The Difference between Money Laundering, Tax Evasion, and Tax Fraud

tax law differencesTax crimes are not created equal. Better understanding of criminal tax charges helps refine your understanding of the actions that the Internal Revenue Service (IRS) finds objectionable—and why.


We frequently review cases to analyze the issues involved, how outcomes are reached—and how those consequences might have been avoided with the intervention of a good tax attorney. There are many kinds of abusive tax schemes. When an IRS criminal tax investigation concludes, potential defendants usually face more than one charge.


As the charges in a criminal tax matter stack up, the world falls down on those accused. Money laundering, tax fraud, tax evasion—the charges might as well be all the same. To the lay person, it looks and feels like the IRS is “throwing the book” at the defendant. While it is true that the IRS assiduously investigates and charges based on evidence they uncover, it is not true that the charges are basically one big tax crime.  


Let’s consider the differences between tax evasion, money laundering, and general tax fraud:

  • General tax fraud: The investigation and prosecution of general tax fraud is the main business of the IRS Criminal Investigation (CI) division. The allegation accompanies investigations that reveal taxpayers who willfully underpay or neglect to pay taxes owed through a variety of deceptive schemes. This might mean keeping multiple sets of books, falsifying deductions, filing fraudulent tax returns, hiding assets, and failing to report income, among other scams.
  • Tax evasion: Tax evasion is a failure to pay taxes owed or a deliberate attempt to underpay a tax liability. Tax evasion is illegal. Tax avoidance is action or planning undertaken to minimize or lessen tax liability to protect and nurture wealth. Tax avoidance is legal and a common service provided by our firm to taxpayers and companies seeking to lessen their tax exposure.  Filing false payroll records or fake tax returns where income is not reported or underreported are just two examples where taxpayers work to evade their tax obligations.
  • Money laundering: Money laundering usually involves money earned or obtained through illegal means. Transferring money between companies and countries is an effort to move illegal funds into mainstream, legitimate finance. 


Tax evasion can occur with funds that are obtained legally or illegally. Money washed through global or national financial systems usually involves ill-gotten gains. General fraud describes deceptive schemes employed to avoid or reduce paying a legitimate tax liability.


With each of these allegations, the IRS has the burden of proof to provide convincing evidence and argument that the taxpayer willfully engaged in deceptive and illegal practices. If you are aware that the IRS is interested in your business through a civil audit or through a criminal tax investigation, speak with an experienced criminal defense tax lawyer to better understand your situation, how to respond, and what charges may be made against you. 


Skilled legal advice on criminal tax matters and other tax controversy

From offices in Chicago and Cleveland, the tax attorneys at Robert J. Fedor, Esq., LLC help individuals and corporations nationwide and abroad respond to allegations of tax crime, IRS audits, and compliance questions. When you need responsive, legal advice, contact us or call 800-579-0997.


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