Dealing with the IRS can be a scary experience and your imagination may run wild as to the possible consequences you could face if you don’t pay your taxes. This article will explain when you may have a real concern about being charged with a crime AND when you should feel at ease that jail time is not an option.
Fraud or Negligence
Simply put – Fraud could = jail time. Negligence = a civil penalty.
In most circumstances the IRS doesn’t come to you looking for fraud. When reviewing your tax returns, an agent typically expects your return will contain some errors. If these errors are honest – or even careless – mistakes, they do not rise to level of fraud. Depending on the level of error, you may not have any consequence but to pay the amount of tax owed once the error is adjusted. If the error was due to a careless mistake, you could be charged an additional 20% penalty. But, this penalty is considered “civil”, which means it will be collected by the IRS in the same way any other tax is collected.
Examples of fraud include deliberately failing to report income, falsely claiming a person as a dependent, or purposefully claiming too many business expenses. The civil penalty for fraud is 75% added to your tax. But, more importantly, if the IRS feels it is necessary, it could also bring criminal charges against you for tax fraud/evasion.
How will I know if the IRS is looking to seek criminal charges against me?
Most importantly, if you know you have committed tax fraud, you should talk with a tax attorney right away to discuss the risks and your options.
Many criminal charges stem from an IRS audit. The IRS agent may see something that s/he feels is fraudulent. Again, if you already know you have something to hide, you should seek out the advice of a tax professional to guide you through the audit process. The agent may ask you questions that go deeper into why you took certain deductions or why you reported your income a certain way. If you have a good tax professional by your side, you can protect yourself and possibly avoid criminal charges. Sometimes an agent may put your case on hold unexpectedly, giving the agent time to work with a criminal investigator to put together a case against you.
The criminal investigation may come in different forms. Your audit could become criminal, during which you will be notified of what is happening. Other times, the investigation may have already happened and the IRS finds enough evidence to move forward with charges. In this case, Federal agents may come to your home or place of business to discuss the matter with you. If this happens, you should seek the advice of a criminal tax attorney right away and don’t say anything without your attorney present.
In our experience, when a criminal investigation is started, you may be given a chance to cooperate with the IRS agent to go through the civil process instead of being charged criminally. If you work with the agent, determine the amount of tax due, with added penalties, and find a way to try to pay this off, the IRS may walk away from any criminal charges.
How can I tell the difference between a scam and a real IRS criminal investigation?
Scams, whether by phone, email, or social media, are increasing dramatically. So, when do you know if you are being contacted by a scammer or actually by the IRS? Almost always, the IRS will initiate contact with you by U.S. Mail. Rarely does the IRS call you on the phone or visit you in person as a first point of contact. The IRS never contacts you by email or social media.
If the IRS visits you, it is only done as part of an audit or a criminal investigation. If for an audit, you will have received written notice in the mail first. If for a criminal investigation, the person will be a federal law enforcement agent and must show you two forms of identification, which can be verified by a dedicated IRS phone line.
A caller who says you will be picked up by the police, immigration, or federal authorities if you don’t pay your tax bill is a scammer. Do not give that caller any personal information and do not give him/her any payment. The IRS requires payments to be made to the U.S. Department of Treasury and does not take payment by cashier’s check, in the form of gift cards, or wire transfer.
If you suspect you are the victim of a scam, report it to the IRS by either calling 1-800-366-4484 or visiting https://www.treasury.gov/tigta/contact_report_scam.shtml. Consider also calling your local police so it is aware of the scam as often times communities are targeted all at once.