Tax Fraud vs. Tax Evasion: What’s the Difference?
The crackdown by federal prosecutors on Swiss banks and money managers for alleged crimes related to tax fraud and evasion does not seem as if it will slow down in 2014. The indictment of a Swiss private fund manager was announced by prosecutors in February, and prosecutors intended to charge him with conspiracy to commit fraud for the purpose of tax evasion.
Ever since prestigious bank UBS entered a landmark agreement and settlement with the United States government for its alleged role in assisting individuals and businesses avoid taxation, Internal Revenue Service (IRS) auditors and prosecutors have considerably stepped up their investigations and legal actions against those suspected of tax evasion and tax fraud. Although these two crimes are often mentioned together, they are actually different offenses.
Understanding Tax Fraud
Prosecutors believe that the asset manager mentioned above committed fraud by helping his American clients open accounts in various Swiss banks. The accounts were allegedly opened in the name of foundations and other business structures based in the Principality of Liechtenstein. Essentially, prosecutors suspect that the Swiss money manager assisted American taxpayers in hiding money from the IRS by fraudulent means. This can be considered tax fraud.
Criminal tax fraud charges are not always as sophisticated as explained above. Merely filing a false tax return or providing false documentation to the IRS could result in tax fraud charges, which can land someone in prison for up to five years on top of being assessed a fine as high as $500,000.
Understanding Tax Evasion
Should the clients of the indicted Swiss banker be subject to prosecution, they could be charged with tax evasion along with tax fraud. Tax evasion is basically the willful and illegal refusal to pay taxes. Both tax fraud and tax evasion are felony charges and they have the same level of punishment. Aside from potentially spending up to five years in federal prison, tax evasion defendants could be ordered to pay a fine of no more than $100,000. However, if they used a business entity as part of their tax evasion scheme, they could be fined up to $500,000.
Civil Tax Fraud
Not all IRS audits that yield suspicion of tax fraud are subject to felony charges. The statute of limitations to prosecute someone for tax fraud is between three and six years; however, there are no limitations on civil tax fraud prosecutions. In civil tax fraud cases, defendants are usually assessed a fine of 75 percent of the outstanding taxes plus interest.
Defending against Criminal Tax Charges
When dealing with prosecutors and the IRS, tax defense attorneys tend to steer their clients towards amicable negotiation. In many cases, penalties can be reduced and the outstanding taxes can be handled through a settlement agreement and reasonable repayment plan.