The United States Sentencing Commission (USSC) recently released its Tax Fraud Report for fiscal year 2022. The report provides valuable insights into current patterns and outcomes in federal tax fraud cases that resulted in convictions.
The term "tax fraud" includes the common crime of tax evasion, a violation under 26 U.S.C . 7201, a serious federal offense in the United States. It involves deliberately misrepresenting or concealing information to reduce tax liability.
Tax evasion can take many forms, but it primarily falls into two categories: evasion of assessment and payment. Both types of evasion are punishable under federal law but involve different actions and legal nuances.
26 U.S. Code 7201 attempt to evade or defeat tax says, "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution."
The United States income tax system is based on voluntary compliance. Under this system, it is the taxpayer's responsibility to report all income. Tax evasion is illegal.
People try to evade paying taxes by failing to report all or some of their income. Sometimes, they must report all the tips they collect or the money they earn through other activities.
Such money-making activities are part of the underground economy, which exists to avoid paying taxes. If taxpayers fail to pay what officials say they owe, the IRS can assess a penalty and collect the back taxes. Let's examine some of this tax fraud report's primary takeaways and what we can learn from them.
Tax Fraud Prosecutions Are on the Rise
Despite an overall decrease of 22.4 percent in tax fraud prosecutions from FY 2018, the number of prosecuted cases has steadily increased over the past three years, indicating a growing seriousness in addressing tax fraud.
The number of offenders has grown from 324 in FY 2020 to 401 in FY 2022. This trend may or may not indicate that more people are cheating on their taxes.
Rather, it may suggest that authorities are becoming increasingly vigilant in pursuing tax fraud cases, which means individuals accused of such offenses must take their defense seriously.
Prosecutions Aren't Just for Larger Amounts
While the IRS is understandably interested in tax fraud cases dealing with larger amounts, they do not limit themselves to large sums of money.
The median loss for tax fraud offenses was $301,009, with 14.4% of cases involving losses under $100,000. This statistic highlights that even tax fraud cases involving relatively small amounts can have significant legal consequences.
It's crucial to recognize that even for smaller tax fraud cases, the authorities take these offenses seriously and will pursue them with the same vigor as larger cases, potentially leading to jail time.
Convictions Are More Likely than Not to Result in Jail Time
The FY 2022 USSC Tax Fraud Report reveals that 59.3% of individuals convicted of tax fraud were sentenced to at least some prison time, with the average sentence being 13 months.
It's also worth noting that 84 percent of those convicted had little to no criminal history. This information effectively debunks the chances of serving time being slim if you've been charged with tax fraud. While many do escape jail time, more than half do not.
Most Convictions Do Not Result in Full Recommended Sentencing
One bright spot in the report: While the potential for jail time is significant, the FY 2022 USSC Tax Fraud Report also indicates that most convictions did not result in the full recommended sentencing.
Most offenders received either a downward variance or a downward departure in their sentencing.
A variance refers to a sentence that falls outside the recommended USSG guidelines, while a departure refers to a sentencing difference for which the USSG has provided specific guidance.
According to the report, 58% of tax fraud offenders received a variance, with 99.6% being downward. Of the 42 percent whose sentences fell within USSG guidelines, more than 50% of offenders received a downward departure. Only 0.4% of offenders received an upward variance (i.e., a sentence greater than the guidelines range)).
Cooperation With Authorities Increases the Chances of Sentence Reduction
According to the USSG report, most offenders who received downward departures did so by substantially assisting the government in investigating other cases, highlighting the importance of cooperation in reducing sentences.
These people's sentences were reduced by 78.2 percent on average. These numbers indicated that offenders who cooperate with authorities tend to receive better outcomes in their cases.
This finding also highlights the importance of working closely with legal counsel and considering all available options when charged with tax fraud.
Importance of Hiring a Federal Criminal Defense Attorney
Given the complexities and potential consequences of tax fraud charges and all that is at stake, hiring an experienced federal criminal defense attorney can make a huge difference in your case. A skilled attorney will:
- Assess Your Case: They will thoroughly analyze the charges against you and the evidence presented by the prosecution to identify potential weaknesses and develop a strategic defense plan.
- Negotiate with Prosecutors: Experienced attorneys have established relationships with prosecutors and can negotiate on your behalf, potentially securing plea deals or reduced charges, especially if you cooperate or can provide assistance on other cases.
- Represent You in Court: If your case goes to trial (many do not), a knowledgeable attorney will provide expert representation, presenting a compelling defense and advocating for your rights.
A key element in tax fraud charges is the intent to evade taxes, so your attorney might present evidence to show you had no intent to defraud the government. This might involve proving that any misreporting was due to negligence or misunderstanding rather than a deliberate attempt to evade taxes.
Contact our federal criminal defense law firm for additional information. Eisner Gorin LLP is based in Los Angeles, California.
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