Now that you filed your 2019 return, you might think you are done dealing with taxes until next spring. However, if the IRS determines there is something amiss with your reporting, you could face criminal charges.
A person found guilty of a willful attempt to “evade or defeat” tax assessment or payment will suffer the effects of a felony record, including up to five years served in prison and the potential of $500,000 in fines. Since these accusations can be life-changing, you should understand the laws surrounding your tax liability, as well as a court’s requirements for finding you in contempt.
What, exactly, is tax evasion?
As with most Americans, you are probably familiar with the concept of tax evasion, though you may not know exactly what that might look like on a return. There are generally two ways in which you could allegedly circumvent your fiscal responsibility to the government.
- Evasion of assessment refers to providing the appearance of a minimized income, either through underreporting or by taking illegitimate deductions. In this case, the attempt to reduce the amount of money on which your taxes are calculated constitutes a falsified return.
- The evasion of payment, on the other hand, often includes an attempt to hide assets that could resolve tax debt. Here, the IRS may demand payment for taxes owed, either with or without a filed return.
In either case, you have the right to defend your intent, since allegations of both forms of tax evasion stem from a divisive choice.
Examples of evasive acts
You are unlikely to face charges of tax evasion for failing to file your return on time. Instead, charges indicative of an attempt to reduce your tax bill might include:
- Destroying your financial records
- Maintaining two distinctly different sets of books
- Hiding income sources
- Using another person’s bank account to conceal assets
- Falsifying invoices
- Conducting transactions in cash, rather than traditional, traceable, means
- Altering account entries
Considering the intricacies of tax law, it is important to be aware that numerous other activities could factor into an IRS determination. However, how could the government prove willfulness on your part?
The willful disregard of tax laws
The IRS may find it difficult to prove your intent to evade your tax liability. However, they must determine there was a legal regulation to which you had an obligation. Furthermore, they must be able to support the awareness of your responsibility and that you chose to act outside of the stated, and understood, law.
Depending on the situation, a questionable transaction or the taxability of specified income may not be clear. Unprecedented circumstances, unique to your case, may increase a court’s questions when ruling on your conduct.
No matter your circumstances, reaching outside your area of expertise to resolve a dispute on your own may not be in your best interest. However, a licensed tax attorney can educate you about your favorable options, should a point of contention arise with the IRS.