The Internal Revenue Service (IRS) doesn’t take tax fraud lightly. Each year, this serious federal offense costs the U.S. government billions in lost revenue, leading to aggressive prosecution and severe consequences for those convicted. Whether you’re facing allegations of tax evasion, false reporting, or deliberate underpayment, understanding the potential penalties is crucial for protecting your future.
Tax fraud encompasses more than simple filing mistakes. It involves the willful attempt to evade tax obligations or defraud the government through intentional misrepresentation. The consequences can be life-altering: substantial fines that can reach millions of dollars, federal prison sentences spanning years, and permanent damage to your professional reputation.
If you’re under investigation for tax fraud or concerned about potential violations, don’t wait to seek legal guidance. Contact an experienced New York tax fraud attorney immediately to protect your rights and explore your defense options. The earlier you secure professional representation, the better positioned you’ll be to navigate these complex federal charges.
Now, let’s examine what constitutes tax fraud under federal law and break down the specific penalties you might face…
How Do Federal Laws Punish Tax Fraud?
There are several federal laws that punish tax fraud:
Attempt to Evade or Defeat Tax
Attempting to evade or defeat tax is considered a felony. If convicted, a person may face up to five years in prison and a fine of up to $100,000 (or $500,000 for corporations), along with the costs of prosecution. An example is, purposely hiding income in an offshore account to avoid taxes.
Willful Failure to Collect or Pay Over Tax
This law covers situations where someone has a duty to collect or pay taxes (like payroll taxes) but doesn’t do it. It’s also a felony, with up to five years in prison and a fine of up to $10,000, plus costs. An example is an employer withholding taxes from workers’ paychecks but not promptly sending that money to the IRS.
Willful Failure to File a Return, Supply Information, or Pay Tax
This is usually treated as a misdemeanor, which can lead to a year in prison, a fine up to $25,000 (or $100,000 for corporations), or both, plus costs. An example is someone who repeatedly refuses to file a tax return, fully aware they should.
What Are the Prison Terms and Fines in New York State for Tax Fraud?
New York State has its own criminal tax fraud laws. The severity of the crime depends on the amount of tax evaded:
- Criminal Tax Fraud in the Fourth Degree: Involves evading more than $3,000 in a single year. This is a Class E felony and can lead to prison time and fines.
- Criminal Tax Fraud in the Third Degree: Involves evading more than $10,000 in a single year. This is a Class D felony, which carries stiffer penalties than a Class E felony.
- Criminal Tax Fraud in the Second Degree: Involves evading more than $50,000 in a single year. This is a Class C felony, a serious offense that can result in significant prison time and large fines.
- Criminal Tax Fraud in the First Degree: Involves evading more than $1 million in a single year. This is a Class B felony, one of the most serious categories of felonies in New York, and can come with long prison sentences.
New York also has laws for less common violations. Failing to keep proper tax records, selling goods without a valid certificate of authority, and leaving certain payments out of your adjusted gross income can lead to separate fines and, in some cases, jail time.
What About Employment Tax Fraud?
Employment tax fraud has to do with payroll taxes. Employers must withhold federal income tax, Social Security, and Medicare taxes from employees’ paychecks and send these amounts to the government. If you don’t withhold the right amount or don’t promptly send it in, that can be seen as tax fraud.
People found guilty of evading employment taxes often face an average prison term of around 17 months, along with fines and an order to pay back the taxes, plus interest and penalties. Federal authorities treat this very seriously because the employer is handling money that really belongs to the government and to employees.
What Other Penalties Could You Face for Tax Fraud?
Below is a list summarizing additional penalties beyond prison terms for tax fraud:
- Restitution: You may have to pay back the taxes owed, as well as interest and penalties.
- Loss of Licenses: Professionals, such as lawyers and accountants, can lose their licenses if convicted of tax fraud.
- Business Closures: Serious tax fraud in a company might lead the government to close the business.
- Reputational Damage: Even an investigation, let alone a conviction, can harm your public image and make it tough to find new clients or jobs.
There can also be other consequences, such as property liens, wage garnishments, or travel restrictions if the amount of money owed is very large.
Are Simple Mistakes Also Called Tax Fraud?
Usually, no. Tax fraud involves willfulness – intentionally trying to get out of paying. Making a small error on your return, like forgetting about a bit of interest income, won’t generally rise to the level of fraud. However, if you keep making the same mistakes and never fix them, you might attract more attention from the IRS or New York State.
The authorities do understand that taxes are complicated, and people make honest errors. Typically, smaller mistakes end up being handled through audits or additional civil penalties, not criminal charges.
How Does the Government Prove Fraud?
The IRS and New York State tax agencies must prove you acted with criminal intent. They look at:
- Actions: Did you hide income or create fake receipts?
- Knowledge: Did you understand your filing obligations but ignored them?
- Intent: Did you mean to deceive, rather than just being confused or reckless?
Investigators can uncover financial records, interview witnesses, and search emails to build a case. Because criminal penalties are so harsh, the government typically gathers a lot of evidence before accusing someone of tax fraud.
What Are Some Possible Defenses to Tax Fraud?
If you’re accused of tax fraud, there are different defenses you might use:
- Showing your errors were honest and that you tried to fix them.
- Proving you relied on incorrect advice from a tax preparer or accountant.
- Demonstrating you didn’t control the finances—maybe someone else handled all the money.
- Negotiating a reduced settlement or civil penalty if possible.
Your exact defense depends on the facts of your case. For serious matters, it’s wise to consult a New York tax attorney who knows the ins and outs of both federal and state rules.
Can You Face Both Federal and State Charges?
Yes. If the IRS discovers fraud, there’s a chance they’ll coordinate with New York tax authorities if your case is also relevant at the state level. You could end up facing penalties from both agencies. However, many cases are handled on just one level, depending on how much money is at stake and the evidence of wrongdoing.
What If You Haven’t Filed Taxes in Years?
Not filing your taxes for multiple years raises a major red flag. Although not every late filer is a fraudster, ignoring the system entirely can look suspicious.
Under federal law, willful failure to file can be a misdemeanor, leading to up to a year in prison per offense. New York also might bring charges for repeated non-filing, especially if the amounts owed are substantial.
If you’re behind on your filings, the best move is to file as soon as you can. Show the IRS or New York that you are making an effort to correct the problem. Often, authorities are more lenient when you reach out before they come looking for you.
How Can a New York Tax Attorney Help?
Facing a tax investigation or criminal charges can be terrifying. An experienced New York tax attorney can:
- Figure out your legal risks by examining your records and financial history.
- Work with the IRS or state tax authorities on your behalf to prevent costly mistakes.
- Negotiate payment plans, reduced penalties, or even a settlement if allowed.
- Argue in court to challenge the government’s evidence if your case goes to trial.
Trying to handle the system alone can backfire. Professional guidance helps you avoid missteps and gives you the best shot at a positive outcome.
Why Choose Thorgood Law Firm in New York?
At Thorgood Law Firm in New York, we are experienced tax attorneys dedicated to leveraging our decades of experience in tax law to free clients from their tax problems. For over 25 years, we have assisted people and businesses with:
- Criminal Tax
- Payroll Tax
- Audits
- Sales Tax
- Unfiled Tax Returns
- Liens, Levies, and Wage Garnishments
- Offers in Compromise
- Penalty Abatements
- Installment Payments
- Innocent Spouse Relief
We know the stress and uncertainty that comes with tax troubles. Our team offers customized, hands-on help at every stage—whether you’re under audit or facing serious charges.
If You Suspect You’re Under Investigation or Owe Back Taxes, Contact Thorgood Law Firm in New York
If you suspect you’re under investigation or owe large amounts of back taxes, it’s crucial to act fast. Contact Thorgood Law Firm in New York at (212) 490-0704 or contact us online to arrange a consultation with a skilled New York tax attorney.
Don’t wait for the situation to get worse. We’re here to give you clear guidance and protect your interests so you can move forward with peace of mind.
