What is a tax conspiracy?

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A tax conspiracy involves a group effort to cheat the government out of revenue or impede the Internal Revenue Service’s (IRS) efforts to enforce tax laws.

Elements of a Conspiracy

The federal government often prosecutes tax schemers under a law that proscribes conspiring “to defraud the United States.” (18 U.S.C. § 371.) To establish a tax conspiracy, the government must prove that

  • two or more people came to an agreement
  • the agreement involved an effort to defraud the government, and
  • one person took some action to accomplish that goal.

Someone can participate in an illegal tax conspiracy without trying to withhold or acquire money that rightfully belongs to the government. Simply trying to deceive the IRS suffices. For example, a business owner might agree to pay a consultant through a “straw” company so that it appears that the consultant didn’t receive any wages; as a result, the consultant can continue to collect unemployment insurance. If they do anything to carry out the plan, both the business owner, who isn’t trying to take anything from the government, and the consultant are guilty of tax conspiracy.

Just Trying Is Enough

A tax conspiracy conviction doesn’t require that the conspirators succeed in their efforts or that the government suffer any harm. Merely agreeing to interfere with the IRS is enough, as long as the culprits begin to put their plan into action.

If a group of would-be conspirators reaches an illegal agreement, but doesn’t do anything to carry it out, there’s been no crime. But it only takes a small step pursuant to the agreement—by anyone in the group—to complete a conspiracy. In the example above, the business owner and consultant would be criminally liable as soon as either created the straw company, before even using it.

Withdrawal

A conspirator is in the clear if she withdraws from the conspiracy early enough. As soon as she withdraws, the statute of limitations, which is six years in many tax conspiracy cases, begins to run. That means that if the government doesn’t prosecute the conspirator within six years of the withdrawal, it can’t prosecute at all.

Withdrawing isn’t as simple as doing nothing: The conspirator must act inconsistently with the goal of the conspiracy in a way that notifies the other conspirators. In practical terms, this often means announcing the intention to quit to all members or disclosing the conspiracy to law enforcement.

Sentencing

The maximum prison term for a federal tax conspiracy is five years, but this punishment supplements the sentence for any crime committed through the conspiracy. So, for example, a group of conspirators that successfully avoids taxes can be punished for both conspiracy to defraud the government and tax evasion. On the other hand, if the conspirators have agreed to commit a crime that is a misdemeanor, the maximum punishment for the conspiracy will be the same as that for the misdemeanor.

Getting Legal Assistance

If you are charged with a tax crime, or are simply being investigated for one, contact an experienced criminal defense attorney immediately. Look for someone who regularly handles federal tax cases. Only an experienced attorney will be able to assess the strength of the case against you, explore any possible defenses, and represent your best interests along each step of the way.

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