Tax Evasion Cases

If you or a loved one have made mistakes when preparing taxes or attempted to reduce your own tax liability based on mistaken theories, federal tax evasion charges may be filed against you.

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Codified at IRC 7201, the maximum penalty for federal tax evasion is $100,000 in the case of an individual and $500,000 in the case of a corporation, and a prison sentence of 5 years. The elements of federal tax evasion are as follows: 1) the presence of a tax deficit 2) an actual act or attempt at evading the valuation or paying of taxes 3) doing the above mentioned acts purposefully with knowledge of what was done.

It is very important that the lay person not get deceived by many fanciful scams or false theories that claim it is lawful to either not pay income tax to the federal government or to hide money in accounts that are believed to be beyond the probing eye of the federal government. These theories include the use of redemption schemes, sovereign citizen schemes, tax protest arguments, fallacious and incorrect constitutional law theories, the use of “asset protection trusts” in countries like the Cook Islands, bank accounts in countries with supposed “bank secrecy laws” like Bermuda, the British Virgin Islands, Cayman Islands; or bearer share corporations created in places like Panama or the Seychelles to conceal the ownership of valuable assets like priceless art, high value American real estate, or jewelry.

Intentionally evading taxes is very serious and is inadvisable. In fact, the Department of Treasury has their own domestic version of the CIA, FinCEN – the Financial Crimes Enforcement Network, which, under Section 314(a) of the Patriot Act enables law enforcement to reach out to 30,000 or more financial professionals at any of the major banks or lenders that operate in the USA and have them inform on a person’s financial habits if they can be vaguely tied to “terrorism” or “money laundering”. This network of informants inside the banks of the USA presents tremendous danger to fundamental privacy rights of the public, and imprecisely targets people for arrest. According to FinCEN’s own documents, 95% of their Patriot Act requests led to arrests or indictments. There is no information, however, on how many of those arrests led to convictions.

There is controversy among courts about what constitutes the presence of a tax deficit for purposes of the first element of tax evasion. The Second Circuit, the federal appeals court that presides over New York and the surrounding states, holds the minority view that the government must characterize the diverted income, although they do not need to find out exactly how much income has been diverted.

The second element of tax evasion requires that the government prove the defendant attempted to not pay or actually did not pay their taxes or submit to valuation. These must be actual acts, malfeasance rather than non-feasance. Careless conduct is not sufficient to establish the second element. The statutory language is very broad and encompasses a wide variety of acts including but not limited to: Creating a set of real and fake books, one for the authorities and one to keep actual track of how much was diverted or stolen (Bernie Madoff and Jho Low both used this strategy to conceal their frauds), removing currency from the country in cash, making up fake income streams, and structuring transfers of assets to conceal the true owner. The general rule is that whenever an act shrouds the IRS from evaluating the defendant’s ability to pay taxes, that act may satisfy the second element of tax evasion.

Since there are so many acts that can constitute tax evasion it is particularly important to get advice from a licensed attorney before attempting any risky moves. If you or a loved one have been accused of tax evasion, please call our experienced federal and New York tax evasion attorneys.