Understanding the Difference Between Civil and Criminal Tax Fraud

If you know your tax returns or FBAR report do not quite add up, it is helpful to understand how the Internal Revenue Service (IRS) may look at potential action against you.

We talked earlier about the importance of willfulness when the IRS is considering prosecution. It may be difficult to convince the IRS that you did not intend to dramatically underreport your income. Yet, if there is true margin for error that you did not understand how a bonus applies, the IRS may find you made a mistake—rather than committing civil or criminal tax fraud.

When the IRS can establish that a fraud occurred—and have reason to believe it is not a mistake—the agency may consider charges of tax fraud, either civil or criminal. The distinction between the two is critical, and it is the responsibility of the IRS to prove allegations they bring against a taxpayer.

Civil and criminal tax crime charges are different legal measures. Both civil and criminal allegations can be brought against a taxpayer at the same time, but the charges play out in different ways. One big difference is the level of proof required to prove the charges. Consider:

• Criminal tax crime matters must be proven “beyond a reasonable doubt” by the IRS.
• Civil tax fraud crimes must be proven with “clear and convincing” support.

A standard of proof “beyond a reasonable doubt” is the higher standard and, if proven, also carries consequences beyond that of a civil tax fraud. Differences between the penalties carried by each charge include:

• Criminal tax crimes: Criminal allegations are pursued “to punish” the individual for commission of the tax fraud. Criminal tax fraud is prosecuted to deter the individual and others going forward. The defendant faces fines, restitution, and imprisonment as possible consequences of conviction.
• ·Civil tax crimes: Civil fraud is an administrative correction usually taken after an audit. The penalties are often proposed by the auditor in their report. The appropriate tax will be assessed, along with monetary penalties. If assets are involved, they may be recovered as part of the action.

Tax fraud charges can ensue following a tax audit. If you are concerned about potential discrepancies in your returns, speak with an experienced criminal tax defense attorney before initiation of the audit. The earlier you speak with experienced counsel who can intervene on your behalf, the better.

Speak with our experienced tax attorneys when facing allegations of tax crime

Serving local and international clients from offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC helps you respond strategically to questions about tax returns, civil and criminal tax audits, and tax controversy. Call 440-250-9707 or contact us today.