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WE'RE A BOUTIQUE NYC CRIMINAL DEFENSE LAW FIRM. YOU WORK WITH ONE OF OUR SENIOR ATTORNEYS PERSONALLY.

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IRS Tax Fraud Lawyers

The Internal Revenue Service has always been serious about income tax evasion. It’s their job to make sure everyone complies with current tax laws and that no one gets away with cheating. While there’s no shortage of true tax criminals, the tax code is very complicated and it is possible to make honest mistakes that look bad to the IRS. There is a difference between tax negligence and tax fraud, which is a critical distinction for someone under investigation.

Who Are the Most Common Offenders?

According to the IRS, 17 percent of taxpayers are guilty of noncompliance with the tax code. In fact, individuals are responsible for committing up to 75 percent of tax fraud, rather than large corporations. One study identified restaurant owners, clothing retailers, salespeople, car dealers, hairdressers and accountants as some of the top offenders. Restaurant servers, handymen, mechanics and service workers are also frequently known to underreport their income.

Is It Fraud or Just Negligence?

First of all, tax fraud involves a willful attempt to avoid paying taxes. This would be the case if an individual or corporation failed to file a tax return or pay the taxes due. Underreporting income also qualifies as tax fraud, as well as making fraudulent claims or filing false returns.

The IRS knows how complicated the tax code is and that a number of people have difficulty understanding it. As a result, they’re more likely to assume that an error was made, before trying to make a case for tax fraud. In these cases, an IRS auditor will probably attribute the mistake to negligence. Note that while these mistakes aren’t intentional, the taxpayer can still get fined 20 percent of the amount underpaid.

Auditors have a number of different signs they look for, when trying to determine the intent of the accused. Overstating exemptions or deductions is one of the biggest red flags, along with claiming exemptions for nonexistent dependents. Maintaining two sets of financial ledgers is seen as a clear sign of criminal intent, along with concealing or transferring income. Other such signs include falsifying expenses, using a phony social security number and deliberately underreporting income.

Common Tax Schemes

Private individuals aren’t always to blame for tax evasion. Sometimes they find themselves on the wrong end of a scheme perpetuated by an employer. Pyramiding, cash payment, employee leasing, false payroll returns and even failure to file payroll returns are some of the different methods companies have used to avoid paying taxes.

Pyramiding involves withholding taxes from workers without turning them over to the IRS. Companies that engage in this practice typically end up filing for bankruptcy to avoid paying their debts, then emerge as new businesses with different names, only to repeat the same process. As far as cash payment to employees is concerned, the practice is not illegal. However, it is common in tax evasion schemes.

Employee leasing is the practice of contracting third party businesses to take care of payroll, personnel and other administrative matters for their employees. While this is also not illegal, it becomes a problem when the third party company fails to turn over employment taxes to the IRS. Filing false payroll returns and failing to file them at all are both fraudulent practices.

Although tax crime convictions are statistically unlikely, they do occur. If you’re under investigation, you’ll need a tax fraud lawyer to represent you and fight for the best possible outcome. This is especially important if you’re not a good communicator or are likely to fold under pressure. Penalties for tax fraud can be very steep, involving heavy fines and possible prison time.

by Leonard on Spodek Law Group
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