While both tax evasion and tax avoidance may sound synonymous at first, they are actually two completely distinct legal terms with separate implications. Tax avoidance is a legitimate method for reducing taxes, whereas tax evasion involves deception and fraudulent activities to illegally reduce tax liability. Tax evasion is illegal and punishable by the Internal Revenue Service (IRS), while tax avoidance is not.
Knowing the difference between tax evasion and tax avoidance can help keep you out of trouble with the IRS and avoid the risk of criminal penalties. If you’ve unknowingly committed tax evasion or need to prove that any fraudulent activity was not willful, contacting a skilled defense attorney is strongly recommended. With many years of experience, Bernal Law is here to help you protect your rights and your future.
What is Tax Evasion?
When you intentionally do not pay your taxes, you are committing tax evasion. Failing to pay the full amount of taxes or attempting to evade taxes on specific income types is also considered evasion. Tax evasion is very serious, illegal, and can result in penalties of mandatory jail time and fees of up to $20,000 in California. Some of the most common examples of tax evasion include under-reporting taxable income and claiming deductions for which you are not legally eligible.
It’s possible to commit tax evasion without doing so willfully or knowingly. In cases like this, it is pertinent to remedy the situation as quickly as you possibly can. This can be rectified by filing amended returns for the years you mistakenly underpaid. If you have already corrected the problem, it is not as likely the IRS will pursue you with hefty penalties.
If you are currently being accused of tax evasion for reasons you were not actively aware of, it is recommended you reach out to a knowledgeable attorney as soon as possible. An attorney from Bernal Law can help you in many ways throughout the legal processes pertaining to your taxes, including accusations of tax evasion. If you have genuinely made a mistake on your forms while filing, we can also help explain what has happened and expedite the process.
What Is Tax Avoidance?
On the other hand, tax avoidance is a completely legal method of reducing your tax liability. There is nothing wrong with finding ways to legitimately minimize your taxes or hiring a professional to review your options for you.
Common examples of legitimate tax avoidance include claiming deductions and tax credits. These are specifically designed to help your overall taxable income and your tax bill. However, it’s crucial to note that using a tax preparer who employs illegal tax avoidance methods could implicate you by association.
An attorney from Bernal Law can help you explain what has happened to the appropriate personnel and ensure you are not held liable for something you haven’t done. We can also support you if you have been accused of evasion but have actually participated in legal tax avoidance. Don’t hesitate to get in touch with us for additional support and an explanation of the laws as they apply to your circumstances.
How Does the IRS Distinguish Between Tax Evasion and Tax Avoidance?
The main differences between tax evasion and tax avoidance is in the legality of each. As established, tax evasion is the illegal practice of intentionally avoiding paying your taxes. Tax avoidance is a legal practice used to reduce the amount of taxes a person is required to pay to the government.
Examples of Tax Evasion: Federal and California State
Depending on the charges you receive, tax evasion can look different. The following are examples of actions that commonly result in charges for tax evasion for both California and federal taxes:
- Willfully failing to file tax returns
- Failing to supply information with the intent to evade taxes
- Intentionally making, rendering, signing, or verifying false statements
- Providing false or fraudulent information for tax returns
- Claiming dependents, exemptions, or other deductions you are not entitled to claim
- Not reporting complete income earned in the fiscal year
- False statements made on return
- Claiming to reside in a different state
- Underreporting your income
- Inflating or exaggerating tax deductions
- Transferring your assets to avoid paying taxes
- Holding property in another person’s name to hide your assets
- Destroying past tax records
- Maintaining more than one set of books for your business
- Overlooking cryptocurrency transactions
- Otherwise filing a false tax return
If you are charged with tax evasion, you may be suspected of one or more of these issues. If you recognize any of these behaviors, we strongly recommend you work with a qualified tax evasion lawyer to reduce the severity and risk of penalties following a conviction.
There may be additional actions someone can take that would result in unlawful tax evasion. If you utilized one of these methods and unknowingly committed tax fraud in some way, you may have a defense to protect yourself and reduce the severity of any penalties.
If you are charged with tax evasion and do not recall taking any of these actions for either state or federal taxes, we also recommend you retain a lawyer. An attorney from Bernal Law can ensure you are represented fairly during litigation, proving your innocence and allowing you to avoid unjust penalties.
Whether you know you are guilty or believe you are innocent, we can aid you during complex legal matters and reduce the stresses related to these proceedings. Our team speaks both English and Spanish, so you can feel comfortable working and speaking with our team at Bernal Law.
What Are Common Forms of Legal Tax Avoidance?
There are many actions someone can lawfully take to lower the amount they owe in taxes to the government, both federally and on a state level. If you want to lower your taxes legally, or you are concerned about whether your actions are lawful, we can offer valuable clarity. The following are legal forms of tax avoidance you are permitted to utilize:
- Deducting for interest paid on home mortgages
- Claiming credits for child-care expenses, including daycare
- Putting money into a 401(k)
- Taking advantage of tax-deductible donations
- Investing in other tax-advantaged accounts, including individual retirement accounts (IRAs)
- Deducting for tuition payments
- Claiming medical expenses
- Correctly reporting information relating to sales taxes
- Working with an accountant or other specialist to identify other tactics available to you
We recommend consulting with an accountant or tax specialist when preparing your taxes. These professionals can help you ensure you are following every letter of the law, while lowering your tax payments as much as is legally possible. If you have any questions about the legality of your actions, these professionals are excellent resources.
Can You Refile Past Tax Returns?
If you are concerned about any issues with your tax return, including any past filings, you have the option to file an amended tax return. The IRS gives you this option by providing the 1040-X form, allowing you to make adjustments to returns you have previously filed. However, there are some cases where the IRS will not permit a compromise or adjustment.
How Can You Be Accused of Tax Evasion Unknowingly?
If you have committed tax evasion, the IRS will typically notify you. Generally, the IRS will identify errors and attempt to determine whether you committed them knowingly and willingly. Tax evasion cases will generally begin with an audit of your filed tax return, so you will be notified in this way. The IRS is more likely to accuse you of illegal tax evasion if you have a pattern of making significant errors over several years, specifically for large amounts of money.
It is possible to accidentally commit tax evasion, especially if you are not working with a qualified tax professional or fail to pay careful attention to the information you are filing. For example, filing with missing or incorrect information of any kind may constitute illegal tax evasion.
There may also be cases where tax professionals are actually the guilty party responsible for your tax evasion. This is more likely when they are unaware of recent changes to the law. We encourage you to carefully look for qualified and experienced tax professionals when filing your taxes.
If you know someone has a past of shady or unlawful processes, we recommend you do not work with them. Otherwise, you will have a harder time defending yourself against any allegations.
We encourage you to speak with an attorney from Bernal Law if you have been accused of tax evasion. If the IRS has started an audit on your tax reform because they suspect you are guilty of tax evasion, we can support you in many ways. Our attorney is dedicated to fighting for your fair representation and rights during difficult times, and we can mitigate the consequences you could potentially face.
Can You Report Someone to the IRS for Tax Fraud?
If you suspect or know someone has committed tax fraud, you are able to report them to the IRS. In particular, you can utilize Form 3949-A, Information Referral. The form will ask for information about the person you suspect has committed fraud, the kind of violation you suspect they committed, and your contact information. However, the IRS will not share your contact information to the person you have reported.
You can also report tax preparers, like accountants and other professionals, for fraud or abusive forms of practice. For these reports, you can use Form 14157, Return Preparer Complaint.
Possible Defenses for Tax Evasion
If you have been charged with tax evasion, you may be able to defend yourself to reduce or eliminate potential consequences. Some defenses for tax evasion include the following:
- Lack of willfulness: If you make a genuine attempt to file your taxes but make a mistake, this is a legitimate reason the court may accept after an accusation of tax evasion. While this is not necessarily true for other criminal offenses, specific cases and laws have set a precedent.
- Accountant negligence or mistakes: If you work with an accountant or another professional tax advisor but are still charged with tax evasion, you may argue that this individual made a mistake. You may not be liable if you have provided the necessary paperwork and followed your advisor’s recommendations.
- Lack of evidence: If you are charged with tax evasion but there is not sufficient evidence to prove this is true, you may have a strong defense in your favor.
- Statute of limitations: Depending on the amount of time that has passed since the supposed tax evasion, the IRS may not be legally allowed to file a claim against you.
- Entrapment: In some cases, a government entity or affiliated individual may compel an individual to commit a crime they would never have completed otherwise. If you suspect you were entrapped, you may have a strong defense for tax evasion.
Additional defenses may also work for your tax evasion case, but regardless of the defenses you wish to use, we encourage you to retain legal support from a lawyer at Bernal Law. We can help ensure you avoid making any significant mistakes, create strong arguments in your favor, and identify the best defenses to utilize in your case.
Penalties for Tax Evasion
If you have been charged with tax evasion, you may be at risk of facing certain legal penalties and consequences. You may receive some or all of the following penalties for tax evasion if you are found guilty:
- Jail time
- Up to one year for California state tax evasion
- Up to five years for federal tax evasion
- Fines
- Up to $20,000 for California state tax evasion
- Up to $100,000 for federal tax evasion
- Tax lien on your property
- Remaining balances for your taxes
- Seizure and sale of your property
Penalties for genuine mistakes you’ve made on your tax return are far smaller than those related to intentional fraud or tax evasion. Typically, these are smaller fines for the amount you might have underpaid. You are likely to pay for the amount you underpaid, plus up to 20% in fees.
Outside of legal penalties for tax evasion, there may be additional negative impacts on your life after a conviction. Working with an attorney from Bernal Law if you have been charged with tax evasion, either for the state of California or for federal taxes, means that we can support you in reducing your potential penalties for tax evasion. In some cases, we may even be able to eliminate consequences for cases where we can prove you are innocent.
How Can a Lawyer Support You With Your Tax Evasion Charges?
A lawyer from Bernal Law can support you in several ways throughout complex legal processes, including but not limited to the following:
- Interviewing witnesses
- Helping formulate a plea
- Investigating the prosecutor’s case
- Evaluating potential sentences
- Gathering evidence
- Reviewing search and seizure procedures
- Finding expert witnesses
- Conducting an independent investigation into the case
- Preparing your case for court
- Collecting evidence
- Assuring that all documents are filed correctly and in a timely manner
- Communicating with the other parties on your behalf
- Accessing research methods and tools only available to legal professionals
- Providing an understanding of the legal system and how to make it work for you
Please do not represent yourself during legal matters, as this may worsen your potential penalties and consequences. Additionally, self-representation may result in lengthier litigation and further unnecessary stress. When you retain support from a qualified attorney at Bernal Law, we can ensure you put your best foot forward and will formulate strategies with your interest in mind.
We encourage you to contact us as soon as possible, as this will make it far easier for us to dedicate sufficient time to your case. The more time you give us, the better able we are to collect evidence, understand your specific needs, and mitigate potential penalties after a conviction. Contact Bernal Law for additional information today.
ACCUSED OF TAX EVASION? A DEDICATED CRIMINAL DEFENSE ATTORNEY CAN HELP TODAY
If you find yourself at the receiving end of tax fraud charges, the best course of action to take is to hire a dedicated attorney immediately. Pedro Bernal, Esq. of Bernal Law has extensive experience in the world of criminal defense, as he served as a Deputy District Attorney in the San Diego District Attorney’s Office for several years. Our firm understands the inherently overwhelming nature of facing criminal charges, especially those which you unwittingly committed.
Our people-first approach means you have a dedicated professional by your side every step of the way to help ease any stress and address any questions you may have. Attorney Bernal is a former prosecutor, so he knows what to expect from the other side and can use this knowledge to your advantage. Trust that you are in good hands by partnering with someone who knows how the other side thinks and what strategies they are likely to use. For a free consultation today in either English or Spanish, use our contact form or call our office at (619) 736-9092.
