Like the old saying goes, there really are two certainties in life: death and taxes. And while it’s not possible to escape the first one, thousands of Americans every year try to evade their taxes.
According to the IRS, the total of unpaid taxes adds up to about $450 billion per year.
Tax evasion is a serious white collar crime, which can carry jail sentences and hefty fines depending on the facts of the case. It can be prosecuted on the state level or the federal level, depending on which taxes are unpaid.
This guide will focus on tax evasion laws in California.
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- Criminal Tax Evasion Laws in California
- Penalty for Tax Evasion in California
- Tax Evasion vs. Tax Avoidance
- The Audit Before Charges are Filed
- What is Criminal Tax Fraud?
- Defenses Against Tax Evasion Charges in California
- Contact a Ventura Criminal Defense Attorney Today
Criminal Tax Evasion Laws in California
In California, it is illegal to intentionally pay less than you owe on your taxes. This means that if you are filing a personal tax return, you can’t intentionally under-report your income, lie on your tax return or fail to file a tax return altogether. Doing so is criminal tax fraud.
This applies to anything that is taxable in the state — from income to car purchases or gambling winnings.
It’s also illegal to purposely misrepresent or supply fraudulent information on corporate tax returns. Both of these situations are detailed in California’s Revenue and Taxation Code, in Sections 19706 and 19705.
Penalty for Tax Evasion in California
Tax evasion in California is punishable by up to one year in county jail or state prison, as well as fines of up to $20,000. The state can also require you to pay your back taxes, and it will place a lien on your property as a security until you pay taxes.
If you cannot pay what you owe, the state will seize your property.
As well, the state maintains a list of the top 500 delinquent taxpayers in a publicly searchable database. If you are convicted of tax evasion and end up on the list, this information can hamper your credit rating and ability to get a job or buy property.
Tax Evasion vs. Tax Avoidance
It’s important to emphasize that there are a number of legal ways that you can lower your tax bill every year. In fact, most Americans practice some form of “tax minimization” or “tax avoidance.”
Taking advantage of legally available tax minimization tactics like deductions, credits and loopholes can legally reduce your tax bill. However, when someone crosses the line from taking advantage of a legally available tax minimization avenue, to taking a deduction not available to them or simply fraudulently representing information on their tax return, that is when it becomes tax evasion.
In order to prove that a person is guilty of tax evasion, a prosecutor must prove:
- The defendant filed the tax return;
- The tax return had false or fraudulent information in it;
- The defendant knew that the information that he or she supplied was false;
- And that this was done intentionally in order to evade paying taxes.
The Audit Before Charges are Filed
If the government suspects you might have committed tax evasion, the first step is that it will order an audit.
An audit can be triggered for a number of reasons — the government actually keeps this list of reasons secret — but when an audit happens, an auditor will begin a thorough review of your tax return and financial statements. The auditor will be looking for a number of things, particularly signs that you either under-reported your income or overstated your deductions.
If the auditor finds no reason to pursue its case against you, your case will be closed.
If it finds signs that you have fraudulently represented your tax return or that you lied to the auditor during the auditing process, the state can bring charges against you and will have to go to court.
What is Criminal Tax Fraud?
Tax evasion is a serious offense that carries significant legal consequences. Among the many types of tax evasion is criminal tax fraud, which is considered one of the most egregious forms of tax evasion.
Criminal tax fraud occurs when an individual or business intentionally and willfully falsifies their tax return or fails to file their taxes with the intent to evade taxes. In other words, the taxpayer deliberately provides false or misleading information on their tax return to avoid paying their fair share of taxes.
This type of tax fraud is considered a criminal offense and is prosecuted under both civil and criminal laws. The Internal Revenue Service (IRS) has the authority to conduct a criminal investigation and refer the case to the Department of Justice (DOJ) for prosecution.
Examples of criminal tax fraud include failing to report all income, overstating deductions, hiding assets or income offshore, and creating false documents to support fraudulent tax claims. These actions are done with the intent to deceive the IRS and evade taxes owed.
The penalties for criminal tax fraud can be severe and include fines, imprisonment, and restitution of taxes owed. Depending on the severity of the offense, an individual can face up to five years in prison and a fine of up to $250,000. Businesses can be fined up to $500,000 for criminal tax fraud.
In addition to criminal penalties, individuals and businesses convicted of tax fraud may face civil penalties, including fines and interest charges. They may also be subject to an audit or investigation by the IRS.
It’s important to note that not all tax errors or mistakes constitute criminal tax fraud. However, intentionally falsifying tax returns or failing to file taxes with the intent to evade taxes is a serious crime and can result in significant legal consequences.
Defenses Against Tax Evasion Charges in California
In order to secure a conviction in a tax evasion case, the prosecutor has to prove that the defendant not only was personally involved in the filing of a tax return but also that the defendant knowingly and deliberately provided false information on the return for the purpose of not paying taxes.
In the case of corporate returns, where multiple people might be involved with the filing of a return, it’s possible to claim mistaken identity. Perhaps, someone else in the organization was actually involved in providing the fraudulent information.
For personal tax returns, it’s possible that you might have made a simple mistake. If you believe you might have made a mistake on your tax return, you should file an amended return as soon as possible. The fees involved with an amended return are typically much less than those involved with a tax evasion fine.
The California government will aggressively fight for money that it believes it is owed, but with the help of an experienced and knowledgeable defense attorney, it might be possible to successfully defend or at least reduce what you owe.
If you or someone you know is suspected of tax evasion, the State of California will use a team of experts to investigate and prosecute the case in an effort to get the money it believes it is owed.
They will have experienced auditors combing through your financial records, and aggressive, hungry prosecutors on the case. State budgets are serious business, and the state has a large arsenal for collecting unpaid taxes. If you’ve found yourself in the state’s crosshairs, it only makes sense to fight back with your own team of experts.
As an experienced, aggressive Ventura criminal defense attorney, I have taken on tax evasion cases on the state and federal level throughout the last 40 years. I know what it takes to win, and I’m prepared to help you navigate your charges.
Call today at 805-273-5611 for your free, no-risk case evaluation.
