Angela started a small business from her home selling ceramics and housewares she makes herself. She hired an assistant to help her with shipping, packaging, and customer relations. She primarily sells items at local craft markets and with online retailers for a discount.
She agreed to pay her assistant, Kelsey, cash wages because Kelsey does not have I-9 documentation. Angela has not claimed Kelsey as an employee on her taxes, is not paying into workers’ compensation insurance, and offer’s Kelsey no benefits.
After an IRS audit two years later, it is uncovered that Angela made several crucial mistakes. Namely, by failing to pay employer payroll taxes and failing to properly include sales tax in the items she sold online. Now she is facing criminal tax charges and possible time in prison if convicted. What are her options?
What are some examples of tax crimes?
Tax fraud and tax evasion are similar tax crimes both relating to the avoidance or strategic, but illegal, planning to reduce or refrain from paying taxes on a state or federal basis. An example of tax fraud is filing a false or incorrect tax return without the intent of passing the return as legitimate.
An example of tax evasion is underreporting or failing to report income, or paying an employee “under the table” to avoid paying employer payroll taxes. Another example of tax fraud or tax evasion is selling goods or services from your home without applying for a business license and paying applicable taxes.
The penalties for tax crimes are steep. For example, if an employer has deliberately or continuously failed to file tax returns, submit the correct information, or has purposely failed to name an employee on their taxes, the IRS has the option to assess civil and criminal penalties.
In addition to a civil fine, interest and penalties begin to accrue. If fines and notices go unpaid, the IRS can garner wages, put a levy on someone’s home or personal property, and even garnish income from Social Security. Under IRC § 7201, a person who attempts to evade paying taxes can be charged with a felony, and if convicted, is subject to up to five years in federal prison and up to 100,000 dollars in fines.
IRS collections and investigations are extremely serious. However, not everyone who is contacted by the IRS may have acted with ill will or malice. Some of the potential defenses to tax crimes include lack of evidence to prove you actually owe anything, mistake, or lack of willful fraud.
A mistake means that the charges are in fact a mistake. Then either the IRS has charged the wrong defendant or is incorrect about what the defendant actually owes if anything. A crucial element of willful fraud and evasion and that the defendant deliberately made the conscious decision to avoid paying taxes altogether or the correct amount. If the IRS cannot establish that the fraud was willful and deliberate beyond a reasonable doubt, a defendant cannot be convicted in criminal proceedings.
If you have been charged with a tax crime, contact an attorney first. Do not speak to the IRS until you have spoken to a licensed, experienced tax defense attorney like our lawyers at North Suburban Legal Services.
Contact the Chicago Criminal Tax Defense Attorneys at North Suburban Legal Services
Contact a Chicago criminal tax defense lawyer at North Suburban Legal Services, LLC. Our team of attorneys is dedicated to achieving results for our clients and is not afraid to go to battle, including in criminal tax defense cases.
We understand what is at stake and offer tailored advice and solutions. We serve clients throughout Chicago and Cook County. Call today to schedule a consultation at (312) 909-6089.