As the saying goes, the only sure things in life are death and taxes. If you intentionally fail to pay taxes or underreport your taxable income, you could be charged with tax evasion. While it's certainly a crime in and of itself, it's also commonly charged against those suspected of certain organized crimes where the source of their income is in doubt. For instance, famous Prohibition-era gangster Al Capone was convicted not for murder or racketeering, but for evading taxes.
This article provides an overview of tax evasion, including examples of the offense and suggestions to help you avoid being audited for possible evasion.
Mistakes Are Not Considered Tax Evasion
Tax forms are long, the Internal Revenue Code is complicated, and unless you’re an accountant or other tax professional, you're bound to make some mistakes that may result in underpaying taxes. Although you should always try to fill out your tax forms correctly, there’s no need to worry about being convicted for tax evasion over a simple error.
In order to be convicted of tax evasion, the IRS must show that you deliberately tried to underpay your taxes. If you simply made an error, you’ll still have to pay what you should have paid, and possibly an additional fine, but you’ll avoid the time, expense, and penalties of a criminal trial.
How Taxes Are Calculated
Although the tax code is complicated, general tax procedures are fairly simple at their heart. Every year, Americans must file a return stating how much money they made, how big their families are, and what their expenses were. The IRS then calculates each family's total income and subtracts certain expenses, called “deductions,” in order to determine their adjusted gross income, or AGI. The service then uses a chart to determine what percentage of your AGI to tax and comes up with a number representing the taxes you should owe.
Finally, the IRS looks to see if there were any special circumstances that mean you should pay less taxes, and then reduces the amount you owe by applying “credits.” Congress often uses these credits to motivate people to make changes in the way they live. For example, credits may be available to homeowners who make substantial improvements in order to make their homes energy efficient, or to businesses that hire military veterans or people with criminal backgrounds.
Examples of Tax Evasion
Each step of the process of taxation is vulnerable to tax fraud or evasion. If someone fails to file their tax return, the IRS has no way of auditing their finances. One of the most common forms of tax evasion involves underreporting income. Businesses and employees who deal largely in cash, such as wait staff, hairdressers, and retail store owners, sometimes underreport income because there’s little in the way of a paper trail. Businesses sometimes inflate their expenses, and families occasionally overstate the size of the household in order to take larger deductions.
Finally, people take advantage of the current credit system by misrepresenting their circumstances. If the IRS suspects you of any of these activities, it will launch an investigation and may prosecute you for tax fraud.
Get Help from an Attorney for Your Tax Evasion Charges
If you're facing tax evasion charges, the prosecution will be trying to show that your mistakes were deliberate. That's why it's important to have a strong advocate in your corner. An experienced criminal defense attorney can not only advise you on the law, but can also help put together a strong case at trial. Additionally, you'll probably need help from a qualified tax law attorney as well.