Federal Tax Evasion: Understanding the Crime, Defenses, and Consequences

Tax evasion is a serious federal offense that can lead to hefty fines, imprisonment, and lasting damage to one’s reputation. The Internal Revenue Service (IRS) and the Department of Justice (DOJ) aggressively prosecute individuals and businesses suspected of intentionally evading tax obligations. This post explores what constitutes tax evasion, key federal laws, notable cases, and possible defenses.

What Is Federal Tax Evasion?

Under 26 U.S.C. § 7201, tax evasion occurs when a taxpayer willfully attempts to evade or defeat a tax imposed by federal law. The government must prove three elements beyond a reasonable doubt:

1. A tax deficiency exists – The taxpayer owes more than what was reported and paid.
2. Willfulness – The taxpayer knowingly and intentionally acted to avoid paying taxes, as opposed to making an honest mistake.
3. Affirmative acts of evasion – This could include falsifying records, hiding income, underreporting earnings, or using offshore accounts.

The penalties for tax evasion are severe, including up to five years in federal prison and fines of up to $250,000 for individuals or $500,000 for corporations, plus restitution of unpaid taxes.

Common Tax Evasion Schemes

Tax evasion can take many forms, including:

• Underreporting income – Failing to report all taxable earnings, including cash transactions.
• Inflating deductions or credits – Claiming false business expenses, charitable donations, or tax credits.
• Hiding money offshore – Using foreign bank accounts or shell companies to shield income from the IRS.
• Failure to file returns – Willfully not filing tax returns while earning taxable income.
• Employment tax fraud – Employers failing to remit payroll taxes withheld from employees.

Notable Federal Tax Evasion Cases

Some of the most famous tax evasion prosecutions highlight how seriously the government treats these offenses:

• Al Capone (1931) – The notorious gangster was convicted of tax evasion and sentenced to 11 years in prison, proving that the IRS could take down even the most powerful criminals.
• Wesley Snipes (2008) – The Hollywood actor was sentenced to three years in prison for failing to file tax returns for several years.
• Paul Manafort (2018) – Former Trump campaign chairman was convicted of tax fraud for hiding millions of dollars in offshore accounts.

Defenses Against Tax Evasion Charges

Those accused of tax evasion have potential defenses, including:

• Lack of Willfulness – The government must prove intentional wrongdoing. If errors were due to negligence, misunderstanding, or reliance on a tax professional, it may not qualify as tax evasion.
• Insufficient Evidence – The prosecution must prove the case beyond a reasonable doubt. Lack of documentation or an unclear intent to deceive could weaken their argument.
• Statute of Limitations – The IRS generally has six years to bring criminal charges from the date of the alleged tax violation. If this period has passed, prosecution may not be possible.
• Voluntary Disclosure – If a taxpayer voluntarily corrects a mistake and pays back taxes before being investigated, it may help avoid criminal charges.

How a Criminal Defense Attorney Can Help

Facing federal tax evasion charges is daunting, but experienced legal representation can make all the difference. At The Bonderud Law Firm, we:

• Conduct thorough investigations into tax records and financial transactions.
• Challenge the prosecution’s evidence and legal arguments.
• Negotiate with the IRS or DOJ to reduce penalties or seek settlements.
• Advocate for clients in federal court when necessary.

If you or your business is under investigation for tax evasion, don’t wait until it’s too late. Contact The Bonderud Law Firm today for a confidential consultation.