Civil Tax Fraud vs Criminal Tax Evasion

Most people fail to understand the difference between civil tax fraud and criminal tax evasion. It stands to reason, as both are, essentially, a way of illegally avoiding taxes. However, each one comes with its own implications, as well as its own set of criteria. You may want to fully understand the differences before you hire one of the best IRS tax relief companies to help you with your case. In this article, we explain exactly what tax fraud and tax evasion are, explore the burden of proof and statute of limitations, as well as provide you with a way to defend yourself from tax fraud or tax evasion charges.

What is civil tax fraud?

The term “civil tax fraud” refers to a violation of a number of different statutes within Title 26 of the internal revenue code, where an individual willfully commits the violation. The important words to note are “fraud”, and “willfully”, as they imply that the government needs to prove they are connected. If an individual intentionally and voluntarily avoids their taxpaying duties, they are committing tax fraud. There are numerous examples of how this can happen, including:

  • Not reporting income over several years
  • Not filing complete tax returns in the same period
  • Bank accounts under false names
  • Illegal revenue
  • Hiding or destroying relevant books or record logs
  • Lying to IRS agents
  • Having multiple (different) copies of record logs
  • Intentionally not providing accurate information to the IRS
  • Destroying client information and/or invoices
a hacker
Illegal revenue always constitutes tax fraud.

The list goes on. All of the items on the list share the “willful” part among them. If a taxpayer accidentally misses their tax payments, that is not civil tax fraud. Nor is it if one provides false information due to a mistake. In those cases, you may want to refer to tax negligence. Tax negligence is not a felony in most states, as it will not earn you jail time. But it will incur a penalty. Tax fraud, on the other hand, is a federal felony and will incur jail time, fines, and other similar consequences.

The penalties for civil tax fraud “max out” at a 75% penalty on the taxes that are due. There may be other penalties depending on the circumstances.

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What is criminal tax evasion?

The standard definition of criminal tax evasion is pretty much the same as that for civil tax fraud. Again, the government must prove that there was a willful act of avoiding taxes. However, the difference is that tax evasion comes with two extra steps: Burden of proof and statute of limitations. If you want to protect yourself from common IRS tax scams, you will do well to understand both. The fact of the matter is that some scammy tax relief companies will not hesitate to put you in a bad spot if it suits them. Lastly, criminal tax evasion carries higher penalties than tax fraud.

Burden of proof

You may have already heard of the concept and it might be familiar to you. The burden of proof stipulates that the prosecution’s argument must be convincing if there were to be a conviction. In other words, the government needs to prove its case in court, beyond a reasonable doubt. In this regard, you can say that tax evasion is akin to murder! Both require no amount of reasonable doubt before a conviction can be made.

a lawyer
The government needs to prove all criminal tax evasion charges in a court of law, beyond any reasonable doubt.

For tax fraud charges, the burden of proof is usually accomplished by clear and convincing evidence. Unlike murder and tax evasion, there is even room for a “small level of doubt“. The jury, of course, must believe that the taxpayer in question is guilty, but they may harbor some doubts even after reaching a verdict. The main reason for this discrepancy is the fact that tax evasion is a much more serious offense than tax fraud.

Of course, “willfully” is always the key factor. If, for example, you were looking for car tax relief and have hired a company to help you with it, you are not going to answer for anything that you don’t know about. If a fraudulent company commits tax evasion on your part, you may be facing some penalties but they will not be as serious as if you committed the crime yourself.

Statute of limitations

Another critical factor of criminal tax evasion is that there is a time limit on how long the government has to make its case. In this particular case, the government has up to six years to get a conviction. The exact timeframe depends on the code section that is being used for the case. Furthermore, there is also some debate on when exactly the clock starts. But the main point is that will always be a point in time after which the government must drop the case.

However, there is another “catch”. With criminal tax evasion, there is something that is called “last affirmative action”. This basically means that the government can dig up old cases in some situations. A prime example of this is lying to a federal agent about something that happened 20 years ago. While the original crime is well past its statute of limitations barred date, the affirmative action of lying can bring it back to relevance. And the government can prosecute yet again.

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The government can “reopen” old cases in light of new evidence, according to the last affirmative action.

The statute of limitations for civil tax fraud, on the other hand, depends greatly on the specific criminal activity. For example, any tax code violations that do not impose jail time are not covered by the statute of limitations. However, if a taxpayer fails to keep records or supply information, the statute of limitations comes into play. For these specific crimes, the time limit is three years. Other charges may incur a full six-year limit, and they may be prosecuted simultaneously with criminal tax evasion.

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How can you defend against civil tax fraud and criminal tax evasion charges?

In all honesty, the exact difference between civil tax fraud and criminal tax evasion can be very complicated. So much so that you are going to need a tax attorney or a CPA. If you are hiring one of these professionals to help you boost your tax refund amount, you may want to ask them about what exactly constitutes tax fraud and tax evasion in your particular case. Many people do not even understand that they are willfully committing criminal activity. If you happen to have committed tax fraud or evasion, and it has been brought to your attention by someone else than the IRS, your best option is to self-report the issue.

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Hiring a tax attorney is usually the best thing you can do if facing civil tax fraud or criminal tax evasion charges.

If you self-report a civil tax fraud or criminal tax evasion, the IRS will, in most cases, provide you with a way to get back into tax compliance. Furthermore, you will most likely not be criminally prosecuted and may even get a break on some civil tax penalties. But if you are unfamiliar with the tax system, you will want to hire a tax attorney. The voluntary disclosure process can be complicated, after all.

Why you may want to hire a tax attorney?

Additionally, hiring a tax attorney will prevent any unauthorized practice of law, which is a crime in and of itself. You may also not be eligible for the voluntary disclosure, something that your tax attorney will warn you of. Either way, dealing with any sort of tax charges, be they for fraud or evasion, will be much easier if you have a tax professional by your side. Here are a couple of situations where it might be in your best interest to hire one:

  • When you are being audited by the IRS
  • When starting a business for the first time
  • If you want to gift/transfer property
  • When buying rental property
  • If you haven’t filed your tax returns in a while

An experienced tax attorney can help you educate yourself on various tax issues, as well as implications, and represent you in the court of law. These professionals can also talk to the IRS on your behalf, help you prepare and file tax returns, obtain information, etc. In most cases, it is advisable to hire a tax attorney before the IRS starts a criminal investigation against you.

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The best thing to do, of course, is never to get into the courtroom in the first place. There are numerous tax relief options available without resorting to criminal activity or tax fraud. However, finding the best tax relief companies requires significant research. Luckily, Consumer Opinion Guide has you covered! Explore our knowledge database and you will soon have all the answers you need. Whether you need to hire a tax expert or learn more about taxes, you can find all the necessary information in one or more of our articles!

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