An attorney was sitting as a temporary judge for a mandatory settlement conference: I am being sued by someone who has committed serious tax fraud and tax evasion and I feel that the person should be held accountable criminally. He told us that no one goes to prison for tax fraud or tax evasion. Is this really true?
False. There must have been some misunderstanding in this case. Generally, attorneys do not make that type of blunt statements. Many tax issues are criminal in nature and people ago to jail/prison all the time, both on domestic and international tax violations. I recently met someone who voluntarily disclosed to me that had been recently released after serving over twenty years due to tax fraud. In addition, review the 2009 UBS case and find out how many holders of the Swiss bank accounts ended up in jail. Good luck.
In a way what he / she said it true… In the U.S. each year the federal government brings about 5,000 criminal prosecutions a year. 3500 or so of those are add on crimes. Example a hit man busted for murder usually does not report his “hit man” income so evasion is added on… That leaves about 1500 pure tax crimes in the nation a year that get prosecuted. Given the gov is looking for publicity for prosecuting – unless you’re a country western singer or an action movie star criminal prosecution is highly unlikely. Rarely would the government be interested in criminally prosecuting someone fingered by an individual with a personal grudge as their sole motivation. The evasion has to be egregious and the prosecution likely to get press.
False. The judge pro tem does not know what he is talking about. I seriously doubt whether he has any tax or criminal tax experience. While it is true that Federal tax fraud or evasion prosecutions are uncommon (only about 2000 criminal tax cases are filed each year in the entire U.S.), they are not unheard of. I tried about 8-10 criminal tax cases with the U.S. Attorneys Office, Tax Division, Los Angeles ("USAO Tax"), from 2000-2011 and disposed of numerous other criminal tax cases through pre-indictment plea agreements.
In general, the Department of Justice's Tax Division in Washington, D.C. ("DOJ Tax) will only authorize criminal tax fraud or evasion cases which meet the following criteria: (1) the taxpayer has a multi-year pattern (2 or more years) of failing to file returns, filing false tax returns or other documents and/or failing to pay tax; (2) the total tax loss is $30,000 or more (otherwise, if less tax loss is involved, a first-time criminal offender who pleads guilty and whose tax crime does not involve any specific offense characteristics, such as sophisticated means, a pattern or scheme from which he derived a substantial portion of his income, and/or he is in the business of preparing or assisting in the preparation of tax returns, he is very likely to be sentenced to probation; given the length and labor-intensive nature of criminal tax investigations -- 2000+ man hours -- nothing short of a prison sentence generally is satisfactory to the IRS/DOJ for deterrence and publicity purposes; (3) undeclared income from offshore banking activity and FBAR violations are involved (the IRS and DOJ are seemingly presently viewing each one of those cases, civil or criminal, as "the most important Federal case ever"); and/or (4) a celebrity or high-profile individual is the subject of the investigation. If factors 1 and 2 are not met, then DOJ Tax may authorize prosecution if factors 3 and 4 are met. As noted below, however, the IRS professes not to have any specific dollar threshold for criminal tax prosecutions, so it is possible (albeit highly unlikely) for a case to be prosecuted which involves a total tax loss less than $30,000 and no "specific offense characteristics," if the facts are damning.
If the plaintiff's conduct meets the prosecution criteria set forth above, then you should consider submitting an Information Referral to the IRS reporting his tax fraud. See http://www.irs.gov/pub/irs-pdf/f3949a.pdf
I've attached excerpts from a dated article which explains the tax loss criteria that the IRS and DOJ Tax use to determine whether to authorize criminal tax investigations and prosecutions:
"While the IRS will not admit to specific monetary threshold tax amounts or other specific
guidelines, CID generally observes certain standards for prosecution recommendations.
Traditionally, the tax consequence of the criminal tax violations for all prosecution
periods would be at least $10,000 for tax evasion and approximately $2,500 for failure to
file cases. For false document cases, the tax threshold amount may be less than $500. In
addition, CID normally adheres to the multi-year prosecution period in order to establish
a pattern of willful conduct.
Although CID generally adheres to the aforementioned standards, there are exceptions.
These might include cases in a targeted area of non-compliance or cases involving public
figures or cases in which the violations for a single year are sufficiently flagrant to clearly
establish criminal intent.
It is important to note that the Special Agent often has an interest in maximizing the
criminal tax calculations in order to enhance the apparent prosecution value or publicity
potential of an investigation. More importantly, the amount of the criminal tax calculation
is directly correlated with the severity of a potential sentence according to the Federal
Sentencing Guidelines." (page 9)
This is not true. In 2010 I had a client who had failed to file tax returns for 5 years. They also had all their income paid to a Corporation but never paid any corporate tax, impersonated an IRS agent, and generally hung around "tax protestor' type people.
Both husband and wife were were indicted for tax evasion in the Eastern District of Wisconsin. Both were facing up to 25 years in prison, fines, and probation after their incarceration. I got them 6 months in prison with no fines and no probation. This couple still owes about $600K in taxes and penalties.
So yes... People go to jail.
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