A Look at the Potential Penalties for Federal Tax Evasion and Tax Fraud
July 31, 2023
Tax evasion and tax fraud are serious federal crimes. Companies convicted of these crimes can face substantial fines, while individuals convicted of tax evasion and tax fraud can face both fines and prison time.
When facing scrutiny from IRS Criminal Investigation (IRS CI), the Federal Bureau of Investigation (FBI) or the U.S. Department of Justice (DOJ), it is important to know what is at stake. Understanding the specific offenses at issue and the penalties they carry is crucial for informed decision-making, and both companies and individuals must be prepared to do what is necessary to protect themselves in criminal tax matters.
Federal Charges and Penalties for Tax Evasion and Tax Fraud
With this in mind, here is an overview of the potential penalties for tax evasion and tax fraud under federal law:
Attempt to Evade or Defeat Tax (26 U.S.C. Section 7201)
The primary federal tax evasion statute is 26 U.S.C. Section 7201. Under this statute, willfully attempting to “evade or defeat any [federal] tax” is a criminal offense that carries up to a $100,000 fine ($500,000 for companies) and up to five years of federal imprisonment. These same penalties apply regardless of whether the attempt is successful. Thus, even if a taxpayer’s return (or failure to file a return) triggers immediate scrutiny, the taxpayer can face the same penalties as a taxpayer who successfully evades federal tax liability for a period of time.
Willful Failure to Collect or Pay Over Tax (26 U.S.C. Section 7202)
Along with prosecution for tax evasion under 26 U.S.C. Section 7201, taxpayers who fail to pay what they owe can also face prosecution under 26 U.S.C. Section 7202. This statute makes it a federal offense to “willfully fail to collect or truthfully account for and pay over” any tax that the taxpayer is required to collect and remit to the IRS. While Section 7202 can potentially apply in a variety of different scenarios, it is primarily used to prosecute companies for employment tax violations.
Violations of Section 7202 carry up to a $10,000 fine and up to five years of federal imprisonment. However, companies (and company personnel) targeted for employment tax fraud can also face the IRS’s trust fund recovery penalty (TFRP). This penalty is calculated based on the unpaid taxes withheld.
Willful Failure to File Return, Supply Information or Pay Tax (26 U.S.C. Section 7203)
Failure to file income tax returns, failure to pay income tax, and other filing and payment violations can be prosecuted as tax fraud under 26 U.S.C. Section 7203. Under Section 7203, willful failure to file, failure to pay or failure to supply information to the IRS as required by law carries up to a $25,000 fine ($100,000 for companies) and up to a year of federal imprisonment.
Fraud and False Statements (26 U.S.C. Section 7206)
26 U.S.C. Section 7206 establishes several fraud-related tax crimes. Under Section 7206, all of the following offenses carry up to a $100,000 fine ($500,000 for companies) and up to three years of federal imprisonment:
- Willfully signing a tax return or other document under penalty of perjury that the signer “does not believe to be true and correct as to every material matter.”
- Willfully aiding or assisting in the preparation or filing of any tax return or other document that is false or fraudulent “as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return . . . or document.”
- Removing or concealing any goods or commodities “for or in respect whereof any tax is or shall be imposed, or . . . upon which levy is authorized . . . with intent to evade or defeat the assessment or collection of any [federal] tax.”
- Concealing property or withholding, falsifying or destroying records in connection with any offer in compromise or closing agreement with the IRS.
Fraudulent Returns, Statements or Other Documents (26 U.S.C. Section 7207)
Under 26 U.S.C. Section 7207, a taxpayer that willfully submits a return or other document “known by [the actor] to be fraudulent or to be false as to any material matter” to the IRS can face up to a $10,000 fine ($50,000 for companies) and up to a year of federal imprisonment.
Other Potential Charges and Penalties in Federal Tax Fraud and Tax Evasion Cases
Along with these charges under the criminal provisions of the Internal Revenue Code, individuals and companies targeted for tax fraud and tax evasion can face a broad range of other federal charges as well. For example, depending on the circumstances involved, federal tax fraud and tax evasion investigations can also lead to charges such as:
- Conspiracy (18 U.S.C. Section 371) – If two or more individuals or entities conspire to commit tax evasion or tax fraud, they can each face federal conspiracy charges under 18 U.S.C. Section 371. These charges carry statutory fines and up to five years of federal imprisonment in most cases.
- False Statements (18 U.S.C. Section 1001) – Anyone who knowingly and willfully makes a materially false or fraudulent statement to the federal government or “makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry” can face statutory fines and up to five years of federal imprisonment.
- False and Fraudulent Claims (18 U.S.C. Section 287) – Under 18 U.S.C. Section 287, submitting a false or fraudulent claim to the federal government (i.e., a claim for a tax credit or refund) is also a federal offense that carries statutory fines and up to five years of federal imprisonment.
Contact Us for More Information
The attorneys at Brown Tax, P.C., represent individuals and companies in serious federal criminal tax matters. If you have questions or concerns about tax evasion or tax fraud, or if you or someone within your organization has been contacted by IRS CI, you can call 888-870-0025 or contact us online to request a confidential consultation.