What is the Difference Between Tax Fraud and Tax Evasion?

Perhaps we should start with what tax fraud and tax evasion have in common, which is that they are both federal crimes. Both come with hefty fines, as well as the potential for a long imprisonment in a federal penitentiary, for those who are convicted. Also, neither is considered tax avoidance, which is the legal means of minimizing taxes through legitimate deductions and sheltering. So how are they different from each other exactly?

Tax Fraud: Tax fraud is not so much one thing as it is a violation of any one of several different laws. It occurs when the taxpayer intentionally fails to pay taxes that are due, thereby defrauding the government of the money owed to it. Not only does the IRS have to prove that the taxpayer failed to pay the required taxes, it must also show that the taxpayer intended to fail to pay. Not surprisingly, this is a high burden of proof for the government.

Tax Evasion: If you picture tax fraud as a giant umbrella covering the many different forms it takes, tax evasion will be one of those crimes underneath the umbrella. With tax evasion, the taxpayer intentionally and deliberately misrepresents their taxable income to avoid paying higher taxes to the government. The misrepresentation of income can take many forms including falsification of documents, failure to report income, overstating expenses or deductions, claiming dependents who do not exist, falsifying receipts, and inadequate record keeping.

Interestingly, the penalties for tax fraud are lower than those for tax evasion. This is perhaps explained by how it is a broader crime and it requires significantly more effort on the part of the government to prove. In this respect, tax evasion may be more of the low-hanging fruit given its frequency and many different forms.

As such, tax evasion comes with a heftier penalty than tax fraud. If you are convicted of tax evasion, there can be a very large, six-figure fine, and a potential prison term of up to five years. You may also be on the hook for the costs of the prosecution against you, and of course, your own legal fees. If you are acting in concert with others, say as part of a business, conspiracy to commit tax evasion can be added to the menu with its own fines and potential jail time.

When thinking back to your last tax return and the income that you may have forgotten to put on it, remember that tax fraud and tax evasion have one very important element that is required: intent. The acts constituting the fraud or evasion must be made knowingly—that is, the person doing it knows exactly what they are doing and they are doing it on purpose.

Of course, mistakes on returns are made. They were made to the tune of approximately $2.1 million in 2015. Most of those mistakes were genuine mistakes and the IRS conceded this to be the case. Where the mistake was not so obvious, however, is where the IRS will start investigating for fraud or evasion.

The best way to avoid charges of tax fraud or tax evasion is to have qualified and competent counsel and tax professionals assisting with your tax returns at every step of the process. If you are facing charges of tax evasion or tax fraud, it is imperative to have experienced attorneys on your side every step of the way. The attorneys at Weisberg Kainen Mark have the experience, knowledge, and understanding of the entire process and can help you get through it. Contact our firm at (305) 374-5544 today to get started.

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Written by Weisberg Kainen Mark, PL

Weisberg Kainen Mark, PL

Weisberg Kainen Mark, PL is a Miami-based law firm focused on providing comprehensive legal support to individuals and corporate entities caught up in tax controversies or charged with a criminal act. As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.