- Find out what “criminal conduct” means to the IRS.
- Learn about the Statute of Limitations.
- Discover additional considerations you should be aware of.
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. Oftentimes people will calculate certain aspects of their returns wrong, fail to submit the necessary paperwork, or something similar. This is why amended returns exist. Eventually, either you or the IRS will discover the mistake. At that point, things can be properly corrected. Of course, the chasm between a "minor accident" and "intentional tax fraud" is a big one. The latter can get you into a significant amount of trouble and may even venture into criminal territory.
The Case with Criminal Charges and the IRS: What You Need to Know About Tax Fraud
Whenever this topic comes up, the first question asked is, "What does 'criminal conduct' mean to the IRS, anyway?" The answer, unfortunately, is pretty broad. The government defines it as ANY action you take that violates tax laws or regulations. If you've claimed a deduction that you shouldn’t have to reduce your tax liability, that is criminal conduct. If you underreported your income in an attempt to get a bigger refund, that would be criminal conduct. The IRS considers both actions tax fraud.
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, know that the IRS doesn't go to the trouble of pursuing criminal charges for any old taxpayer with a basic filing issue, regardless of how negligent they may be. Ultimately, it will come down to a few different factors. These factors include the severity of the issue in question, whether they can prove an intent to commit tax fraud, and of course the Statute of Limitations.
The Statute of Limitations
The Statute of Limitations is the amount of time that the IRS has to legally begin criminal prosecution. If you haven't filed taxes at all 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 filed a fraudulent return, however – meaning you've intentionally lied about things like your income sources – no statute of limitations exists. So don't make the mistake of assuming you'll be able to "wait them out" on this one.
The IRS needs to be confident that they'd be able to prove their case should they choose to 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 not only the dreaded audit but interviews with yourself and other key witnesses, subpoenas to obtain your financial records like bank statements and more.
If the IRS uncovers key evidence throughout all this, the Criminal Investigation Division (CID) will likely get involved.
Additional Considerations About Your Taxes
The IRS does not take criminal charges for tax fraud and other offenses lightly. The average amount of jail time given to people for tax evasion is between three and five years, for example.
You could also get fined up to $100,000 (depending on the severity of the crime) or up to $500,000 if you're a corporation. The IRS takes all of this incredibly seriously which means that you need to as well.
In the end, all of this helps to underline the importance of making sure that you complete your taxes properly. Showing an intent to defraud the federal government when filing your taxes is a situation you should avoid. But you also want to guarantee that you have submitted everything exactly as you should 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.
Do you feel like you're able to handle things on your own? If not, don't be afraid to enlist the help of an experienced financial professional. That way, you'll be able to rest easy knowing that all matters with the IRS are being taken care of.