Federal Tax Crimes Lawyer

The federal tax code is a complex set of rules that few fully understand, but there are only a handful of different laws that the Government routinely uses to charge individuals with tax crimes. These offenses include tax evasion, failing to file a tax return, and filing a false income tax return.

Our federal criminal defense attorneys have successfully handled many criminal cases involving alleged violations of the tax code. We have learned that it is imperative in most cases for the defense to consult with an experienced and independent tax expert (either CPA, tax attorney, or former IRS agent) to review and rebut the IRS’s claims. Without hiring an experienced tax expert, it can be extremely difficult to adequately defend these cases. 

How does the Government charge tax offenses?

The most common tax crimes is the offense of tax evasion under 26 U.S.C. 7201. Tax evasion is defined as the failure to report taxes, reporting taxes inaccurately, or failing to pay taxes that are owed. To convict someone of tax evasion, the Government has to be able to prove the following elements beyond a reasonable doubt:

1. The taxpayer attempted to evade payment of a tax owed.

2. A tax amount was due and owing.

3. The taxpayer acted willfully.

Among tax evasion offenses, there are two different types. The first includes an evasion of assessment, and the second involves evasion of payment. Evasion of assessment cases are far more common and occurs when a return omits income or claims a deduction to which the taxpayer is not entitled. Evasion of payment cases occur when there is already the existence of a tax due and owing. This type of evasion usually involves concealment of funds such as placing assets or debts in someone else’s name to evade taxes. 

In addition to tax evasion, there is the offense of failing to file a tax return under 26 U.S.C. § 7203. To convict someone of failing to file a tax return, the Government must prove the following elements beyond a reasonable doubt:

1. The taxpayer was required to file an income tax return.

2. The taxpayer did not file a tax return.

3. The taxpayer’s failure to file a return was willful.

The final common tax offense is a false income tax return under 26 U.S.C.  § 7206(1). To convict a taxpayer of this offense, the Government must prove the following beyond a reasonable doubt:

1. The taxpayer filed an income tax return.

2. The tax return contained a written declaration that it was made under penalty of perjury.

3. The return was false regarding a material matter.

4. The taxpayer did not believe the return was true and correct as to the material matter.

5. The taxpayer acted willfully.

What are the penalties for criminal tax offenses?

Tax evasion is a felony offense and carries up to 5 years in prison and a fine of up to $100,000 for individuals. It should be noted that the IRS assesses separate civil penalties for tax crimes. In fact, if there is an underpayment due to fraud, the IRS can assess a penalty of up to 75% of the underpayment.

The offense of false income tax return is less severe than tax evasion and carries up to three years in federal prison and a $100,000 fine. Failing to file a tax return is treated as a misdemeanor unless an overt act of evasion occurred. The IRS can also assess a penalty of 5% of the unpaid taxes for each month that the tax return is late.

How do you defend against alleged tax crimes?

One common element among the tax offenses listed above is that the offense must be willful. This means that the taxpayer voluntarily and intentionally violated a known legal duty. A taxpayer’s conduct is not willful if he or she acted with negligence, mistake, accident, or if a good-faith misunderstanding occurred. Thus, whenever a federal criminal defense lawyer reviews a tax offense case for potential defenses, he or she will try to craft an argument that the taxpayer was trying to comply with the tax code but was simply confused by the requirements. This is a defense that resonates with jurors as most jurors would agree that the tax code is virtually impossible for a non-expert to understand. 

Aside from a good-faith defense, one of the most powerful defenses a taxpayer can have is the testimony of an independent expert. Our firm, for example, uses well-respected CPAs, tax attorneys, and former IRS agents to review all relevant documentation to see if the IRS made an error in its calculations. In many cases, the IRS simply does not have access to all of the records that it needs to properly calculate an amount owed by a taxpayer. This is especially true with small businesses that may keep disorganized books. 

You should also keep in mind that the federal prosecutor in your case (known as the Assistant United States Attorney), while likely a very smart individual who has handled many tax offense cases, is probably not a trained CPA or tax specialist. The AUSA assigned to your case relies on what he or she is told by the IRS agent who investigated your taxes and arrived at the amount owed. In many cases, it makes sense to have our independent expert speak with the IRS agent directly to clear up any confusion (for example if the IRS agent missed a significant deduction during the Government investigation). The IRS agent can then relay this information to the AUSA who is then much more likely to dismiss a case, reduce the tax amount owed, or reduce the charge.

How can you help your federal defense attorney?

A good federal criminal tax attorney is going to want to see all of your relevant documents (bank statements, profit and loss statements, tax returns, communications with your accountant, etc). You can help your lawyer by organizing these documents and being able to explain how you arrived at the numbers in your tax return. Your lawyer is going to need this information in an organized format when he or she speaks with an independent expert to consult on your case. By organizing this information, you will save both time and money down the road.

Potential pitfalls in tax crime cases 

One area of concern in tax crime cases concerns the use of independent experts and ensuring that communications with these experts remain confidential. In 1961, a federal appellate court suggested that there may be situations where a tax expert’s work and communication is not protected by the attorney-client privilege unless the defense attorney takes certain precautions. Since then, experienced defense lawyers in tax cases use what’s called a “Kovel letter” or “Kovel agreement” to ensure that the attorney-client privilege extends to the independent expert. For this reason, it is paramount that your defense lawyer is knowledgeable about how to make sure that communication between you and a hired expert remains protected from the reach of the Government. Before hiring a federal criminal tax lawyer to defend your case, you should inquire into the specific experts that the lawyer will use and whether the lawyer uses Kovel agreements when hiring experts.

If you or someone you know has been charged with a federal tax crime, give our firm a call. The initial consultation is confidential and free of charge.