Civil and Criminal tax crimes both have consequences, however the more severe the crime, the harsher the penalty will be. Keep reading to learn more. 

Civil vs. Criminal Tax Crimes 

While both civil and criminal tax fraud are subject to serious consequences, the primary boundary that divides the two is intent. In criminal tax fraud, willful intent to evade taxes or deceive the government can be proven and results in harsher penalties than civil tax fraud infractions. In some civil tax fraud situations, intent cannot even be proven, in fact many times an unintentional mistake is to blame for the violation. 

Criminal Tax Fraud 

Criminal tax fraud is not simply making a mistake, it is the intentional breaking of a tax law with the sole purpose of evading a tax that is owed. The Internal Revenue Service (IRS) looks for specific markers when searching out criminal tax fraud. Typically, the indicators that criminal tax fraud is occurring include: 

• Problems with your tax returns: Failure to file tax returns, under reporting of income or over reporting of expenses, or adding a number of fraudulent deductions to your tax forms may be sure signs that fraudulent activity is taking place. 

• Lack of record keeping: The inability to provide clear and accurate records does not necessarily mean fraud is taking place, however the lack of deposit records or documentation is a problem. 

• Nontransparent accounting: If something looks suspicious, it will be investigated by an auditor. Missing documents, poorly documented financial information, and questionable loans are all hints that something is being hidden and will attract an investigation. 

Penalties for Criminal Tax Fraud 

The purpose of prosecuting criminal tax fraud is to stop and punish the individual or organization that is committing the crime. This type of fraud must be proven “beyond a reasonable doubt”, therefore when criminal charges are made, they are the result of a lengthy investigation. The penalties for criminal tax fraud are severe and can include: 

• Prison time: A felony conviction for criminal tax fraud can carry a maximum of five years in prison per count. If willful failure to pay taxes can be proven, up to one year in jail per offense can be sentenced. 

• Fines: For individuals convicted of committing criminal tax fraud, the fine can be up to $250,000 per offense. For corporations found guilty of committing criminal tax fraud, the fines can be up to $500,000 per offense. Convicted parties must also pay for the prosecution costs of the U.S. Government. 

Criminal tax fraud is a serious offense with serious consequences. This type of crime is not taken lightly and is prosecuted to the full extent. 

Civil Tax Fraud 

One meaningful difference between civil and criminal tax fraud is that civil tax fraud must be proven with “clear and convincing support”. While criminal tax crimes are held to the “beyond a reasonable doubt” standard of assessing guilt, civil tax crimes are a little looser in labeling guilt. The penalties for civil tax crimes are therefore less than those for criminal tax fraud. 

Indicators of civil tax fraud are generally the same as those indicating criminal tax fraud, but on a smaller, less expensive, level. These indicators include: 

• Understating or omitting income: Failing to report income from a specific source, or illegal activities. Continuously underreporting income is also an indicator of civil tax fraud. 

• Improper deductions: Claiming personal expenses as business expenses, or fabricating deductions. 

Penalties for civil tax fraud are strictly monetary; there is no threat of jail or prison time. However, intent still comes into play when deciding the consequences of a civil tax crime. In cases where intent can be established, a 75% penalty on the underpayment of tax is imposed. If intent cannot be proven, and the tax crime is the result of negligence or carelessness, the penalty is 20%. 

If a taxpayer fails to file a tax return, the penalty is 15% of the net tax due for each month the return is late, with a maximum of 75% of the unpaid tax. The IRS can also access other penalties and interest on taxes that are not paid with interest beginning on the date the taxes were due. 

Facing Criminal or Civil Tax Crime Accusations?

If you or someone you know has been accused of civil or criminal tax fraud, securing the assistance of an experienced tax attorney is imperative. Tax law is not something that should be taken lightly, the knowledge of an experienced, reputable attorney is a necessity for the most positive outcome to occur. The legal team at the Law Offices of Robert J. DeGroot is here to help! 

Reach out to the Law Offices of Robert J. DeGroot today!