The government takes tax fraud accusations seriously and will conduct a thorough investigation if they believe they have a case. Tax authorities, such as the IRS and state taxing agencies, use various methods to detect fraudulent activities. Three of the most common tools that tax authorities use to build their case include:
- Analysis of tax return inconsistencies: Comparing submitted returns against typical patterns and previous submissions.
- Audit processes: In-depth reviews of questionable or random tax returns.
- Investigation of whistleblower tips: Information received from external parties who notice discrepancies.
These are just a few of the methods the government will use to gather evidence to support the allegations. Those who find themselves the target of an investigation or facing allegations of tax fraud are wise to take the matter seriously and start to build a defense to the accusations.
What are possible defense strategies?
One of the first options often involves gathering evidence to establish that the government made a mistake. In other cases, the prosecution may not have enough evidence to support their claim. In these situations, it can help to argue that the prosecution has not met the burden of proof the law requires for the court to move forward with a conviction.
What are the penalties for tax fraud?
The penalties for tax fraud are severe and vary depending on the nature and extent of the allegations. They can include financial penalties and even imprisonment. The specific consequences depend on the facts of the case and the laws of the jurisdiction.
A recent example provides some guidance on how these cases move forward. In this example, the government built a successful tax fraud case against a taxpayer accused of a failure to report assets. The case focused on bitcoin, an asset that continues to grow in popularity. Many taxpayers falsely believe that they do not need to report digital currency like bitcoin. The Department of Justice (DOJ) became aware of this taxpayer’s attempts to avoid tax obligations on this asset and gathered evidence to support criminal tax fraud charges against the taxpayer.
The DOJ argued that this individual was aware of the need to report and intentionally hid the asset to avoid paying tax obligations. The prosecution provided evidence to support that the taxpayer believed the transactions were “untraceable” and that he could avoid tax obligations by conducting digital currency transfers in person and with cash. To make matters even worse, the prosecution had copies of blog posts made by the taxpayer explaining how to remain anonymous when making bitcoin transactions.
Upon review of the evidence, the court found in favor of the prosecution and sentenced the taxpayer to two years imprisonment. In addition to imprisonment, the court has also ordered the taxpayer to pay mandatory restitution and additional financial penalties.
How can I avoid allegations of tax fraud?
To defend against such allegations, it is important to keep detailed and accurate documentation of all income, deductions, and credits. This will prove invaluable when working to build a defense. It is also important to stay informed about the tax laws applicable to your situation. This can better ensure compliance.
If you are accused of a tax fraud, it is important to take the matter seriously. As the case noted above highlights, these allegations can come with serious penalties. A prompt response can help mitigate this risk.
