Civil vs. Criminal Tax Fraud

There are two main types you might be charged for when it comes to tax fraud: civil or criminal.  Although they have some overlap, there are also some pretty significant differences. Civil tax fraud will typically end with penalties brought against a taxpayer (loss of their money or assets). In contrast, criminal tax fraud usually results in either jail time or probation (loss of their freedom).  When it comes to civil vs. criminal tax fraud, it’s important to remember that a taxpayer can be found liable for both, even for the exact activities/charges.

What is Civil Tax Fraud?

Under the Internal Revenue Code, the government can bring up civil penalties on taxpayers for any type of fraudulent conduct. This fraudulent conduct can include a few different things, from either willfully filing a return that doesn’t have correct information or willfully failing to file their tax return at all.

Section 6663(a) of this code generates a penalty if any underpayment of tax due to fraud shows on a tax return. In situations like these, the government is allowed to bring on a penalty equal to 75% of the part of the underpayment resulting from fraud. To prosecute this fraudulent underpayment penalty, the government needs to provide clear and convincing evidence. Suppose the government can meet this requirement. In that case, the entire underpayment will be assumed to be the result of fraud unless the taxpayer can show by a preponderance of the evidence that any part is not because of fraud. If a joint tax return is filed, the fraud penalty will not apply to both spouses unless a portion of the underpayment is actually because of the spouses’ fraudulent conduct.

It’s essential to note that the fraud penalty even survives the taxpayer’s death who committed the fraud. In various cases, the tax court has also held that the fraud penalty applies where a taxpayer files a fraudulent return and then files an amended return trying to correct the fraud.

Another notable section is section 6651(f). This provides authority for the government to bring on a fraudulent failure to file a penalty. Under this code, the government can charge a 75% penalty on the tax shown on a return. This is usually pursued if the taxpayer fails to file their return, specifically with the intent to evade tax. To successfully pursue this, of course, the government has to prove by clear and convincing evidence that the taxpayer’s failure to timely file was intentional on their part and that they were trying to evade the tax that they owed.

What is Criminal Tax Fraud?

Many different provisions have to do with criminal tax fraud in the code. These include tax evasion, willful failure to collect or pay over tax, and even failure to file a return or provide information to pay your taxes.

What About Tax Evasion?

When people think of criminal tax fraud, they’re probably the first to think of tax evasion. It’s a felony for any person to try to evade paying their taxes willfully. The law is pretty broad on purpose to cover the many different ways that defendants might avoid paying their taxes. In legal terminology, a person can only be found guilty of tax evasion if the government can show beyond a reasonable doubt that there was willfulness, there was a tax deficiency, and there was some sort of affirmative action that the person took part in avoid paying taxes. In general, tax evasion falls either under an evasion of an assessment or an evasion of tax payment.

Civil vs. Criminal Tax Fraud Differences

There are some definite similarities in civil and criminal tax fraud, but there are also some crucial differences. The main differences between civil and criminal tax fraud are:

• Statute of Limitations: In general, there is no statute of limitations for the government to bring up fraud penalties when it comes to civil tax fraud. With that said, for most criminal tax fraud cases, the government has six years to bring up a criminal case.
• Burden of Proof: The burden of proof is a legal term, but it has to do with the obligation that’s brought upon one party in a court proceeding to offer evidence to a judge or jury. For civil tax fraud, the burden of proof is on the government to show clear and convincing evidence of fraud. For criminal tax fraud cases, there’s a constitutional requirement that makes it, so the government needs to prove all the elements of the statute that are at issue beyond a reasonable doubt.

The Importance of Experienced Lawyers 

To advise you properly, a lawyer must thoroughly understand the differences between civil and criminal tax fraud. In many cases, if there are allegations of civil tax fraud, there are also going to be allegations of criminal conduct. When a client is exposed to either civil or criminal tax exposure, it’s a good idea to take advantage of all the different programs that the IRS offers to taxpayers to become compliant with little criminal exposure. This is by no means an exhaustive breakdown of civil vs. criminal tax fraud, but it should give you more information on the similarities and differences involved. At Norman Spencer Law Group, we can advise you and represent you in any type of tax fraud. Call for more information today!