Avoiding paying taxes that the IRS requires is one of the most common tax crimes in the United States. It's called tax evasion, and it's a type of tax fraud that the IRS prosecutes seriously. Of course, there are ways people legally do not pay taxes on certain money, like pre-tax money that goes into a retirement savings account like a 401(k), or money that is not taxed for qualifying expenses like medical expenses and childcare expenses.
However, if the IRS determines you misrepresented your income or had offshore accounts that you didn't report in order to avoid paying taxes on the money, you could be accused of tax evasion and be criminally charged.
How can I defend myself if I am charged with tax evasion?
Here are three defenses to tax evasion that may apply to you. In order for a prosecutor to prove that you are guilty of tax evasion, they need to prove:
- You knew you were violating the law, and you did so intentionally. If in fact you unknowingly made a mistake or were confused about the laws around what taxes you are responsible for paying, that could be your defense if you have been charged with tax evasion.
- You chose to avoid taxes yourself, and not because a tax professional advised you incorrectly and that resulted in you not reporting things correctly. If the person who does your taxes, like a CPA, or another tax professional gave you advice that resulted in an IRS investigation, you can prove your actions were linked to this advice. That's another defense to tax evasion charges.
- You actually owe taxes because you did something like underreport your income. Even if you did underreport your income, you may also have not reported qualifying expenses that are supposed to be taxed. An attorney can help you find out if you had these expenses, and if so, they could offset the underreported income, balancing the taxes you owe to zero.
What if none of these defenses can apply to me?
Another way to avoid prosecution is through programs the IRS created that allow you to voluntarily disclose your income or offshore accounts. You have to pay a penalty to the IRS in this case, but usually the IRS will not proceed with criminally prosecuting you. Make sure you have an attorney to help you navigate this legal option before you speak to the IRS about it.
The two programs are the IRS Voluntary Disclosure Program and the Offshore Voluntary Disclosure Program. Through each of these, you can come forward and report tax fraud or tax evasion. It is important you seek the legal advice of an attorney before reporting anything to the IRS through either of these programs.
Because tax evasion or tax fraud charges can be serious, a skilled attorney in the area of tax law can help you navigate the challenges. Having strong legal defense by your side during this time can increase your chances of avoiding criminal convictions or reducing the impact that the charges may have on your life.