions
What Is Tax Evasion?
Tax evasion is a specific, more serious form of tax fraud. It is defined as the act of intentionally trying to avoid paying the taxes that you owe through deceptive strategies or “fraudulent means.” These fraudulent acts can come in multiple forms, such as purposeful errors, late payments, concealing information and certain financial details, and more. In order to be charged with tax evasion, the prosecutor must be able to prove beyond a reasonable doubt that there was an intentional attempt to evade paying taxes and that those taxes are still owed. While tax fraud can occur when one of many tax laws is violated, tax evasion occurs when someone intentionally misrepresents their information to reduce the amount of taxes they owe.
The Main Differences Between Tax Fraud and Tax Evasion
While tax evasion may be a form of tax fraud, they do have some distinct differences, including:
Burden of Proof
The burden of proof in legal circumstances refers to the difficulty of asserting and proving your claim to the court and jury. For tax evasion, the burden of proof is higher than that of tax fraud. For a prosecution to be able to charge an individual with tax evasion, they must prove “beyond a reasonable doubt” that the defendant is guilty. For broader tax fraud charges, the burden of proof is a bit lower, and the prosecution often only has to provide “clear and convincing evidence” that fraud occurred.
Statute of Limitations
The statute of limitations on a case refers to how long an individual has to file a legal case before it is no longer considered “legally valid.” For tax evasion, which is considered a criminal charge, the statute of limitations ranges from 5 to 6 years, depending on what tax laws were broken. For tax fraud, however, the IRS has no statute of limitations on any civil fraud charges. For criminal tax fraud charges other than tax evasion, the statute of limitations may range from 3 to 5 years.
The consequences of tax fraud and tax evasion can also differ, as tax evasion is commonly known for having more serious penalties if you end up being charged. According to the IRS, you can be fined up to $100,000 for tax fraud and evasion. You can also face county jail or prison time, depending on the severity of the case and how much money you owe. In most cases, penalties for tax evasion have been found to be more severe.
Q: What Is Tax Negligence?
A: Tax negligence occurs when an individual accidentally makes a mistake on their annual tax reports that could affect the overall amount they pay. This could include putting the wrong amount of income in your report, not keeping records of your past finances, accidentally not filing, or not including the correct information needed. The biggest difference between tax negligence and tax fraud is that tax negligence is not done purposefully.
Q: What Are the Three Main Elements of Tax Evasion?
A: Under the Internal Revenue Code (IRC) 7201, the three main elements of the crime of tax evasion include (1) the existence of tax and owing that tax, (2) an attempt by the individual to evade the owed tax, and (3) willfulness of the individual to evade said tax.
Q: Do I Need a Lawyer if I’m Facing Tax Fraud Charges?
A: It’s in your best interest to hire an experienced tax lawyer if you’re facing civil or criminal tax fraud charges here in California. An attorney can evaluate your case and help you find the best possible solution to your issues, as well as represent you in court and negotiate with IRS agents.
Q: How Much Jail Time Can You Get for Tax Evasion?
A: Depending on your case, if you’re charged with tax evasion, you may face prison time from anywhere from 1 to 5 years.
Q: What Are the Most Common Forms of Tax Evasion?
A: Some of the most common forms of tax evasion include purposefully underreporting or failing to report your income and claiming false deductions.
Northern California Expert Tax Lawyers
At Coggins Law, our attorneys have decades of experience working within the realm of business and tax law. We have helped countless clients find solutions to difficult cases and are committed to helping you, too. Whether you need help filing your taxes for your new business or you think you made a mistake on your tax return that could get you in legal trouble, don’t wait to see how our firm may be able to assist you. To learn more about our tax law services at Coggins Law, contact our team today.