The IRS has the option to charge you with civil tax fraud. It can also conduct a criminal investigation and turn your case over to the DOJ for prosecution. The agency maintains the discretion about which course of action to choose. Both civil tax fraud and criminal tax evasion are serious charges that can lead to substantial consequences. If you are charged with either, you need urgent legal representation from a New York tax attorney.
Civil Fraud Involves Monetary Penalties and a Lower Standard of Proof
When you are charged with civil tax fraud, your case will stay out of the criminal justice system. Instead, your case is heard in the U.S. Tax Court after the IRS charges you with civil tax fraud. The IRS has a somewhat lower burden of proof that it needs to meet to win the case. Instead of proving guilt beyond a reasonable doubt, the IRS must prove civil tax fraud by clear and convincing evidence.
This standard of proof means that there is a high probability of the truth of the allegations against you. The lower standard of proof in a civil case is one reason why the IRS may not seek criminal charges and may opt for civil fraud, especially when they think that your conduct does not meet the standards for a DOJ criminal prosecution.
Civil tax fraud involves a substantial penalty. If the IRS can prove the case against you, there is a 75% penalty on the amount of tax that is underpaid due to civil tax fraud. This penalty is in addition to the underpaid tax and any interest.
Criminal Tax Evasion Has a Higher Standard of Proof and Could Lead to Jail Time
Criminal tax evasion occurs when there is a willful attempt to evade or defeat taxes through fraudulent or illegal means. Since this is a criminal case, the Department of Justice handles the prosecution with assistance from the IRS. There is a higher burden of proof in criminal cases than there is in a civil one. Here, the prosecutor must prove that you are guilty beyond a reasonable doubt. Criminal tax evasion can result in jail time if you are convicted. You could face up to five years in prison for each count.
You Can Defend Against Charges By Negating Intent
Both civil fraud and criminal tax evasion share the characteristic that you need to have committed some sort of knowing conduct aimed at underpaying your taxes or not paying them at all. Accordingly, one common way of defending against both of these types of charges is to argue that you lacked the necessary intent. You may claim that any mistake in your taxes was the result of negligence or a good-faith error. You may also defend yourself by claiming that you relied on a professional for tax advice, and your actions were the result of following what they told you.
As you can see, defending against civil tax fraud charges largely rests on reframing your conduct from willful to negligent. The IRS has only filed these charges because there was likely a large underpayment of your taxes. Your best defense is to show that there was nothing nefarious behind the reason for the underpayment that could rise to the level of fraud.
Criminal Tax Defense May Involve Different Strategies
Defending against criminal tax evasion charges often involves a similar strategy. Since willfulness is an element of these charges, you may successfully defend the case by showing that you did not act in a willful and knowing manner. You may also argue that you made a mistake or that you were otherwise careless. For example, you may claim that your records were merely incomplete, as opposed to being fabricated, like the IRS may be claiming.
Since criminal charges are involved, there is an additional set of calculations that you must make – there is a prosecutor involved in your case. In many white-collar criminal cases, defendants may interact with the prosecutor before charges are filed on the advice of their lawyer. You may be able to avoid criminal tax charges before they are filed.
You may also head off criminal charges by making a voluntary disclosure to the IRS. Then, you may work out a resolution of your tax issues. The IRS could opt for civil fraud charges, as opposed to criminal charges, if you have brought the issue to their attention.
Your tax defense attorney could engage the prosecutor after charges are filed in an attempt to negotiate a plea bargain. In exchange for your guilty plea, the prosecutor may recommend a sentence to the judge that is less than the maximum. In the end, the judge has the discretion to impose a sentence.
You Can Be Charged with Both Civil Tax Fraud and Criminal Tax Evasion
Note that the IRS has the ability to charge you with both criminal tax evasion and civil fraud. The IRS will usually first seek criminal charges against you. The case will be resolved either through a plea bargain or a criminal trial. If there is a guilty plea or you are convicted at trial, the IRS will then seek to impose civil tax fraud charges. The fact that you have already been convicted makes it easier for the IRS to win these cases because many of the factual issues have already been decided.
Contact a New York Tax Attorney
Whether you are facing civil or criminal tax charges, a New York tax lawyer at the Thorgood Law Firm can provide you with commonsense yet tough legal representation. We know how the IRS works, and we can use our experience for your benefit. The longer you wait to get legal help and address your tax issue, the greater the chance that you could face a serious penalty, or even jail time. You can schedule a free initial consultation by filling out an online contact form or by calling us today at (212) 490-0704.
