It is not a wise move to try and cheat the IRS by not paying your taxes or not paying enough. The IRS collects over $3.7 trillion per year. Therefore, many people assume that the government will not miss a few thousand dollars here and there. 

Additionally, the IRS audit rate has plummeted since the early 2000s. Therefore, many taxpayers assume that even if they do appear on the Service’s radar, these bureaucrats do not have the resources to pursue the matter. Both these facts are true, and both these conclusions are false.

The IRS is known for being extremely forceful and focused when it comes to recovering money for the government. This is why having a resourceful and skilled Chicago tax fraud defense attorney on your side is so advantageous.

In terms of lost revenue, the IRS philosophy is akin to the controversial “broken windows” theory of criminal law enforcement. This belief holds that cracking down on code violations, like broken windows and illegally-parked cars, reduces the number of more serious offenses. This approach is controversial because many pundits equate it with racial profiling. Somewhat similarly, the IRS believes that a few thousand dollars this year become a few more thousand dollars the next year, and so on.

While it’s true that the audit rate has dropped over the past several years, Big Brother is still watching. The IRS closely scrutinizes returns for personal information filing fraud, such as wrongfully claiming a child tax credit or EIC (Earned Income Credit).

IRS bureaucrats also look closely at returns from certain professionals, such as lawyers, who often have clients who pay with cash. Additionally, while the formal audit rate has declined, the informal audit rate, which usually starts with a dreaded “Dear Taxpayer” letter, is still very high.

The IRS is the world’s largest and most aggressive collection agency. The IRS may unilaterally use tools, like wage garnishment and lien placement, that usually require court orders. Additionally, the Service does not hesitate to file criminal charges in high-profile or extreme situations.

Although we cannot match the Service’s resources, the diligent Schaumburg tax fraud lawyers at The Law Offices of Vadim A. Glozman always stand up for your legal rights in these situations. Fraud and other white-collar crime matters are normally quite complex. But we normally successfully resolve these matters out of court.

Actus Reus (Criminal Acts)

In a nutshell, the criminal act involved in tax fraud is underpaying taxes. Individual underpayment could take several forms, such as:

• Failure to file a tax return

• Filing a false return

• Falsely claiming credits or deductions

• Failing to declare income

• Refusing to pay a tax debt

The IRS also aggressively targets corporate tax fraud. The corporation or other entity could be a large, multinational conglomerate or a single freelance web designer. Type of business tax fraud includes failure to:

• File payroll tax reports

• Pay trust tax

• Report all money paid to all workers

Additionally, hiring a payroll company that fails to follow the rules is a form of tax fraud. Business owners are responsible for business taxes, even if they delegate this responsibility to an independent third party.

These areas are essentially presumptive fraud matters which, at least according to IRS lawyers, are relatively easy to prove in court. Very few people mistakenly omit income streams, claim nonexistent dependents, or fail to make FICA and/or income tax withholding payments.

Mens Rea (Culpable Mental State) Issues

Establishing a mathematical error is one thing. Establishing the proper mental state is quite another matter.

In this context, fraudulent is nearly synonymous with malicious. To support a criminal tax fraud conviction, prosecutors must establish fraud. And, they must establish it beyond a reasonable doubt.

Usually, prosecutors use conduct to prove intent. For example, if Ben assaults Jerry and puts him in the hospital, prosecutors can usually convince jurors that Ben intended to seriously hurt or maybe even kill Jerry. But that’s not exactly true in this context.

A large error, by itself, is clearly insufficient. Usually, the government must prove that the taxpayer in some way flaunted tax laws. Common approaches include repeated failure to file annual returns or repeated failure to properly report all 1099, W-2, or other such income. Additionally, government prosecutors must establish that the defendant intended to cheat the government. Evidence on this point includes relevant social media posts, including “likes,” and membership in anti-government organizations.

Additionally, to distinguish between fraud and negligence, which is discussed below, IRS auditors often look for fraud badges, such as: 

• Using a False Social Security Number: Prior to the 1990s, before the income tax process became fully digitized, this fraud was rather common. Technology erased it for a while. Now, false SSN scams are more sophisticated and therefore sometimes able to get past the first round of auditors. But they almost never survive a more thorough inspection.

• Questionable Income Transfers: These transactions often involve shell corporations. Frequently, these corporations have offshore headquarters. So, if a taxpayer is affiliated with any such organization, the IRS normally scrutinizes returns very closely.

• Falsifying Documents: This fraud badge could involve falsifying the document itself or falsifying the information contained in that document. Either approach could indicate fraud. If someone goes to this much trouble, s/he probably has the intent to defraud the government.

Tax evasion is punishable by up to five years in prison and a $250,000 fine ($500,000 for corporations). That’s in addition to other interest and penalties imposed by law. Making a false statement, a lesser-included offense is punishable by up to three years in prison and a $250,000 fine ($500,000 for corporations). Once again, other penalties may also apply.

Tax fraud is difficult to prove. So, most tax fraud cases are technically civil matters. The IRS could add an additional 20 percent penalty in these cases. Although these tax matters are not criminal law matters, our Schaumburg tax fraud lawyers often intervene to protect taxpayers from government overreach.

In these proceedings, the government may normally prove negligence or mistake. Negligence is basically an intentional yet non-malicious act or omission. A one-time income stream omission or false deduction claim could be negligence. A transcription or arithmetic error is a mistake.

The main difference between negligence and mistake is the way the government usually handles these matters. Typically, if a taxpayer makes a mistake, the IRS gives the taxpayer a chance to make things right with little or no penalty. If the taxpayer was negligent, some form of adverse action is almost inevitable.

Tax Fraud Defenses

Along with an improper mental state, which was discussed above, insufficient evidence, statute of limitations, and a mistake of fact are the most common defenses in a tax fraud matter.

As mentioned, large-scale tax fraud cases often involve foreign corporations. The IRS has limited jurisdiction in most foreign countries. Therefore, obtaining evidence, like deposit records, is not easy. As a result, the IRS is often willing to make a deal and avoid all this work. After all, when all is said and done, the IRS really just wants its money.

The statute of limitations on tax evasion is six years. Since the IRS has limited resources, as mentioned above, the Service often has a hard time beating the clock in these situations. That’s especially true since the delinquent tax collection process, even if fraud could apply, usually begins on the civil side. Quite a lot of time usually passes between the moment the IRS spots an error, the civil tax collection process runs its course, and the IRS refers the matter to federal prosecutors.

Statute of limitations often has an indirect effect as well. If time is running short, prosecutors often take shortcuts to obtain an indictment before the six-year time allotment expires. These shortcuts could include failure to obtain a valid warrant and failure to properly Mirandize suspects when investigators question them.

Mistake of fact is a very fine point, but it’s often an effective defense. As the old saying goes, ignorance of the law is no excuse. But a mistake of fact, such as the filing date or information required, could be a defense.

Foreign Account Tax Compliance Act (FATCA) filing is a good example. There are about a half-dozen FATCA forms. A taxpayer with foreign assets might be required to file all, none, or some of them. Additionally, these forms are usually independent of a 1040 return and have different filing deadlines. Additionally, some versions of TurboTax and other electronic tax preparation platforms, especially older versions, were not well-integrated with FATCA requirements.

Contact a Dedicated Cook County Tax Fraud Attorney

When you work with the aggressive, strategic legal team at The Law Offices of Vadim A. Glozman, the objective is to always secure a not guilty verdict or complete dismissal of charges. If these things aren’t possible, we engineer the most advantageous plea deal.

Federal or state criminal charges can be unnerving and frightening, but a number of successful resolutions are available. For a confidential consultation with an experienced federal criminal defense lawyer in Chicago, do not wait to contact The Law Offices of Vadim A. Glozman by calling 312-726-9015. We routinely handle matters in Cook County and nearby jurisdictions.