IRS tax fraud happens every year. Some people make honest mistakes, some simply forget or fail to pay their taxes year after year, while others intentionally don’t file their tax returns or pay their tax bills. Eventually, these people will begin to feel the weight of their tax debt and tax evasion, wondering if the IRS will come after them for criminal tax fraud. 

The good news is that the majority of people with a failure to file their federal tax will not have criminal charges brought against them, nor will they spend time in jail for tax evasion. IRS agents are simply government agents seeking to collect a debt, not to cause jail time for taxpayers with a failure to file. 

In fact, the Internal Revenue Service only opens criminal investigations against 2% of taxpayers, and only 20% of that number actually faces criminal tax fraud charges or fines. 

If you find yourself under a criminal investigation by the IRS for failing to file or tax fraud, or if you are the subject of an IRS audit, there is a chance you will have to spend time in jail. However, by understanding the way an IRS criminal tax investigation works and what you can expect, you can prepare yourself for what’s to come. 

Who Does the IRS Investigate for Criminal Tax Fraud?

Many people are unable to pay their taxes or simply don’t file their tax returns. While these taxpayers may face pursuit and penalties from the IRS, they won’t necessarily face criminal investigations. 

Simply not having the money to pay your taxes is not criminal. The IRS works with taxpayers who cannot afford to pay their taxes in order to find a solution that is best for both parties. 

However, there are some types of income tax issues that can result in a criminal investigation and potential prosecution. 

Failing to file your tax return can lead to criminal prosecution and a year of jail time, for each year that the tax returns were not filed. 

Tax evasion through unreported income and misrepresented credits may have a prison sentence of up to five years. 

Anyone who aids another in tax evasion could face three to five years in jail. 

While you will not face criminal charges for being unable to pay your taxes, if you withhold income that would enable you to pay, the department of justice could file criminal charges against you. 

Understanding Tax Fraud and Tax Evasion

People have long imagined that an IRS auditor is constantly seeking to file criminal charges against any taxpayers that have unpaid or unfiled taxes. However, most of the time the Internal Revenue Service is more lenient than people realize, and they are only interested in collecting taxes that are owed. 

Typically, accidental miscalculations of income tax or tax credits are not considered to be tax evasion. On the other hand, intentionally concealing $70,000 or more of income is looked at as tax fraud and will likely result in a criminal tax investigation. During an audit, IRS agents are trained to notice inconsistencies or signs of criminal tax fraud and tax evasion. These signs can spark an IRS criminal investigation. 

What Does the IRS Consider Evidence of Fraud?

There are four things that the IRS recognizes as criminal tax fraud. If a taxpayer demonstrates signs of deception, making false statements, submission of false or altered documents, or fails to submit certain documents such as tax returns, they could be charged with criminal tax evasion or fraud. 

There are also a number of “badges of fraud” that the IRS looks for when deciding whether or not to bring criminal charges, which fall into four categories; unjustified deductions or tax credits, improper or unreported income, poor record-keeping, and illegal behavior. 

Oftentimes these badges simply lead to the imposition of penalties instead of criminal prosecution. However, if the evidence points to intentional criminal behavior instead of simple negligence, charges will likely be pursued.

Making false statements to the IRS or other federal government special agents is typically considered a criminal offense. If you are found guilty of misrepresenting your situation or making false statements, you could owe money or even face a trial for tax fraud.

Penalties for Tax Evasion

Not every form of tax evasion warrants an IRS criminal investigation. In fact, there are a variety of penalties that the IRS and special agents can impose on taxpayers for not paying taxes or failing to file a tax return. By law, the IRS may impose one or more penalties, most of which are not considered crimes, based on the internal revenue code. While taxpayers who commit a crime based on their tax liability may have to go to jail, there are other federal penalties that could be imposed instead, or along with, the prison sentence.

Financial Penalties

There are financial penalties for those that are found guilty of not paying taxes. Taxpayers can receive a fine of up to $250,000 for avoiding their tax liability. Tax returns that are filed 60 days or more after the due date can have additional penalties given by an IRS auditor. Filing tax returns is essential, even if you are not able to pay your tax debt in full or on time.

Interest Penalties

By law, those who fail to pay the federal taxes they owe on time will be charged interest by the IRS. Interest begins to accumulate on top of federal tax debt from the tax return due date and continues to grow until taxes are paid in full.

Loss of Social Security Benefits

If a taxpayer does not pay the tax debt that they owe, which includes any fees, penalties, and interest, they may have a federal tax levy placed on them. In this case, social security benefits are garnished up to fifteen percent every month until taxes have been fully paid and settled.

Property Tax Lien

Once the IRS has begun an audit on your tax return and any unpaid taxes, you will have up to ten days to pay your taxes in full. If you fail to meet this requirement, a federal tax lien could be placed on your property by the IRS.

If the IRS places a tax lien on your property, a notice of federal tax lien will be placed in the public records. This notification states that all of your property, including any property obtained after the tax lien, is claimed by the IRS until you settle your tax debt, interest, and penalties. The tax debt is not settled until you pay it in full or you have fulfilled your side of a tax relief program. During a levy, you will not be able to sell your property, as it will technically belong to the IRS.

With a tax levy, the IRS has the right to legally seize your property. When this happens, the government could take your house, car, or any rights to your bank account, money, income, retirement, and more. Whatever is levied can be sold by the IRS to pay your debt.

Loss of Passport

If an IRS agent determines that a taxpayer has a serious tax debt, they will not be issued a new passport. Current passports will not be renewed and could even be revoked by the government.

IRS Criminal Charges

Some tax situations will be deemed intentional tax fraud, which is a crime. These cases will face criminal prosecution and could lead to a prison sentence if the taxpayer is found guilty.

For criminal cases, a special agent is assigned and the Department of Justice attorney’s office could prosecute for tax fraud. The IRS criminal investigation division will determine if a case should face criminal prosecution and have a trial. Maximum jail time if found guilty of tax fraud is five years.

IRS Criminal Investigation

Before an IRS criminal investigation is opened, the IRS will perform an audit of a previously filed tax return. An auditor will be assigned to the case by the IRS to look over the tax return, check for errors, and determine if they were negligent errors or willing errors.

If it is discovered that you have made large errors for many years, the IRS auditor will see that as a pattern of intentional tax evasion. They will also consider whether you have been accurately reporting your income and if you have made any false statements or hidden records from the auditor. These are all signs of willful tax fraud and will likely lead to the IRS criminal investigation division being notified.

When this occurs, the case is no longer simply handled by an IRS auditor but is instead handled by special agents who can refer you to the attorney’s office for criminal prosecution. Criminal investigations from the internal revenue service will look at your tax returns, your income tax, your business connections, your bank account records, and any other evidence to determine if you are guilty of tax fraud crimes.

If you are being investigated for criminal tax fraud and could face prosecution and prison, you will need to seek legal advice from a tax attorney.

Get Legal Advice from a Qualified Tax Attorney

While most tax audits will end with an IRS auditor taking collections action to ensure you pay the taxes that you owe, some will become criminal tax fraud investigations and could end in a trial for the crimes. Being found guilty of tax crimes can lead to prison and other criminal penalties. IRS tax fraud is a serious crime that you could go to jail for. Take care of your tax problems by visiting IRS Tax Relief Network Help

If you are under criminal investigation by the department of justice for income tax fraud, you will want to hire an attorney right away. A criminal tax attorney will understand the law and be able to give you guidance throughout the investigation, prosecution, and trial.

If a special agent from the department of justice is investigating you for taxes that you failed to pay, income that you did not report, or other forms of criminal tax fraud, you will need the help of an attorney who deals with tax law.

While you may not be able to avoid prison if there is evidence of willing tax fraud, a tax attorney will be able to help you through the trial. Penalties for criminal tax evasion are harsh and the IRS may determine that you should face prosecution and trial. Your attorney can walk you through your dealings with the Internal Revenue Service and your criminal tax trial.

IRS Criminal Charges