Tax evasion (tax fraud) is the illegal act of not paying taxes that are owed to the government. It involves the deliberate deception of tax authorities to reduce one's tax bill.
Examples of tax evasion include:
- Intentionally underreporting income
- Inflating deductions
- Claiming unqualified deductions
- Claiming false deductions
- Hiding money and its interest in offshore accounts
- Not filing a tax return at all
While tax evasion is often associated with wealthy individuals and corporations, individuals may also be charged with tax evasion. The consequences of a tax evasion conviction will differ based on the amount owed and the intent behind the actions.
State vs. Federal Tax Evasion Charges
The difference between state and federal tax evasion lies in the jurisdiction of the tax allegedly evaded. State tax evasion pertains to avoiding state-level taxes, such as sales, income, or property taxes specific to a state. Conversely, federal tax evasion involves evading taxes owed to the national government, including federal income and business taxes.
Both types of evasion are serious offenses, but federal tax evasion is particularly scrutinized due to its impact on federal funds and the resources available for national programs and services. Additionally, the most high-profile tax evasion cases people hear about tend to be federal cases that garner national media attention.
The Five Degrees of Tax Fraud Under New York Law
Under New York tax laws, tax fraud is categorized into five degrees, ranging from a Class A misdemeanor, the least severe, to a Class B felony, the most severe. These degrees are determined by the amount of money involved and the severity of the fraudulent activity.
New York classifications of tax fraud are as follows:
- Fifth-Degree Tax Fraud (Class A Misdemeanor): This is the least severe form of tax fraud and involves defrauding the government of up to $3,000.
- Fourth Degree Tax Fraud (Class E Felony): Involves amounts between $3,000 and $10,000.
- Third-Degree Tax Fraud (Class D Felony): This degree is reached when the fraud involves between $10,000 and $50,000.
- Second-Degree Tax Fraud (Class C Felony): This involves fraudulent activities ranging between $50,000 and $1 million.
- First-Degree Tax Fraud (Class B Felony): This is the most serious degree of tax fraud, and it involves amounts over $1 million.
Federal Tax Evasion Classifications & Penalties
Federal tax evasion, a violation under U.S. Code Title 26 U.S.C. § 7201, does not have degrees of fraud akin to New York State law. Instead, federal tax fraud laws are categorized by the type of fraud committed. Additionally, penalties for federal tax evasion or tax fraud consider several factors, including the amount of tax owed, the taxpayer's intent, and their history of compliance with tax laws.
Examples of federal tax fraud charges include:
- Willful tax evasion
- Filing a false return
- Failure to file
- Failure to pay
Tax fraud is considered a serious federal offense and is typically prosecuted as a felony, leading to potential imprisonment ranging from three to five years, or even longer. Individuals and corporations found guilty of tax fraud may also incur hefty fines, up to $250,000 and $500,000, respectively.
The IRS' Approach to Tax Mistakes & Potential Fraud
The Internal Revenue Service (IRS) does not automatically pursue criminal charges in every instance of a mistake or potential fraud on tax returns. In many cases, especially those involving smaller amounts or cases deemed unintentional errors, the IRS opts to impose penalties, such as fines and interest on the taxes owed, rather than criminal prosecution.
The likelihood of criminal charges and facing jail time increases with the severity and intent behind the tax evasion.
What to Do If Charged with Tax Evasion
If you have been charged with tax evasion, or suspect you might be, the first and most critical step is to seek legal counsel immediately. Our law firm is experienced in handling both state and federal tax evasion cases, offering experienced and strategic defense tailored specifically to your needs. Delaying the engagement of an attorney can put you at a disadvantage, so we encourage you to contact us at the earliest opportunity to discuss your situation and explore your options.
Schedule a consultation with Foley Griffin online or call us at (888) 966-8480.