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Fraudulent Tax Filings: What's the Worst That Can Happen?

Since Elliott Ness brought down Chicago crime boss Al Capone on charges of tax evasion, the IRS has been feared for its power to prosecute tax crimes. Every year millions of Americans sweat over their taxes in fear, lest some mistake or error bring down the wrath of the Internal Revenue Service upon them. Audits make us quake in fear. The fact is, most of us needn't worry. Only 2,472 Americans are convicted of tax crimes in a typical year – just .0022% of all taxpayers.

It's easy to tell if you've messed up and the IRS thinks you've possibly submitted a fraudulent tax filing.

First, the IRS will send you a letter simply requesting that you file missing tax information or correct a suspected inaccurate tax filing. The letter won't be threatening at this stage.

Second, the IRS will send you a letter or an IRS agent will phone you to give you a 30 day deadline to file the forms or corrections it asked for in the first letter.

Third, an IRS agent will phone or visit you and specify a deadline for supplying the missing form or correcting the inaccurate information to him or her personally. At this point, the agent may even offer to help you fill out and file the needed forms.

Finally, if the IRS is still unhappy, you will be notified by an IRS agent that you are now the subject of a criminal investigation. From there things can go downhill in a hurry. Run, don't walk to a tax attorney's office – preferably one who specializes in criminal tax cases.

Fraudulent tax filings can include attempts to hide income, to not report assets or to avoid reporting cash transactions. Hiding income by keeping two sets of books, failing to keep records, destroying evidence, lying during an audit, using a fake social security number and hiding income in off-shore accounts can all get you in serious trouble. If you know your supposed to file and don't or have a history of failing to file taxes, if you refuse to answer questions or cooperate with the IRS, they may consider your behavior fraudulent. The penalties for filing a fraudulent tax filing can be pretty stiff.

Title 26 USC – 7201: Attempt to evade or defeat tax

A willful attempt to “evade or defeat any tax imposed by this title or the payment thereof” is a felony. If convicted you can be imprisoned not more than 5 years, fined up to $250,000 for individuals or $500,000 for corporations or both. To this you will pay the costs of prosecution.

Title 26 USC – 7202: Willful failure to collect or pay over tax

If convicted of willfully failing to “collect, account for, and pay over any tax imposed by this title,” you are guilty of a felony and may be imprisoned not more than 5 years and/or fined up to $250,000 for individuals or $500,000 for corporations. You may also be both fined and imprisoned and made to pay the cost of prosecution.

Title 26 USC – 7203: Willful failure to file return, supply information, or pay tax

If convicted of failing to “pay an estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations” you are guilty of a misdemeanor and may be imprisoned not more than 1 year, fined not more than $100,000 for individuals or $200,000 for corporations or both imprisoned and fined and charged the cost of prosecution.

Title 26 USC – 7206(1): Fraud and false statements

This title covers direct fraud by “willfully making and subscribing any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury”. If, at the time you made the statement or submitted the form, you did not believe it to be “true and correct as to every material matter”, then, you are guilty of a felony and, upon conviction may be imprisoned not more than 3 years, fined not more than $250,000 for individuals or $500,000 for corporations or both, together. You will likely pay the cost of prosecution as well.

Title 26 USC – 7206(2): Fraud and false statements

If you “provide aid or assistance in, procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the Internal Revenue laws, of a return, affidavit, claim, or other document, which is fraudulent” or a document that is “false as to any material matter,” you may be found guilty of a felony. It doesn't matter whether or not the person who presented the return knew about it or even authorized the fraud. If you had a hand in it, you can be imprisoned not more than 3 years, fined not more than $250,000 for individuals or $500,000 for corporations, or both. As always you'll pay the cost of prosecution.

Title 26 USC – 7212(A): Attempts to interfere with administration of Internal Revenue laws

This title covers attempts to “intimidate or impede any officer or employee of the United States acting in an official capacity under this title” by corruption or by force to obstruct or impede the administration of Internal Revenue laws may be imprisoned up to 3 years fined up to $250,000 for individuals or $500,000 for corporations or both. There is no mention of court costs. Apparently, if you mess with the IRS they will be happy to pay to prosecute you.

Title 18 USC – 371: Conspiracy to commit offense or to defraud the United States

If more than one of you conspire to “commit any offense against the United States,” or to “defraud the United States, or any agency thereof,” no matter the manner or the purpose, such an act is a felony. If you were involved, but not an active participant, it doesn't matter. If just one member of the conspiracy acts “to effect the object of the conspiracy,” then each of you may be imprisoned up to 5 years, fined up to $250,000 for individuals or $500,000 for corporations or both.

Warning:

It's not honest mistakes you have to fear with the IRS. It's deliberate criminal fraud that gets you the full treatment. If you just mess up your tax returns, a good attorney working with your IRS agent can usually straighten things out. The penalties in most such cases are monetary and the IRS will work with you on paying any fines. The absolute worse thing you can do is lie to the IRS and attempt to commit any kind of fraud. The penalties as seen above can be quite stiff and may send you to prison for an uncomfortable stretch.

References:

Nolo Legal Encyclopedia: Negligence Versus Tax Fraud: How Can the IRS Tell the Difference?

Lawfirms.com: Penalties for Tax Evasion

IRS: Related Statutes and Penalties – General Fraud

Back Taxes Help: Tax Fraud

Image courtesy of Ken Teegardin at www.seniorliving.org.

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