Criminal Tax Defense
Our Criminal Tax Defense Practice Group routinely defends clients in criminal investigations of tax fraud, evasion, structuring, bank secrecy violations, failure to file, and failure to pay cases before the State of California Criminal Investigation Division, Internal Revenue Service (“IRS-CID”), or the Department of Justice (“DOJ”). We work with any taxing authority to avert criminal proceedings and eliminate or reduce penalties and civil tax assessments, while creating alternative resolutions to indictment, whenever possible. Serious criminal investigations and convictions can result in significant penalties, including prison time or lost privileges. The United States Department of Justice reports an incarceration rate of over eighty percent, and taxpayers could face enormous monetary tax assessments and fines.
See IRS Current Fiscal Year Statistics - CI data.
The most common types of prosecuted tax crimes include failing to file income tax returns, filing false income tax returns, under-reporting income, submitting false documents, and making false statements or claims. The IRS aggressively prosecutes individual taxpayers involved in illegal activities, including avoiding the reporting of legal or illegal income from use of offshore tax shelters. To establish a tax crime, the IRS must prove "beyond a reasonable doubt" that a taxpayer failed to report their correct tax liability and that additional tax is due and owing.
You are remiss to address or ignore the IRS before consulting with a tax attorney specializing in these matters. Statements you make to a Special Agent can be used in a case against you. In addition, an accountant, CPA, Enrolled Agent, or other non-attorney, can be compelled to use anything you say to them against you.
Prosecution for a tax crime may be based on issues other than the underlying liability. In any given case, a taxpayer could be prosecuted if the government believes that the taxpayer omitted any amount of taxable income from an income tax return. Liability is not measured in terms of gross or net income, or by any particular percentage of the tax shown to be due. Because of these intricacies, even if you believe you are innocent, or that amount due is “insignificant,” it is risky to represent yourself before the IRS or any other taxing agency.
Methods the government uses to establish a tax crime include: direct evidence, the net worth method, the expenditure method, and/or the bank deposit method. Under the direct evidence method, the government will attempt to establish a tax crime through transactions improperly reported on a tax return. Under the net worth method, the government will focus on unreported income received by a taxpayer. Closely related to the net worth method is the expenditure method (sometimes known as the “lifestyle” method). Under this method, the government will attempt to establish a tax crime by establishing that a taxpayer purchased more goods and/or services during a given period than the gross income reported on a tax return in question. Finally, under the bank deposit method, the government uses a formula based on the taxpayer’s taxable income. If the taxpayer under investigation deposited, into their bank account(s), more money than reported on a tax return during a given period, then the government may classify these deposits as unreported income and use this as evidence of a tax crime.
In addition to failing to report income, tax crimes can be brought against anyone attempting to “evade or defeat” tax collection by transferring assets or someone who “aided and abetted” a taxpayer to evade tax.
If a criminal case commences, it is very likely that, regardless of outcome, a civil case will commence shortly after the conclusion of the criminal investigation. The presentation of your defense during the criminal investigation could significantly affect the outcome of any civil case. The first step in a criminal case is to avoid any criminal prosecution or punishment, such as imprisonment or fines.
The criminal process can be long and difficult for you and your family. Representation by seasoned tax attorneys, who are adept at explaining the process and your options, is key to helping you establish a proper defense and maintain peace of mind.
See also, Offshore Tax Shelters, White Collar Crime, Expert Witness