What is the Difference Between Criminal Tax Penalties and Civil Tax Penalties?

In recent years, the IRS has been cracking down on tax crimes. Some tax crimes are civil crimes, such as Tax Fraud. With a civil tax violation, the enforcement penalties will come down to money. Other tax crimes, such as Tax Evasion, are more serious and are considered criminal. With a criminal tax violation, the Internal Revenue Service may refer the matter for criminal indictment, and penalties can include jail time.

Most tax crimes carry a penalty which is a five-year prison term and a fine of $100,000. The same actions that constitute criminal tax fraud can also be considered civil tax fraud. It’s up to the IRS to determine whether it wants to impose criminal tax penalties, civil tax penalties, or both. In most criminal tax cases, a convicted defendant will be required to pay civil tax penalties as well as criminal fines. Civil tax fraud will not send you to jail but it does carry a serious penalty of 75% of the tax due, plus interest.

Tax fraud, both civil and criminal, requires the voluntary, intentional violation of a known legal duty. Every individual has a legal duty to take a certain action. Most people are required by the law to file a tax return every year. That is a legal duty. However, if your income is below a certain cut-off amount, then you have no legal duty to file a tax return and therefore you could not be said to have committed tax fraud or tax evasion.

Tax Fraud vs Tax Evasion

When it is criminal, it is usually referred to as “Tax Evasion.” Common Tax Fraud/Evasion issues include: Unreported Income, Underreporting Income, Fraudulent Deductions, Unreported foreign Accounts, Unreported foreign Income, Unreported foreign Assets and Unreported foreign Investments.

To learn more please visit: Tax Evasion vs Tax Fraud And The Statute Of Limitations 

Comparing Civil vs. Criminal Tax Violations

Depending on the facts and circumstances of your situation, there may be several different penalties the IRS can issue against you, for either filing a fraudulent or false tax return, or not filing a tax return at all.

One of the worst types of non-criminal penalties the IRS can issue is the civil tax fraud penalties. This is because of two reasons. Firstly, there’s the shame associated with being found to be fraudulent by the IRS, which can lead to further audits down the line. Secondly, the penalties that the IRS can issue against an individual when the IRS can prove by clear and convincing evidence that a person committed tax fraud are severe.

Civil Tax Fraud

The penalties for civil tax fraud under the Internal Revenue Code can reach a 75% penalty on the underpayment. Of course, the IRS can also try to issue additional penalties depending on whether you haven’t filed a tax return (failure-to-file), haven’t paid your taxes (failure-to-pay) and/or have undisclosed or unreported foreign accounts, assets, investments and/or income.

Criminal Tax Fraud

If the IRS believes you acted criminally, they may refer you to the IRS Special Agents from the Criminal Investigation Department, in order to launch a criminal investigation against you for tax evasion. This department will investigate you to determine whether they believe you acted with criminal intent, and determine whether you should be referred for further investigation and/or prosecution.

If you are currently behind in paying your taxes, or are facing other tax related issues, CuraDebt Tax is here to assist you. We have years of experience helping clients resolve their tax issues. Our team of tax professionals are ready, willing and able to assist you. Call us today for your free consultation. 1-877-999-0486

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