Recently, Las Vegas-based realtor and business owner William Waller was charged with different counts of tax fraud. According to the Department of Justice, Waller is guilty of tax evasion, interfering with tax laws, falsifying tax information, not filing tax returns, among other tax crimes. Legally, any of these charges could lead to months or years of imprisonment. But since they are multiple, Waller may be facing up to 40 years upon the conclusion of the trial.
Still, in Las Vegas, former Five Star Home Healthcare owner Maria Larkin was indicted of attempts of tax evasion. According to the prosecution, Maria Larkin failed to pay duties which included Medicare tax and income tax that was withheld from her workers’ earnings between 2004 and 2009. According to the District Court ruling, Larkin is to face a 1-year jail term. In addition, she’s to pay a restitution amount that is not less than $1.1 million.
What Exactly is Happening Here?
In the first case, William Waller is charged with several tax crimes and the offense is collectively known as tax fraud. As you have realized, tax evasion is one of the crimes and he is facing a heavy sentence. In the second case, Maria larking is just charged with tax evasion and she’s facing a lighter sentence when compared to Waller. So, what exactly is tax fraud and what is tax evasion?
If we may start with the latter, tax evasion refers to a tax crime where one either intentionally underpays taxes or fails to pay. The keyword here is ‘intentional’. It means that the person charged ignores the obligation to pay taxes knowingly. According to the law, tax evasion is one class of tax fraud. Some other case scenarios of tax evasion are:
- Intentional emission or underreporting of personal income as a trick to avoid paying taxes
- Wrong income allocation as a way not to pay taxes
- Concealing personal or business assets intentionally as a way to avoid paying taxes
- Improper claiming of tax exemptions or credits as a way to skip paying taxes
Essentially, you can argue that tax fraud is tax evasion plus other similar crimes against the taxman. While tax evasion is one of the major tax fraud offenses, others include:
- Bribing employees as a way to evade tax
- Running a business under a false name as a way to evade taxes
- Making false claims for a tax return
- Overstating expenses as a way of reducing of reducing income and taxation
- Engaging in alcohol or tobacco sales without paying excise duty
- Misrepresentation of tax information
- Offering false statements to the taxman
- Intentional deceitful conduct against the tax agency
- Underreporting personal income earnings
- Claiming different residence when staying in Nevada
- Underreporting sales
- Collecting but not reporting sales tax information
This law on tax fraud and tax evasion is further elaborated under the code section 366.340. You can visit the section to learn more about this statute.
What Are the Ramifications?
As you may have noticed from our two study cases, the ramifications of tax fraud are heavy. Generally, here are some of the things to expect if convicted of the crime:
- Financial Penalty – The first thing that you have to pay is the tax debt that you owe the taxman. There are no negotiations for this. Then, you are expected to pay a penalty fee that’s added to your tax debt. Ordinarily, this penalty is 26% of what you owe the taxman. However, if the tax offense is in accordance with Chapter 372 or Chapter 374, then the penalty is three times your tax debt.
- Jail term – Due to the gravity of a tax fraud offense, serving time in jail is a real possibility. However, not all offenses against the IRS (international revenue Service) will land you in jail. Most tax evasions lead to a financial penalty. Nonetheless, if the offense is too complicated, you may suffer both. The average jail term for a tax evasion crime is 3 to 5 years. Of course, you can serve less or more depending on the crime. If it’s a case of failing to file your tax returns, you may be sentenced to one year in jail plus $100,000 as fine. If you are found guilty of tax conspiracy (that’s defrauding the government), then you are likely to serve up to 10 years in prison plus $250,000 as fine.
- Other Ramifications – Additionally, you may lose a number of things for being charged with tax fraud. They include your international passport and social security benefits. You may also stain your credit score.
When Does Failure to File Tax Returns Becomes a Criminal Offense?
As mentioned before, failing to file tax returns is a serious crime by itself. Nevertheless, the IRs prefers to first talk to you about a possible settlement before they can resort to taking you to court. That’s unless your source of income is an illegal one. In such a case, they will suggest prosecution right away without considering a settlement. Basically, the more fraudulent your conduct is looking, the likelier it is to face prosecution. But before you can be arraigned in court, the IRS will first audit your income. They don’t have to prove the specific amount that you owe the state but just the evidence of the crime.
What Are Your Non-Criminal Action Options When You Can’t Pay?
In most cases, the IRS does not dig out tax offenses that are older than 6 years unless the auditor suggests otherwise. Once you are found guilty, you’ll be forced to pay the tax debt plus the additional penalty. In case you can’t, you’ll be offered an installment plan option. The plan allows you to negotiate, through your attorney, how you’ll pay up the debt in regular bits. Of course, the IRS will only accept reasonable installments. It may take a few weeks before you and the IRS can reach a settlement agreement.
Now that you know what happens when you commit tax fraud, it’s time you act responsibly by paying your duties. In case you find yourself in a problem with the IRS, it’s advisable to talk to a tax attorney. The expert will help you negotiate a reasonable deal and to save you from the stress that comes with the prosecution.