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Penalties of Tax Fraud

PENALTIES OF TAX FRAUD

In one of the Internal Revenue Service (IRS) top ten cases of 2022, popular television personalities Todd and Julie Chrisley were sentenced to prison for fraud and tax evasion. The “Chrisley Knows Best” couple was found guilty of charges including evading the collection of delinquent taxes, hiding assets, concealing income, and failing to file or pay tax returns. For their efforts, Todd received a 12-year sentence, while Julie received seven years.

After sentencing, James E. Dorsey, Special Agent in Charge, IRS Criminal Investigation, Atlanta Field Office, stated that the sentencing “serves notice that no matter a person’s celebrity status, there are severe consequences for defrauding the American tax system.” Keri Farley, Special Agent in Charge of FBI Atlanta, said, “the FBI is proud to work with our law enforcement partners at the IRS and the U.S. Attorney’s office to pursue and prosecute individuals that are driven by greed to evade the law.”

While news of that case may be alarming, it is important for taxpayers to understand tax fraud, the penalties for committing it, what to do to avoid tax fraud, and what assistance may be available to taxpayers who are facing penalties of tax fraud.

WHAT IS TAX FRAUD?

Tax fraud occurs when a taxpayer willfully deceives or misrepresents information on their tax return or tax related documents. Some of the most common forms of tax fraud are:

  1. Underreporting income. Failing to report income or reducing the income that was reported.

  2. Overstating deductions. Claiming deductions for expenses that did not actually occur or inflating the value of items donated to charity.

  3. Hiding assets. Concealing assets by transferring assets to family members, friends, or offshore accounts to avoid paying taxes on those assets.

  4. Falsifying documents. Creating false receipts or invoices to support fraudulent income or deductions.

  5. Not filing tax returns. Failing to file tax returns may also be a form of fraud as an intentional effort to evade paying taxes.

  6. Identity theft. Using another’s identity to file a fraudulent return.

WHAT PENALTIES MAY TAXPAYERS FACE FOR COMMITTING TAX FRAUD?

  1. Civil penalties. The IRS can impose civil penalties on taxpayers including a penalty of up to 75% of the tax underpayment, as well as interest and penalties for the failure to file or pay taxes. In addition to the federal penalties, California can impose a penalty of up to 50% of the underpaid tax for taxpayers who file fraudulent returns or fail to pay a tax due to fraud.

  2. Criminal penalties. The IRS can refer cases of tax fraud to the Department of Justice (DOJ) for criminal prosecution. Tax fraud can also result in federal criminal charges, which can lead to fines and imprisonment. The penalties for federal criminal tax fraud can include fines of up to $250,000 for individuals and $500,000 for corporations, as well as imprisonment for up to five years. In California, the Franchise Tax Board (FTB) can bring criminal charges including fines of up to $20,000 or more, as well as imprisonment for up to three years.

  3. Loss of privileges. Tax fraud can also result in the loss of certain privileges, such as the ability to practice before the IRS or hold certain professional licenses. Similarly, in California, tax fraud can lead to the loss of the ability to practice certain professions or hold certain licenses.

  4. Seizure of assets. The IRS and California can seize assets, such as bank accounts or property, to collect unpaid taxes resulting from tax fraud.

HOW CAN YOU AVOID COMMITTING TAX FRAUD?

Filling out tax returns accurately and honestly is the best way to avoid committing tax fraud. Maintaining complete and thorough records is important to help prove the information claimed on the returns. An expert attorney can help guide you through the preparation of the returns and advise you on which records are necessary to maintain.

WHAT ASSISTANCE IS AVAILABLE IF YOU HAVE COMMITTED TAX FRAUD?

tax attorney may be able to help you rectify the fraud by assisting you with filing amended returns. They can also protect your rights and negotiate with the taxing agency on your behalf. At Dallo Law Group, our skilled attorneys can advise you on which strategy is best for your unique circumstances. No matter what you are facing, our team of experts are equipped to guide you through the process. If you are looking at the harsh penalties of tax fraud, Dallo Law Group is ready to help; give us a call at 619-795-800.

Written by Christopher Vanderveen, Dallo Law Group