When Does The IRS Pursue Criminal Charges?

Violations of the Internal Revenue Code, such as tax evasion and tax fraud, may lead to criminal charges. Cases of tax evasion are dealt with most severely and are more likely to lead to criminal charges. Tax fraud, on the other hand, usually leads to civil penalties but it can lead to criminal charges, as well.

Investigation by the IRS

The IRS receives information about tax fraud and tax evasion from its revenue officers, the United States Attorney offices, the police, and other law enforcement agencies. If the Criminal Investigation (CI) branch of the IRS has sufficient information to prove that a taxpayer willfully or otherwise is responsible for tax fraud or tax evasion, it will prepare a written report of the offenses called a “special agent report.” This report is reviewed at various levels before charges are pressed against a taxpayer and a trial is conducted.

Tax Evasion and Tax Fraud

Taxpayers hiding income and/or assets overseas run the risk of being convicted for criminal offenses, especially now that the IRS is taking corrective actions against overseas banks and tax evaders under the Foreign Account Tax Compliance Act. Filing fraudulent tax returns, claiming false tax credits and/or deductions, and understatement of income can attract civil and/or criminal penalties.

Even if a taxpayer conducts tax fraud under the influence of unscrupulous tax preparers or incompetent financial advisors, it is the taxpayer who is held responsible for the return.

Penalties

If a person willfully attempts to evade taxes and is found guilty, they can be imprisoned for more than 5 years, or fined no more than $250,000 (if an individual, and not a corporation). Both penalties and jail time can be administered together with court costs, as well.

For fraudulent returns, imprisonment will be imposed for no more than 3 years, or a fine of no more than $250,000. Both penalties and jail time can be administered, in addition to court costs.

Identity Theft

If a taxpayer’s identity is stolen and a fraudulent return is filed on his or her behalf, the taxpayer must immediately contact the IRS and the police to report the theft.

According to the IRS, there are approximately 3,000 criminal prosecutions conducted each year. If a taxpayer can furnish a valid reason to the IRS for tax fraud, however, such as understatement of income or claiming of false credits and/or deductions, they may not press criminal charges. The likelihood of a taxpayer facing criminal charges is less than 20 percent. The amount of income and the amount of taxes evaded or defrauded also determines how severely the IRS deals with the non-compliance.