When Tax Issues Become a Criminal Situation in the Eyes of the IRS

Due to the admittedly complicated nature of the tax code in the United States, the idea that someone might experience issues when filing is not exactly unheard of. Often people will incorrectly calculate certain aspects of their returns, fail to submit the necessary paperwork, or something similar. That's part of what amended returns are for - eventually, either you or the IRS will discover the mistake, and at that point, things can be corrected appropriately.

Of course, the chasm between a "minor accident" and "intentional fraud" regarding your taxes is enormous. If you're not careful, the latter can get you into trouble and even venture into criminal territory.

The Case With Criminal Charges and the IRS: What You Need to Know

Whenever this topic comes up, the first question that most people ask involves, "What does 'criminal conduct' mean within the context of the IRS, anyway?" The answer, unfortunately, is broad. The government defines it as ANY action you take that violates tax laws or regulations. So if you've claimed a deduction you weren't entitled to reduce your tax liability, that would be considered criminal conduct. If you underreported your income to get a bigger refund, that would be criminal conduct.

Just because that may be true doesn't mean the IRS will prosecute anyone and everyone it finds that falls into this category, however.

Overall, the IRS doesn't go to the trouble of pursuing criminal charges for any old taxpayer with a fundamental filing issue, regardless of how negligent they may be. Ultimately, it will come down to a few factors, including the severity of the issue in question, whether they can prove an intent to defraud, and of course, the Statute of Limitations.

To start in reverse order, know that the Statute of Limitations is the amount of time that the IRS has to begin criminal prosecution in the first place legally. If you have yet to file taxes or have underreported your income (and they can prove it), they have six years from the date the correct return was supposed to be in their hands to do anything about it.

If you have a fraudulent return, however - meaning you've intentionally lied about things like your income sources - there is no statute of limitations. So don't assume you can "wait them out."

The IRS must also be confident they can prove their case should they bring criminal charges. If they suspect something like filing false returns, unpaid taxes, mail fraud, or even bank fraud, the most likely next step will be to begin an investigation. This will likely involve the dreaded audit and interviews with yourself and other key witnesses, subpoenas to obtain your financial records like bank statements, and more.

If crucial evidence is uncovered throughout all this, the IRS's Criminal Investigation Division (CID) will likely get involved.

Additional Considerations About Your Taxes

This situation should not be taken lightly when discussing criminal charges and the IRS. For example, the average jail time given to people for tax ovation is between three and five years.

But that's not all - you could also get fined up to $100,000 (again, depending on the severity of the crime) or up to $500,000 if you're a corporation. The IRS takes this incredibly seriously, which means you must also.

In the end, all of this helps to underline the importance of making sure that your taxes are done correctly in the first place. Showing an intent to defraud the federal government when filing your taxes is a situation you would do well to avoid at all costs. But you also want to guarantee that everything is submitted exactly as it should be and that you've ultimately paid everything you owe (whether you like it or not).

Even if you don't rise to the bar of criminality, underpayments, late payments, and other issues could still get you hit with significant fees and other penalties. If you need help handling things, feel free to enlist the help of an experienced financial professional to do so on your behalf. That way, you'll rest easy knowing that all matters with the IRS are being handled.