When Can Federal Tax Mistakes Lead to Criminal Charges?

Federal tax mistakes can lead to criminal charges in various circumstances. While federal prosecutors must prove a willful violation of the law to pursue criminal charges, they can use various forms of evidence to substantiate allegations of willfulness. This includes evidence of willful ignorance of the law. As a result, taxpayers who are facing scrutiny from the IRS or DOJ need to be very careful, and they should hire an experienced Texas tax fraud lawyer promptly.

All U.S. taxpayers are required to pay what they owe in accordance with the Internal Revenue Code. Many taxpayers must also comply with the Bank Secrecy Act (BSA), the Foreign Account Tax Compliance Act (FATCA), and various other federal laws. Taxpayers who violate these laws can face steep penalties—including criminal penalties in some cases.

When is U.S. Taxpayer Noncompliance a Federal Crime?

Under federal law, U.S. taxpayers can face criminal charges when they willfully underreport or underpay their tax liability. A violation of the Internal Revenue Code, BSA, or FATCA can be deemed willful based on either:

• A knowing and intentional attempt to evade federal tax liability; or,
• “Willful blindness” to a taxpayer’s federal obligations.

Both of these can have equal consequences. Under the criminal provisions of the Internal Revenue Code, for example, all forms of willfulness carry the same potential penalties. These penalties include fines for corporate taxpayers and, for individual taxpayers, both fines and prison time.

What Are Some Examples of Federal Tax Crimes?

There are several tax crimes under federal law. While the following are among the most common charges pursued by the U.S. Department of Justice (DOJ), individual and corporate taxpayers can face various other tax-related criminal charges as well:

• Tax Evasion – A taxpayer who “willfully attempts in any manner to evade or defeat any tax imposed by” the Internal Revenue Code can face criminal prosecution under 26 U.S.C. Section 7201.
• Failure to Collect or Pay Tax – A taxpayer who “willfully fails to collect or truthfully account for and pay over [any] tax” owed under the Internal Revenue Code can face criminal prosecution under 26 U.S.C. Section 7202.
• Fraudulent Statements – A taxpayer who “willfully furnishes a false or fraudulent statement or who willfully fails to furnish a statement” required by law to the IRS can face criminal prosecution under 26 U.S.C. Section 7204.
• Nondisclosure of Foreign Bank Accounts – A taxpayer who willfully fails to disclose foreign bank accounts to the Financial Crimes Enforcement Network (FinCEN) or the RS can face criminal prosecution under the BSA.
• Nondisclosure of Foreign Financial Assets – A taxpayer who willfully fails to disclose foreign financial assets (which include, but are not limited to, foreign bank accounts) to FinCEN or the IRS can face criminal prosecution under FATCA.  

In federal tax crime cases, DOJ prosecutors will also frequently pursue charges for mail fraud, wire fraud, money laundering, conspiracy, and other federal white collar crimes. Many of these charges carry substantial penalties; and, even if prosecutors cannot substantiate allegations of willful tax evasion or tax fraud, they may still have the evidence they need to pursue these non-tax-specific charges in federal court.

How Does the DOJ Uncover Evidence of Willful Tax Law Violations?

The DOJ can uncover evidence of willful tax law violations through various means. But, in many cases, criminal tax cases start with an IRS audit or investigation. While audits are not criminal inquiries, they can lead to criminal charges if auditors uncover evidence that suggests a taxpayer has willfully violated the law. In contrast, investigations are inherently criminal in nature, and Special Agents with IRS Criminal Investigation (IRS CI) often work closely with DOJ prosecutors to substantiate criminal allegations.

FAQs: Facing Allegations of Federal Tax Crimes

Can an IRS audit lead to criminal charges?

Yes, an IRS audit can lead to criminal charges. If revenue agents find what they believe to be evidence (or potential evidence) of willful tax evasion or tax fraud, they can refer the taxpayer’s case to IRS CI or the DOJ for further inquiry.

What should I do if I have been contacted by IRS CI?

If you have been contacted by IRS CI, you should engage experienced tax counsel promptly. IRS CI is responsible for investigating suspected tax crimes, and when facing an IRS CI investigation, executing a strategic and proactive defense can be critical to avoiding unnecessary consequences.

What should I do if I have concerns about facing allegations of criminal tax evasion or tax fraud?

If you have concerns about facing allegations of criminal tax evasion or tax fraud, you should consult experienced tax counsel promptly. If you are not yet facing an audit or investigation, you may be able to submit a voluntary disclosure or take other steps to come into compliance and mitigate your risk of facing criminal charges.

How the Tax Fraud Lawyers at Brown PC Can Help

The tax fraud lawyers at Brown PC assist high-income, high-net-worth, and corporate taxpayers with managing their federal risk. This includes defending against audits, investigations and criminal charges, as well as submitting voluntary disclosures and pursuing other proactive means of resolution.

If you have questions or concerns, our lawyers can guide you forward and, if necessary, interface with the IRS or DOJ on your behalf. We have extensive experience in high-stakes federal tax matters, and we can use our experience to help you make informed and strategic decisions regardless of the circumstances at hand.

Request a Confidential Consultation with a Texas Tax Fraud Lawyer at Brown PC

If you would like to speak with a Texas tax fraud lawyer at Brown PC, we invite you to get in touch. We handle high-stakes federal tax matters on behalf of taxpayers statewide. To request a confidential consultation, call us at 888-870-0025 or tell us how we can reach you online today.