Tax evasion and tax fraud are serious federal crimes. Companies convicted of these crimes can face substantial fines, while individuals convicted of tax evasion and tax fraud can face both fines and prison time.
When facing scrutiny from IRS Criminal Investigation (IRS CI), the Federal Bureau of Investigation (FBI) or the U.S. Department of Justice (DOJ), it is important to know what is at stake. Understanding the specific offenses at issue and the penalties they carry is crucial for informed decision-making, and both companies and individuals must be prepared to do what is necessary to protect themselves in criminal tax matters .
With this in mind, here is an overview of the potential penalties for tax evasion and tax fraud under federal law:
The primary federal tax evasion statute is 26 U.S.C. Section 7201 . Under this statute, willfully attempting to “evade or defeat any [federal] tax” is a criminal offense that carries up to a $100,000 fine ($500,000 for companies) and up to five years of federal imprisonment. These same penalties apply regardless of whether the attempt is successful. Thus, even if a taxpayer’s return (or failure to file a return) triggers immediate scrutiny, the taxpayer can face the same penalties as a taxpayer who successfully evades federal tax liability for a period of time.
Along with prosecution for tax evasion under 26 U.S.C. Section 7201, taxpayers who fail to pay what they owe can also face prosecution under 26 U.S.C. Section 7202 . This statute makes it a federal offense to “willfully fail[] to collect or truthfully account for and pay over” any tax that the taxpayer is required to collect and remit to the IRS. While Section 7202 can potentially apply in a variety of different scenarios, it is primarily used to prosecute companies for employment tax violations.
Violations of Section 7202 carry up to a $10,000 fine and up to five years of federal imprisonment. However, companies (and company personnel) targeted for employment tax fraud can also face the IRS’s trust fund recovery penalty (TFRP) . This penalty is calculated based on the unpaid taxes withheld.
Failure to file income tax returns, failure to pay income tax, and other filing and payment violations can be prosecuted as tax fraud under 26 U.S.C. Section 7203 . Under Section 7203, willful failure to file, failure to pay or failure to supply information to the IRS as required by law carries up to a $25,000 fine ($100,000 for companies) and up to a year of federal imprisonment.
26 U.S.C. Section 7206 establishes several fraud-related tax crimes. Under Section 7206, all of the following offenses carry up to a $100,000 fine ($500,000 for companies) and up to three years of federal imprisonment:
Under 26 U.S.C. Section 7207 , a taxpayer that willfully submits a return or other document “known by [the actor] to be fraudulent or to be false as to any material matter” to the IRS can face up to a $10,000 fine ($50,000 for companies) and up to a year of federal imprisonment.
Along with these charges under the criminal provisions of the Internal Revenue Code, individuals and companies targeted for tax fraud and tax evasion can face a broad range of other federal charges as well. For example, depending on the circumstances involved, federal tax fraud and tax evasion investigations can also lead to charges such as :
The attorneys at Brown Tax, P.C., represent individuals and companies in serious federal criminal tax matters. If you have questions or concerns about tax evasion or tax fraud, or if you or someone within your organization has been contacted by IRS CI, you can call 888-870-0025 or contact us online to request a confidential consultation.
Contact us for a fully confidential consultation regarding your situation. We understand how stressful these issues are for clients and we look forward to helping you achieve a favorable resolution.
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