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What Happens If I'm Accused of Tax Evasion?

The truth is the Internal Revenue Service (IRS) pursues very few tax evasion cases against taxpayers. Out of millions of taxpayers in the United States, only more than 1,000 of them are indicted for legal-source tax evasion. 

However, tax evasion cases often start with individuals who misreport income and other financial information on tax returns or do not file a tax return at all. Common examples of misreporting income include leaving out income sources and specific transactions, under-reporting your income or estate, and falsely claiming tax deductions. 

The following is an example of the legal process of a tax evasion case: 

  • You earn extra money from a side job – Let’s say you have a full-time 9-to-5 office job, but you also have a lucrative side business of making and selling graphic t-shirts to individual customers and even vendors. You then deposit all the money you earned from the clothing line in a separate savings bank account. From 2017 to 2019, you earn about $50,000 from your side business; yet you do not mention these earnings when you file your taxes. 

  • You receive an audit letter from the IRS – In 2020, you get an audit letter for your 2019 return. During the audit, the IRS auditor asks if you earned other income, but you say your only income was from your office job and you only give him/her copies of your primary checking account – not including your separate account with the earnings from your side business. 

  • Your case is referred to the IRS Criminal Investigation Division – Unfortunately, the IRS received a Form 1099-MISC from several retail businesses that paid for your t-shirts. Additionally, the agency also received a Form 1099-INT for the interest income from your separate savings account. When you finally admit to the separate account, the auditor asks for your bank statements. If you are reluctant to provide the bank statements, the auditor will summon the bank for the statements. When the statement reveals that you made $15,000 in the 2019 tax year, the auditor may refer the case to the criminal unit and investigate you for potential tax fraud. 

  • You are indicted – The IRS Criminal Investigation Division may look into your entire tax history. If the unit discovers that you failed to report your extra cash for three years, then you will ultimately be charged with tax fraud. 

Tax evasion is a federal crime that carries a maximum federal prison sentence of five years and a fine of up to $250,000. You may also be subject to restitution, which means you may have to pay the federal government or state the amount of taxes you failed to initially pay. 

If you have been accused of tax evasion in Denver, contact the Law Offices of David L. Owen, Jr. P.C. today at (303) 622-3281 to learn how we can help you avoid serious penalties.