Definition of Tax Fraud
United States tax laws are set forth in Title 26 of the U.S. Code. Understanding all obligations imposed by the Internal Revenue Code is difficult for individuals and businesses and confusion over tax obligations can sometimes lead to unintentional underpayments or underreporting of income.
A violation of tax laws can result in criminal charges, as well as a requirement to pay back dues, interest, fines and penalties. To protect your freedom and financial security, it is important to get legal help if accused of violating IRS laws.
A tax fraud lawyer at Bukh Law Firm, P.C. can provide you with legal representation when faced with allegations of violating the Internal Revenue Code.
Common Tax Fraud Offenses
Because the Internal Revenue Code is so complex, there is opportunity for individuals and families to claim tax credits they do not deserve, to willfully underreport or fail to report income, and to hide assets. Some of the most common types of IRS fraud that result in criminal charges include:
Tax refund fraud
This offense typically takes the form of filing out a tax return with stolen or inaccurate information and requesting a tax refund from the Internal Revenue Service.
Child tax credit fraud
The earned income tax credit (EITC) is commonly referred to as the child tax credit because it makes it possible to reduce tax liability by as much as $1,000 per qualifying child. The child must be claimed as a dependent, must not have provided half of financial support, must be under age 17, and must meet certain other IRS requirements. Tax fraud occurs when married couples split qualifying children and both file as head of households in order to improperly benefit from the EITC. Claiming children who are not dependents and intentionally double claiming of children on tax returns of divorced or separated parents are two of many examples of child tax credit fraud.
Tax preparer fraud
Tax preparer fraud usually takes the form of tax preparers claiming improper deductions, deducting fictitious business losses, claiming unallowable credits or claiming excessive exemptions. In any situation where a preparer knowingly files a false or fraudulent return, the preparer could be charged with fraud. Taxpayers usually keep the money from these false or inaccurate returns, but often pay higher fees to the preparer. Charges of tax preparer fraud have resulted in lengthy jail terms for preparers, with minimal or no consequences for the filers who actually received the improper payments from the IRS.
Corporate/ business tax fraud
Corporate tax fraud takes many forms, including overstating business deductions, hiding income, artificially inflating losses to shelter income, failing to report income earned in a stock exchange, and claiming false deductions. Corporations are subject to larger fines than individuals when found guilty of tax fraud. Preparers within the business organization who intentionally help the company to defraud taxes may face personal criminal liability if the IRS can prove knowing and willful attempts to help the corporation evade taxes.
Employer tax fraud
Paying employees in cash, filing false payroll tax returns, and pyramiding (withholding payroll taxes from employees but not remitting the taxes to the IRS) are all examples of employer tax fraud.
It is also possible to be charged with tax fraud on the state level in New York. Common offenses include
Family tax relief credit fraud
The Family Tax Relief Credit is available to New York residents with children who are claimed as dependents. Claiming more children as dependents than you actually have is an example of family tax relief fraud.
Sales tax fraud
Businesses registered as vendors in New York must obtain a Certificate of Authority from the New York State Department of Taxation and Finance. This makes it possible to receive tax exempt status to purchase inventory, as well as gives your business the authority to collect required sales and use taxes. Failure to report and pay all sales tax, or misuse of tax exempt status, are examples of sales tax fraud that can lead to criminal charges as well as civil penalties.
Property tax fraud
Improper filing of exemptions for the State School Tax Relief Program (STAR) is one example of property tax fraud that could result in criminal charges
It is important to make the distinction between legal methods of maximizing deductions and criminal acts that can lead to a charge of fraud. It is not fraudulent to claim all deductions you are entitled to or to make strategic investment and spending decisions in an effort to reduce tax liability. It is fraud if you willfully misrepresent yourself to the IRS to evade your obligation.
There is often a fine line between strategic and legal tax avoidance and criminal fraud, and you may be able to avoid conviction for a tax offense by introducing reasonable doubt as to which side of that line you were on.
A New York City tax evasion lawyer will help muddy the waters in an effort to help you avoid conviction for tax evasion.
Federal Tax Fraud Laws
To determine if your actions can lead to a charge of tax fraud, it is important to understand the types of behaviors that the IRS has classified as criminal offenses. Code Sections 7201 through 7217 of the Internal Revenue Code define 18 different federal tax crimes including:
- Attempting to evade tax obligations.
- Willfully failing to pay or collect taxes.
- Willfully choosing not to file a required income tax return.
- Failing to provide tax statements to employees as required by law.
- Providing false tax statements to employees.
- Incorrectly completing new hire paperwork when brought in as a new employee, resulting in improper tax withholding due to willful false statements or intentional withholding of information.
- Filing a fraudulent tax return.
- Failing to obey a summons to provide information or testimony to the Internal Revenue Service.
These and other tax offenses can be broadly divided into two categories of criminal violations: evasion of tax payments and evasion of tax assessments. If you engage in either behavior and your actions were found to have been a willful violation of the Internal Revenue Code or New York code, you could be charged with a state or federal criminal offense. The IRS or the state of New York has the burden of both proving beyond a reasonable doubt that your actions were motivated by a desire to evade taxes AND that you successfully underpaid the amount of taxes that were due.
Federal Tax Fraud Penalties
Penalties for federal tax fraud crimes are established by the Internal Revenue Code and vary depending upon the particular offense with which you have been charged.
- Willfully attempting to evade or defeat your dues in any manner can result in felony charges; a fine up to $100,000 for individuals or up to $500,000 for corporations; and up to five years incarceration under Code Section 7201.
- A willful failure to collect required taxes or to pay over taxes collected and owed can result in a fine up to $10,000 and imprisonment for up to five years under Code Section 7202.
- A willful failure to file a return, to keep required records, or to supply information as requested can result in misdemeanor charges, a fine up to $25,000 (or $100,000 for corporations) and up to a year of imprisonment under Code Section 7203.
- Making fraudulent statements to employees or not providing tax statements to employees as required can result in a fine up to $1,000 and up to one year incarceration under Code Section 7204.
- An employee who withholds information to his employer that he is required to supply, or who willfully provides his employer with false information that improperly reduces the employee’s liability, can be sentenced to up to a year imprisonment as well as a fine of $1,000 under Code Section 7205.
- Making false statements on returns or other documents, or advising or counseling someone on how to make or file file false returns, can result in felony charges, a fine up to $100,000 (or $500,000 for corporations) and up to three years of imprisonment under Code Section 7206).
- Willfully delivering or disclosing a return to the Secretary that is known to be false or fraudulent can result in a fine up to $10,000 (or $50,000 for a corporation) and up to a year of prison time under Code Section 7207.
In addition to other fines and penalties, you may be required to pay for the costs of prosecuting the tax offense if you are convicted.
It is common to be charged with multiple offenses when you are prosecuted for IRS return. For example, a person who tries to avoid paying taxes by not filing a return with the IRS can be charged both for not filing the return under Code Section 7203 and for a willful attempt to avoid paying taxes under Code Section 7201.
New York Tax Fraud Crimes
New York State also collects taxes from individuals and businesses, including sales tax, cigarette taxes, employment taxes, corporate taxes and personal income taxes. Filing false returns to the state, supplying misleading or incorrect information, or engaging in any scheme to defraud the state of New York can result in state tax fraud charges.
There are different categories of tax fraud in New York State including:
- Criminal tax fraud in the first degree: This is a Class B felony under Y. tax law 1806. You will be charged with this offense for depriving the state of $1 million or more through an intentional act of fraud or evasion.
- Criminal tax fraud in the second degree: This is a Class C felony under Y. tax law 1805. You will be charged with this offense for depriving the state of $50,000 to less than $1 million.
- Criminal tax fraud in the third degree: This is a Class D felony under Y. tax law 1804. You will be charged with this offense for depriving the state of $10,000 to less than $50,000.
- Criminal tax fraud in the fourth degree: This is a Class E felony under Y. tax law 1803. You will be charged with this offense for depriving the state of $3,000 to less than $10,000.
- Criminal tax fraud in the fifth degree: This is a Class A misdemeanor under Y. tax law 1802. It applies any time you commit a tax fraud act that deprives the government of less than $3,000 in revenue over the course of a one year period.
The government must prove a willful or intentional attempt to evade obligations, as well as actual nonpayment, in order for you to face penalties for state tax fraud. Supplying material false information; failing to file required returns; filing fraudulent returns; failing to remit taxes collected on behalf of the state; failing to collect sales tax; or any scheme to defraud the state of New York can result in being charged with one of these crimes. When found guilty, you can not only face jail time and criminal fines, but also civil penalties based on the amount of unpaid income tax.
How a New York Tax Fraud Attorney Can Help Get Your Defense Together
Available defenses to tax fraud charges vary depending upon the crime you are accused of and the evidence against you. It may be possible to argue a lack of intent to violate laws, or that there is insufficient proof you actually failed to fulfill Internal Revenue Code or New York requirements.
When you are subject to a criminal prosecution for tax fraud or evasion, you are entitled to the same Due Process and other Constitutional protections as for any criminal offense. This means that unless a prosecutor is able to conclusively prove guilt beyond a reasonable doubt, avoiding conviction for tax fraud should be possible. If you would prefer not to pursue a defense in trial, it may also be possible to negotiate a plea bargain with the attorney prosecuting your case. Plea bargains can often allow you to avoid jail time, especially for first offenses and when proof of willfulness is limited.
Choosing the right course of action is complicated when accused of defrauding the IRS or the state of NY, but an experienced New York City IRS fraud lawyer at Bukh Associates, P.C. can be your guide as you face these charges.
