Review of State and Federal Tax Evasion Charges and Defenses
Tax evasion is a serious white collar crime that carries significant fines and a potential jail sentence, depending on the specific facts of the case.
You could face prosecution in California or the federal level, depending on which taxes have not been paid.
Clearly, it's illegal to deliberately pay less than you owe on taxes. The most common behavior that leads to tax evasion charges are:
- under-reporting income,
- lying on your tax return, and
- failing to even file a tax return.
Multiple adages attest to the gravity and frequency of tax evasion. Still, it is a problem that continues to plague the IRS every year, despite efforts to curb it with investigations and audits.
While the United States consistently enjoys a high and stable voluntary tax rate, fraud counts for billions of dollars in missing revenue annually.
This gap generates a need for more stringent and thorough investigation processes, incurring prison time for consistent and deliberate fraudulent activity.
Tax evasion is a severe crime in California that comes with strict repercussions.
It's important to note that in order for a prosecutor to convict you of tax evasion, they must be able to prove you knew the information was false and it was provided with the intent to avoid paying taxes.
For more information, our Los Angeles criminal defense attorneys are providing an overview below.
Defining Tax Evasion
Tax evasion is the legal term for any activity that involves deliberately not paying taxes. Some of the most common methods include:
- Not filing a tax return: Failure to file a return does not release someone from the obligation to pay taxes.
- False residency claims: Filers who live in California may falsely claim to be residents of another state with fewer taxes to avoid tax liability.
- Making fake transactions to conceal income: Making a phony transaction to “prove” that one has many expenses will often backfire. An audit could lead to an investigation of each transaction.
- Transferring assets: Allocating assets to pay less on taxes is a common, yet illegal, way to avoid making extra payments.
- Suspicious business closures: Opening and closing a business frequently to avoid paying taxes is an easily traceable criminal offense.
- Filing a return but providing false information: Frequent inconsistencies and false claims can trigger an audit.
- Falsely claiming high deductions: Higher deductions mean less money owed and will frequently get filers in legal trouble.
- Under-reporting income or omitting it altogether: Filers have multiple places to store their money and income. From numerous bank accounts to web applications, keeping these funds out of a tax return is illegal.
There is a difference between an honest mistake on a return and tax evasion. In most cases, when errors happen, the IRS adjusts the statement, and the filer pays the difference.
However, egregious tax evasion cases and intentional false statements and omissions have a heavier penalty.
California's Efforts to Reduce Tax Evasion
It is illegal in to intentionally manipulate returns. If the activity was ongoing, investigators are adept at find clues that trigger an audit.
Even if a person does not file a tax return, the IRS can determine if evasion occurred.
Some entities that investigate tax fraud include:
- California Department of Tax and Fee Administration: The CDTFA Identifies fraudulent activity, investigates it, and assists with the prosecution.
- Franchise Tax Board: The California FTB allows the public to report suspected tax fraud and evasion cases for individuals and businesses.
- Employment Development Department: The EDD Performs a criminal investigation for tax evasion by businesses that fail to pay payroll taxes.
Depending on the severity of the suspected evasion, more than one entity may investigate a case.
Repercussions and Penalties for Tax Evasion
No person or entity is immune to an IRS audit. California has two codes for tax evasion. The penalties depend on your case specifics and evidence that the prosecution uncovers during their investigation.
California Revenue and Taxation Code 19706
This code applies to individuals, officers, or employees who fail to file a tax return or falsify the statement's information.
A conviction under this code can either be a misdemeanor or a felony, depending on the case's details.
The penalty includes up to one year of imprisonment in a county jail or state prison. It also incurs a fine of up to $20,000.
California Revenue and Taxation Code 19705
This code makes it unlawful for persons to willingly make false statements on their tax returns and pass them off as factual.
Suppose the prosecution can prove that you made the false statement knowingly. In that case, it is a felony and incurs between 16 months to 3 years in state prison. Defendants must also pay a fine of up to $50,000.
The state will also investigate the amount of money owed over multiple years and file a collection claim to retrieve the funds. Tax evasion has long-term impacts that affect your quality of life and your reputation.
Defenses for California Tax Evasion Charges
In order for the prosecutor to obtain a tax evasion conviction, they must prove you were personally involved in filing the tax return, and you deliberately provided false information for the primary purpose of not paying taxes.
We might be able to make a reasonable argument there were several people involved in preparing and filing the tax return and make a claim the information was not fraudulent, rather a case of sloppy bookkeeping.
A common defense for personal tax returns is that you simple made an honest mistake and there was no deliberate act to avoid paying taxes.
We might be able to negotiate where you can file an amended tax return. While there are fees involved, they are much less than tax evasion fines.
Our California state-bar certified criminal law specialists can help you find a solution when you face tax evasion charges.
You will need qualified legal representation or you could be facing years of incarceration and pay thousands in fines and back taxes.
Eisner Gorin LLP is an experienced team of criminal defense lawyers that have the skills to give you the best chance for a favorable case outcome.
We have two office locations in Los Angeles County, including Century City and Van Nuys.
Call our law firm for a consultation at (877) 781-1570, or contact us online.