What laws are broken when people fail to comply with tax rules?

Come mid-April each year, plenty of taxpayers scramble to file their tax returns. Some get extensions. Others simply file late. But, despite the potential civil and criminal penalties, some never file at all. Those who never pay—and who catch the government’s eye—face stiff penalties. So do those who don’t fulfill other tax reporting requirements.

Federal law penalizes people who are obligated to, but fail to

  • pay a tax
  • pay an estimated tax
  • file a tax return
  • keep legally required tax records, or
  • provide certain tax-related information. (26 U.S.C. § 7203.)

Legal Obligation

Of course, people who have no tax obligations can’t be convicted of any of these crimes. For example, the IRS doesn’t require people who earn less than a certain amount to file tax returns; not surprisingly, these people can’t be convicted for not filing. On the other hand, people above this income threshold must not only file returns—they must provide all required information, sign the return, and file any necessary forms.

Intent

Tax offenses require that the defendant intentionally violate a known legal duty. Theoretically, then, someone who forgets to or doesn’t know she is required to file hasn’t broken the law. In reality, though, “mistake” defenses can be very difficult to establish.

A defendant may argue that he didn’t comply with a tax obligation because his lawyer or accountant misguided him. But simply receiving bad advice isn’t enough to constitute a legal defense: The defendant must establish that he disclosed all relevant information to a competent lawyer or accountant.

Punishment

The tax violations described above are misdemeanors that carry up to one year’s imprisonment and a $25,000 fine. If the defendant is a corporation, the maximum fine is $100,000.

In some cases, failing to properly report income or pay taxes can be punished under more than one statute. For example, business owners are required to report transactions in which they receive over $10,000. (26 U.S.C. § 6050I.) Failing to file a return in this circumstance is a felony with a maximum prison sentence of five years. The severity of the sentence depends on several factors, including whether the defendant knew or believed the money was the product of illegal activity.

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 during each step of the way.

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