Give back to Caesar what is Caesar’s, Jesus instructed. Taxes must be paid by everyone, except those who have the means and resources to find what is commonly referred to as a “loophole.” While the concept of taxes should apply to everyone, not everyone feels obliged to return to Caesar what is owed to Caesar. The basic inequity of taxes is that loopholes are legal; evasion and fraud are not.
Federal Tax Crimes
Federal tax fraud and tax evasion are cousins in crime. Tax evasion is the crime most often charged by Federal prosecutors. The offense is generally tied to the taxpayer’s deliberate misrepresentation of taxable income. For the individual, the crime is punishable up to five years in prison, a fine of up to $250,000 (or both), and an assessment for the cost of the prosecution. These crimes are most often prosecuted under Section 7201 of Title 26, the Internal Revenue Code.
Tax fraud, on the other hand, general involves a host of crimes: filing false tax returns, failure to pay taxes, filing false documents, failure to collect employment taxes, and failure to file a tax return. Tax fraud can trigger a host of criminal laws violations found in both Title 26 and Title 18 of the United States Code.
Tax fraud can be punished both as a criminal and civil offense. Civil offenses are usually prosecuted under Title 26 while criminal offenses are prosecuted under Title 18. If two or more people are involved in any tax fraud scheme, the Government will generally indict under the conspiracy statute in Title 18 (Section 371).
Tax fraud-related crimes are some of the most difficult to prove. The Government is required to prove beyond a reasonable doubt that the defendant intentionally defrauded the IRS out of taxable revenue. Because the Internal Revenue Code is so complicated, and because most people from whom a jury pool is chosen have a strong distaste for the complex nature of the code, the Government will often choose to civilly prosecute the offense because the standard of proof is significantly lower.
That’s what only .0022 percent of the taxpayers ever face criminal prosecutions, according to the IRS. Yet the IRS estimates that as many as 17 percent of taxpayers commit a tax law violation in some way each year. While the figure is subject to considerable debate, the IRS reports that 75 percent of the income tax fraud in this country is committed by individual taxpayers rather than corporations. The agency attributes this figure to services workers—such as restaurant workers, mechanics, and handymen—who commonly underreport their cash income.
“Tax avoidance” can, and sometimes is, used as a defense in tax evasion offenses. The IRS, and the courts who decide tax-related cases, have carved out distinctions between tax avoidance and tax evasion. The latter involves (as does most tax fraud) a willful and knowing fraudulent action to reduce tax liability while the former involves legally permissible conduct to reduce tax liability. In 1934, the famed jurist Learned Hand once offered this classic definition of tax avoidance in United States v. Gregory:
“Anyone may arrange his affairs that his taxes shall be as low as possible. He is not bound to choose the pattern of which best pays the Treasury, there is not even a patriotic duty to increase one’s taxes. Over and over again courts have said that there is nothing sinister in so arranging affairs has to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes a public duty to pay more than the law demands.”
The IRS Manual (IRM 9781, § 412, Jan. 18, 1980) itself notes the “fine distinction” between tax avoidance and evasion: “One who avoids tax does not conceal or misrepresent. He shapes events to reduce or eliminate tax liability and, upon the happening of events, makes a complete disclosure. Evasion on the other hand involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or to make things seem other than they are. For example, the creation of a bona fide partnership to reduce the tax liability of a business by dividing the income among several individual partners is tax avoidance. However, the facts of a particular case may show an alleged partnership was not in fact established and that one or more of alleged partners secretly returned his/her share of profits to the real owner of the business, who in turn did not report this income. That would be an instance of attempted evasion.”
The IRS also recognizes “negligence” as a defense when no signs of fraud exist. In these instances, tax auditors will consider mistakes in tax returns as careless errors.
Both tax evasion and tax fraud are considered a white-collar crime both at the federal and state level.
Tax Evasion in Texas
Texas doesn’t have a personal income tax. So Texas’ main source of state revenue comes from its sales tax. Which means that, in Texas, tax evasion and fraud laws are usually applied to businesses or corporations.
If you have been arrested and charged with tax evasion in Texas, you will first want to contact an experienced tax evasion attorney who is qualified to defend your white-collar crime. Then, you will want to understand the meaning of your tax evasion charges and the penalties those charges hold.
If you don’t pay your taxes or commit a fraudulent act involving record-keeping or falsifying electronic sales records, you could face some pretty hefty fines and prison time.
Under the Texas Tax Code section 151.7032, knowingly or intentionally failing to pay the comptroller the required tax is considered tax evasion. Depending on the amount of the tax collected and not paid, there are different levels of charges that you could possibly face, such as:
If the amount of tax collected and not paid is under $10,000, you will face a Class C misdemeanor, which is punishable by a fine up to $500 and no jail time.
If the amount of tax collected and not paid is over $10,000 but under $20,000, you will face a state jail felony, which is punishable by a fine up to $10,000 and 180 days to 2 years in a state jail.
If the amount of tax collected and not paid is over $20,000 but under $100,000, you will face a third degree felony, which is punishable by a fine up to $10,000 and 2 to 10 years in a state prison.
If the amount of tax collected and not paid is over $100,000, you will face a second degree felony, which is punishable by a fine up to $10,000 and 2 to 20 years in a state prison.
Tax evasion and tax fraud are serious charges, but with an experienced Texas white-collar lawyer at your side, you will have the best chance at beating them, clearing your good name, and getting back to your business.