How you can avoid being charged with a Federal Tax Crime
by: Anthony Parent
Did you know that --- that in theory --- it is actually fairly hard for the US government to get a tax evasion conviction. However, because so many practitioners don't fully understand how the system works, they mistakenly have their clients fall into the same old trap year after year. In this article we will explain how you can avoid the mistakes of others.
Note: This artclie was original written in December 2008 and has been updated June 22, 2018
The IRS has many unfair advantages in bringing federal tax crimes
The Department of Justice has many advantages in federal tax crimes prosecutions. A federal judge will not tell a jury that the jury has a right to nullify a prosecution's case. That is, a jury does have the right to find not guilty if they feel like the crime really wasn't much of a crime to begin with.
The founders of this country wanted that as a protection against an out-of-control federal government. For example, our nation's first Chief Justice of the US Supreme Court gave these instructions to jurors: "You have the right to take upon yourself to judge ." That is, if a jury thinks a law is repugnant, a jury is completely authorized to disregard that law and find the defendant not guilty. If the founders of this country were that paranoid about federal power, then why aren't we? Right now, except in rare exceptions, judges refuse to educate juries about their right to nullify a prosecution.
The other advantage is this: Suppose you have not always done everything 100% correctly in your past. And you took a plea deal -- whether in state court or federal court to avoid the expense and uncertainty of a trial. It could have been a plea for a malum prohibitum crime, that is, something that is only illegal because the law says it's illegal, not because there was anything morally wrong in what you did. No matter, that previous record will absolutely increase your chances for being indicted with federal tax crimes because that previous plea will increase your chance of convictions. And the IRS likes easy prosecutions.
Why a previous conviction can be used as evidence in a trial for a violation of federal tax crimes
Someone with a record is hamstrung from getting a fair trial. Why? The state can introduce past criminal convictions to prove that the Defendant is of inferior character, and thus a liar.
The real problem is that someone with a record gets a lot of attention from the prosecution and it's an uphill fight. They can't expect a decent plea bargain. Of course, many of my clients make the folly of assuming that if they're innocent, they can't be convicted. Every time I hear that it makes me laugh. The last place you should expect justice is in a court of law. Remember that.
The reason I bring this up is that I received a call from a taxpayer who was found guilty of a very slight infraction. She failed to file one year of returns and her total tax liability was around $2000. Her sentence? 8 months of jailtime.
I asked her why the plea deal was so terrible (the maximum sentence for her crime was 1 year. She told me that she had some problems in the past. She had a long record of non-compliance. This time however, she told me that she made an honest mistake. She thought her return was filed but it wasn't. Even the Revenue Officer who was working her case agreed that her mistake was reasonable. With a long history, I told her I thought she made the right decision to plead guilty, even though it meant certain jail time.
We both talked a little bit more, and we came to a simple conclusion. She wasn't being punished for tax crimes for failing to file for one year --- she was being punished for tax crimes for her past. She was being punished for a reputation.
So remember: The best way to avoid the arbitrary "justice" of a federal tax crimes prosecution is to avoid court all together. The best way to avoid court all together is to always file your returns. It's a crime not to file (although prosecutions are rare). File your returns even if you owe money. Owing money to the IRS isn't a crime --- it's more of a national pastime. But failing to file a return, even for one year, may give you 8 months (or more) to think about things from inside a sparsely decorated federal penitentiary camp.
Another great way to avoid a federal tax evasion prosecution is to get into a disclosure program if you have unreported foreign accounts. The reason we stress to people that you need to address this problem with a voluntary disclosure is it's too easy for good people to get prosecuted.
If you have a tax issue you need assistance with, contact us.