Tax Evasion: What’s A Felony and What’s Not

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In recent years, the IRS found close to $230 million in fraudulent tax refunds. 

With this in mind, there are a number of different instances of tax fraud that you need to know about. Tax evasion is a serious crime that can leave you on the hook for big penalties. 

To this end, consider the information below so that you can understand what constitutes tax fraud and in which circumstances it is a felony. 

Understand What Constitutes Tax Evasion 

In order to understand tax evasion and the circumstances that come with it, you need to take a closer look at the details involved in the situation. 

Tax evasion is about more than simple unfiled tax returns. There are a number of points that come into play, and different types of tax fraud that you need to know about. 

With this in mind, consider the points below so that you can steer clear of these sorts of situations and stay on the right side of the law:

1. Intentionally Refusing to File Your Taxes

First things first, you need to be certain that you are mindful of the April 15th filing deadline. 

A number of people each year fail to file taxes and end up having to pay serious penalties in the process. However, a number of others willfully refuse to file their taxes in an act to evade. 

This happens when you refuse to disclose income and file a return on income that you brought in. When this happens, you will be subject to tax penalties and potential jail time. 

Be sure that you never take this chance, and always stay on top of deadlines as they come about. 

2. Refusing to Not Pay the Tax Money That You Owe

Once you file your taxes and have a tax bill due, it’s important that you also pay this amount by the deadline. 

By underpaying or not paying at all, you may also be subject to tax evasion. This is usually disclosed as tax evasion when you willfully fail to pay, rather than simply fail to pay as a matter of neglect. 

When this happens, the IRS is more likely to come against you more aggressively in seeking punitive damages. 

3. Hiding Income or Intentionally Leaving Out Income on Your Return

You will also get hit with tax evasion charges when you hide income on your tax return. 

For example, if you have a day job and two side income streams, you’ll need to report all of your income sources. By failing to disclose the side income streams, you may trigger an Internal Revenue Service (IRS) audit, at which point you can get hit with criminal charges if it appears that you were intentionally hiding income sources. 

Never leave income out of your return in an attempt to make it seem like you earned less than you actually did. 

4. Creating Fraudulent Claims on Your Taxes

When it comes time to put your tax returns together, you’ll need to make sure that you steer clear of making fraudulent claims as well. 

If there are discrepancies on your tax return, the IRS will first assume that you simply made a careless error, or that your tax preparer made a mistake in calculations. 

However, if it looks as though you were creating fraud instead, it will trigger red flags, at which point you might have felony charges filed against you. These charges will be particularly stiff if it looks as though you were committing acts of money laundering or other serious crimes.

This is why you need to be careful about such matters and ensure that you are careful with the return and not involved in an activity that might be deemed suspicious. 

5. Claiming Too Much Money in Deductions on Your Tax Return

It’s important that you only claim the correct amount of money on your tax returns when filing. By being frivolous or heavy-handed with the deductions that you claim, this can also be considered tax fraud. 

A number of people who evade their taxes cut into their tax bills by claiming deductions that are not applicable.

For instance, if you went on a number of vacations this year in your personal life, claiming them as business deductions would be considered a form of tax evasion. 

6. Fabricating or Falsifying Your Tax Documents

Yet another form of tax fraud involves fabricating or falsifying tax documents. 

Never put your signature on anything without reading it, and definitely never create false records to prove any information on your tax return. By creating these documents and passing them off as legitimate, you are leaving yourself open to criminal charges related to tax fraud. 

This applies for both your personal tax return and on any tax documents that you file for your business. Always read through every document and ensure that you are keeping all information above board and never filing any paperwork that you can’t vouch for. 

7. Faking Your Identity on Your Taxes

Identity theft is on the rise, to the point that there have recently been close to 17 million identity theft victims in a single year. 

One of the biggest areas of identity theft takes place with tax documents. Use your social security number and yours only, and never try to pass anyone else’s information off as your own. 

Doing so can leave you open to tax fraud penalties that are costly. Due to issues related to Homeland Security and anti-terrorism, you definitely don’t want to get hit with any sort of identity theft-related charges. 

These can be problematic red flags on your record that can be hard to come back from. 

8. Claiming Too Little Income on Purpose

Another red flag revolves around claiming less income than you actually made. This is one of the most common forms of tax evasion, but it can also be easily proven in an audit. 

While claiming a bit less might go undetected, you will never want to get greedy and run the risk of an audit or worse. Have an accountant go through your taxes for you so that you are able to keep these discrepancies in check. 

9. Classifying Your Personal Expenses as Business Expenses

There’s a reason that people are advised to keep their personal accounts separate from their business accounts. When you start claiming personal expenses as though they are business expenses, you can get audited or worse. 

When it appears that you did so purposefully and were trying to skirt your tax bill by deducting personal expenditures as though they were in the name of the business, you will be accountable for tax evasion and can get charged

10. Managing More Than One Set of Books or Ledgers

Make sure that you keep one ledger for your business. You need to have one clean set of records so that there are no errors or instances of attempted deception. 

When you have a certified public accountant (CPA) on staff that handles your taxes for you, you will be able to make sure that you are getting the most accurate outcome and won’t have to worry about being accused of evading taxes. 

Having multiple ledgers will make IRS agents feel that you have one set of books for show, and another to give you your accurate accounting, which you were trying to hide from the government. 

Tax cases involving famous people like Al Capone involved multiple ledgers that weren’t authentic or legitimate. These cases can easily become felonies depending on whether or not the differences were intentional, and the dollar amount of tax money that you evaded. 

11. Not Withholding Taxes in Your Employee’s Checks

As an employer, it’s up to you to withhold state and federal taxes from your employee’s checks. If you decline to do this in an attempt to keep more money in your company’s bank account, you can definitely be on the hook for tax evasion. 

You’ll need to do your payroll as accurate as possible so that your employees are paid what they are owed so that they have the correct tax information for their filing, and so that you are satisfying your tax bill accordingly. 

Otherwise, you might be at risk for tax evasion penalties. 

12. Hiring a Bookkeeper to Intentionally Hide Income or Cook the Books

In many cases, people hire professionals to do their dirty work for them. If you happen to hire a bookkeeper for the purpose of “cooking” the books with illegitimate information, this is very illegal and will leave you on the hook for unpaid taxes, in addition to potential criminal penalties. 

Make sure that you only work with an honest accountant and business lawyer so that these aren’t issues that you have to deal with. 

13. Concealing Income That is Transferred 

It’s important to have an accurate account any time that money is transferred from one account to another. 

When classifying this information, you should state whether it was for business purposes, and for what intent. Never try to conceal these kinds of transfers, as this can also be considered some form of tax evasion. 

14. Using Falsified Payroll Tax Records

Be sure that you also manage your payroll records accordingly, so that they are clean and accurate. 

Otherwise, you may run the risk of making mistakes that can be detrimental to your tax filing. What’s more, you might end up falsifying some records trying to make up for lost information or to conceal information. 

Never fall into this temptation, because it is one of the primary ways to get tagged for tax fraud. 

15. Not Reporting Offshore Bank Accounts or Other Sources

A lot of people get caught up in tax evasion cases because they fail to report offshore bank account income

If you have international or offshore accounts, it’s important that you disclose this information just as you would any other information. Failing to do so is a surefire way to trigger red flags since many people purposely hide money in offshore bank accounts in order to avoid tax responsibility. 

Be as diligent as you can about your recordkeeping for these sorts of accounts so that you are able to avoid these sorts of penalties or unwanted attention. 

The Penalties For Tax Evasion

It’s important to know the criminal implications of tax evasion and fraud.

If your return that you file is considered fraudulent, you might face fines of at least $100,000 and can face 3 years behind bars. Tax evasion can also draw $100,000 in fines and 5 years in prison.  

In the event that you get charged with not disclosing money in an offshore bank account, you can face more $100,000 for each instance. As you can imagine, these sorts of penalties can add up exponentially, to the point that it can cripple your finances. 

What’s more, these violations can also put you behind bars for as much as 5 years depending on the amount of money that was withheld and whether or not you were intentionally failing to disclose the money. 

Get the Tax Help That You Need

Whenever you are dealing with cases of tax evasion, tax fraud or similar penalties, it is important that you know what you are up against. This way, you will be taken care of and able to avoid the worst-case scenario. 

If you are in need of legal help, we’re the professionals that you will want to reach out to. We specialize in these cases and can give you the help that you need. 

Take the time to contact us to make sure you have the tax help that you are looking for. 

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