In the category of white-collar crimes, one area that demands rigorous defense involves tax evasion and tax fraud. As per the Internal Revenue Code, specifically 26 U.S.C. § 7201, these financial crimes are serious federal offenses, liable to severe penalties.
Although a federal offense, tax evasion and tax fraud are not isolated from state regulations, Arizona, for instance, has its unique rules included in the Arizona Revised Statutes. But how does one navigate this legal jargon, especially when charged with such a crime?
That's where we step in. As experienced federal criminal defense attorneys from Kolsrud Law Office, we are adept at bridging the federal-state divide and providing winning defense strategies for our clients.
In this article, we'll discuss the following topics:
- Understanding Tax Evasion and Tax Fraud under 26 U.S.C. § 7201
- The Intersection of Federal and Arizona State Law on Tax Evasion and Tax Fraud
- Criminal Penalties for Tax Evasion and Tax Fraud under Federal and Arizona Law
- Civil Consequences of Tax Evasion and Tax Fraud
- Legal Defenses against Charges of Tax Evasion and Tax Fraud
Interestingly, the IRS estimates that the tax gap, which is the tax liability faced by taxpayers not paid on time, was approximately $441 billion for tax years 2011 through 2013.
This reflects the urgency and significance of understanding tax-related crimes and their consequences.
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Understanding Tax Evasion and Tax Fraud under 26 U.S.C. § 7201
The cornerstone of tax fraud and tax evasion lies within 26 U.S.C. § 7201. In layman's terms, this federal law dictates that anyone who willfully attempts to evade or defeat tax imposition is guilty of a felony. However, not every underpayment or error amounts to tax fraud or evasion. The keyword here is "willful." The prosecution must establish that the defendant's actions were intentional, deliberate, and aimed at defrauding the government.
It's critical to understand the distinction between negligence and willful evasion. You might be negligent if you make a mistake on your tax return, but you are evading taxes if you deliberately underreport your income or claim deductions to which you're not entitled.
Tax evasion often involves deliberate tactics to mislead the IRS. This could include underreporting income, inflating deductions, or hiding money and its interest in offshore accounts.
On the other hand, tax fraud is a broad term encompassing a range of illicit activities aimed at defrauding the government, like preparing and filing a false return.
The Intersection of Federal and Arizona State Law on Tax Evasion and Tax Fraud
When enforcing tax laws, there's a clear delineation yet intricate interplay between federal and state regulations. Like other states, Arizona has its statutes pertaining to tax crimes, predominantly outlined in the Arizona Revised Statutes. Specifically, ARS § 42-1127 stipulates penalties for various forms of tax fraud, including fraudulent claims for refund, failure to collect tax, and fraudulent statements.
Notably, the penalties under Arizona law can be imposed in addition to those outlined in federal law. The enforcement often depends on the scope and severity of the crime. For instance, large-scale tax fraud involving significant amounts may attract the attention of federal agencies such as the IRS. In contrast, more minor infractions might be primarily dealt with at the state level.
What this means for you as a defendant is that you could potentially face federal and state prosecution for the same crime. That's why a thorough understanding of both federal and Arizona tax law is paramount in crafting a solid defense strategy.
Criminal Penalties for Tax Evasion and Tax Fraud under Federal and Arizona Law
The penalties can be severe if found guilty of criminal tax evasion or tax fraud.
The following are different types of federal tax fraud and their corresponding penalties:
26 USC § 7201 – Tax Evasion Attempts (Felony)
Penalties can include up to five years imprisonment, monetary fines reaching $100,000 for individuals or $500,000 for corporations, or a combination of both these punishments (as of 2021). Costs of prosecution are also applicable.
26 USC § 7202 – Deliberate Neglect to Collect or Remit Tax (Felony)
Punishments can encompass a maximum of five years in prison, financial penalties of up to $10,000 for individuals (as of 2021) who willfully fail to collect or pay over taxes. However, if the failure to collect or pay over taxes exceeds $100,000, the maximum fine can be increased to $50,000 for individuals
26 USC § 7203 – Intentional Failure to File Tax Returns, Provide the Necessary Information, or Pay Due Tax
Consequences may include up to one year of incarceration, fines not exceeding $25,000 for individuals and $100,000 for corporations or a mixture of both. Prosecution costs may also be levied.
26 USC § 7206 – Engaging in Fraudulent Activities or Making False Statements
The sanctions may entail a maximum of three years of imprisonment, monetary fines reaching $100,000 for individuals or $500,000 for corporations, or a combination of both (as of 2021). Prosecution costs are also relevant.
26 USC § 7212(A) – Interference Attempts with the Administration of Internal Revenue Laws
Penalties can include up to three years of incarceration, fines of up to $100,000 for individuals or $500,000 for corporations, or a mix of both (as of 2021). Additionally, costs for prosecution may be applied.
18 USC § 371 – Conspiring to Commit a Federal Offense or Defraud the United States
The maximum prison sentence for individuals convicted of conspiracy is generally up to five years. However, the specific penalties and sentence enhancements can vary based on the underlying offense or offenses involved in the conspiracy.
It is important to note that the statute itself does not specifically provide for separate penalties or sentence enhancements for businesses in this section. In cases where a business entity is involved in a conspiracy, the individuals within the business who are found guilty of conspiring to commit an offense against the United States may face individual penalties, including imprisonment and fines.
The penalties imposed on individuals within the business will depend on the specific charges, the facts of the case, and the judge's discretion during sentencing.
It's important to note that the penalties for the statutes above are subject to change, and the specific fines for a particular case may depend on various factors, such as the amount of taxes evaded, the defendant's prior criminal history, and the judge's discretion during sentencing.
Arizona Tax Evasion Laws
On the state level, under ARS § 42-1127, a person committing tax evasion can be charged with a class 5 felony, which can lead to imprisonment, alongside potential fines, and restitution.
Additionally, penalties for civil tax fraud can include a 75% civil penalty of the tax owed, plus interest and cost of government resources. The severity of the punishment often depends on the magnitude of the fraud, whether it was a first-time offense, and the defendant's willingness to cooperate with the authorities.
Civil Consequences of Tax Evasion and Tax Fraud
The repercussions of tax evasion and tax fraud extend beyond criminal penalties. Civil consequences may come into play, creating a ripple effect that could substantially impact your financial and personal life.
For one, the IRS might impose a tax lien on your property, effectively securing the government's claim to your assets regarding your tax debt. Tax liens can make selling your property or securing a loan extremely difficult.
Then, there's the issue of civil asset forfeiture. Under 26 U.S.C. § 7301, the government can seize property used in tax evasion or purchased with the proceeds of tax evasion. That means your bank accounts and real estate, vehicles, and other tangible property could be at risk.
Legal Defenses against Charges of Tax Evasion and Tax Fraud
Being accused of tax evasion or fraud can be an overwhelming experience. However, remember that an accusation isn't a conviction. As a defendant, you have the right to present a defense, and that's where we, as federal criminal defense attorneys from Kolsrud Law Office, come into the picture.
Below are 10 Legal Defenses to Federal Tax Fraud and Tax Evasion:
- Lack of Willfulness: Tax evasion and tax fraud require willful intent to avoid paying taxes. Proving that errors were due to negligence or misunderstanding, not willful intent, can serve as a strong defense.
- Inadequate Investigation: If tax authorities did not properly investigate your case, it might be possible to challenge the prosecution's evidence, possibly leading to dismissal of charges.
- Incorrect Tax Assessment: You might be able to challenge the amount of tax you're accused of evading or defrauding. If you can prove the tax assessment was incorrect, this could potentially reduce your liability or even result in the case being dismissed.
- Statute of Limitations: There is a time limit, known as the statute of limitations, within which the IRS can charge a person with tax evasion or tax fraud. If the prosecution is not initiated within this timeframe, you may be able to have the charges dismissed.
- Insufficient Evidence: To convict you of tax evasion or tax fraud, the prosecution must prove their case beyond a reasonable doubt. If the evidence against you is weak or uncertain, this defense might be effective.
- Entrapment: This defense applies if a government agent induced you to commit tax evasion or fraud, a crime you would not have committed otherwise.
- Advice of Counsel: If you relied on the advice of a professional such as a tax attorney or certified public accountant when preparing your taxes, this might serve as a defense if their advice led to the disputed tax situation.
- Administrative Remedies Not Exhausted: The IRS is required to exhaust all administrative remedies before bringing a criminal case. If they have not done so, this could serve as a potential defense.
- Mistake of Fact: If you can show that you made an honest and reasonable mistake that led to incorrect tax filings, this may serve as a defense.
- Duress or Necessity: This defense is applicable if you can prove that you were forced to commit tax evasion or fraud due to an immediate threat to your safety or life, or you committed the act to prevent a greater harm.
Remember, tax law is notoriously complex, and the stakes in tax evasion or fraud cases are high. At Kolsrud Law Office, we stand ready to guide you through this complex legal maze, fight for your rights, and help you present the best possible defense.
Kolsrud Law Offices are Ready to Fight Tax Fraud or Evasion Charges
Tax evasion and tax fraud are serious crimes with significant penalties and repercussions under federal and Arizona law.
Whether it's facing hefty fines, imprisonment, or dealing with the aftermath of civil penalties, the consequences of these crimes are far-reaching and long-lasting.
Keep in mind that an accusation isn't a conviction.
Our team at Kolsrud Law Offices is committed to helping you navigate these challenging circumstances, providing expert counsel every step of the way. If there's one thing to take away from this discussion, understanding tax evasion and fraud, being aware of the potential penalties, and knowing your rights can help prepare you for the legal battle ahead. It's a journey no one should walk alone – and with the proper legal representation, you won't have to.
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An award-winning criminal defense attorney Since 2006
Why Choose Josh Kolsrud
With over 100 trials to his name, and years of experience as a state and federal prosecutor, Josh understands the law, the legal process, and your rights. Josh is also committed to representing every client with utmost integrity and dedication
Josh has prosecuted major crimes on the state and federal level, led a successful anti-human sex trafficking operation that saved lives, and argued before countless juries and justices for his clients
Josh is an expert in both Arizona and federal criminal law, and is ready to put that expertise to work for you.
As a prosecutor, Josh saw far too many defendants lose their livelihood due to poor representation. Josh will always give every client his complete attention and effort