Tax Evasion vs Tax Fraud And The Statute Of Limitations

Many of us have heard about tax evasion and tax fraud. What do these terms really mean? Is there a difference between tax evasion and tax fraud? In short, the answer is YES.

Tax evasion and tax fraud may appear to be problems only faced by master con artists and embezzling white-collar criminals, but that is not the case. Filing taxes can be a complex task without the help of a tax professional. Any innocent mistakes can raise red flags to IRS investigators.

Because of the complexity of taxes, and the likelihood of an innocent mistake occurring at some point in time, it may be beneficial for you to know the difference between tax evasion and tax fraud, the consequences of each, and the IRS’ tax crime statute of limitations.

TAX EVASION AND TAX FRAUD: WHAT’S THE DIFFERENCE?

Tax evasion and tax fraud are both serious offenses, but tax fraud carries a more severe penalty. Tax fraud occurs when tax documents are fabricated. This always results in a felony charge. Tax evasion occurs when illegal means are used to avoid paying your taxes. This can include failing to file your taxes or not paying your taxes at all.

Let’s look at the example of celebrity Martha Stewart. In 2004 Mrs.Stewart was required to pay $220,000 in property taxes and penalties to the state of  New York after claiming she did not owe taxes on her home because she did not spend a lot of time there. Had she been found guilty of tax fraud, she could have received five years of jail time on top of monetary penalties.

STATUTE OF LIMITATIONS

After a tax crime is committed, either intentionally or unintentionally, the plaintiff and the prosecutor only have a specific period to file charges. This period is called the statute of limitations. The statute of limitations refers to the amount of time the IRS has to officially charge you after you are caught lying about your taxes.

For civil audits, the IRS has three years to audit a taxpayer. For tax evasion, it is six years from the last apparent act until the time the assistant US attorney files criminal charges against the taxpayer. The IRS may have six years to a taxpayer if they find during the initial investigation that 25% or more of their  gross income was concealed.

Another thing to consider is that the statute of limitations can stop running or be paused if a taxpayer leaves the United States or becomes a fugitive. The IRS can also choose to prosecute them for a series of fraudulent acts and start counting the time for the statute of limitations from their last act of tax evasion or tax fraud.

The IRS will pursue cases of civil fraud, when it is clear and evident that there was an underpayment of taxes due to fraud. The IRS can choose to look back as far as they want to when filing a charge against someone. But the IRS will rarely look back more than six years since they can usually find enough evidence that’s more current without having to look through past returns. To avoid severe consequences, it is best to look into tax debt relief as soon as possible.

CONCLUSION

In conclusion, tax fraud and tax evasion should not be taken lightly. There can be severe punishments for these offenses, including jail time. The statute of limitations grants the IRS a time frame to file charges against a taxpayer, but the time for the statute of limitations depends on what tax crime was committed and what information was discovered during the IRS’s initial investigation.

Do you have unfiled tax returns? If so, we can help!

CuraDebt Tax has years of experience and has a team of tax professionals who are able to assist you with all of your tax needs. Contact us today for more information. 1-877-999-0486