There is no shortage of celebrities convicted of tax evasion. Just this month, Chrisley Knows Best stars Todd and Julie Chrisley were indicted on multiple counts of conspiracy, bank fraud, wire fraud, and tax evasion. The Chrisleys’ accountant was also indicted on tax-related offenses. Separately, Chase Chrisley was hit with a federal tax lien.
The IRS contends Chase owes almost $17,0000 in taxes from his income due for the year 2014. Although not a criminal matter, the IRS can seize his property and assets for back taxes. Since most of us are not famous, how much does the average taxpayer need to worry about being charged with tax evasion if he/she does not report all income? The reality is that when someone fails to file a return or owes back taxes, they may be subject to a host of civil and criminal penalties.
Civil vs. Criminal Penalties
There are over 100 different types of IRS civil penalties so even an ordinary taxpayer who fails to pay their taxes for any reason can face some penalties, which can add a significant amount to the final tax bill. Penalties for tax fraud, however, are particularly severe.
According to the IRS, “civil fraud penalties will be asserted when there is clear and convincing evidence to prove that some part of the underpayment of tax was due to fraud.” Civil fraud penalties are high. The Tax Code provides that “if any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.”
On the criminal side, the Tax Code states that “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.” The prosecution must prove its case beyond a reasonable doubt.
As noted above, cases involving a taxpayer who did not commit tax fraud may still have to pay civil penalties. However, a tax fraud offense may result in both civil and criminal penalties.
Enforcement by the IRS
According to the IRS Data Book:
- The IRS assessed close to $29.3 billion in civil penalties. Almost $12.0 billion was assessed in civil penalties on individual and estate and trust income tax returns.
- In FY 2018, the IRS initiated 2,886 criminal investigations in three areas—legal source tax crimes, illegal source financial crimes, and narcotics-related financial crimes. The IRS completed 3,051 investigations in these areas.
This data only applies to IRS matters. A taxpayer may also be subject to civil and criminal penalties under state tax law.
The lesson for taxpayers is to address tax problems as soon as possible. There are remedies to help resolve tax disputes and minimize or avoid penalties and criminal prosecution.
If you have a tax issue, contact us to learn how we can help.