Conviction for Tax Evasion: Average Sentence & Recent Cases

Conviction for Tax Evasion Average Prison Sentence

Conviction for Tax Evasion: Average Sentence & Recent Cases: The average jail time for tax evasion still ranges from 3-5 years (original 2018 article) — although the number of cases and type of cases (offshore fraud and cryptocurrency) is on the rise. Tax evasion remains a key enforcement priority for the IRS and US Government. And, by the number of recent indictments, it is clear that the US government has no plans for slowing down enforcement. From a U.S. tax perspective, when the US government pursues a case for tax evasion it means they believe that the taxpayer knowingly and willfully intended on defrauding the US government. 

Here are some recent Convictions for Tax Evasion cases from DOJ Justice News:

O’Connell

• • • • Montana businessman pleaded guilty today to employment tax fraud.

      • According to court documents, Thomas O’Connell owned and operated three plumbing businesses, Quality Plumbing and Heating, Orbit Plumbing and Heating, and Orbit PHC, each based in Great Falls. From at least 2005 through 2016, O’Connell did not pay employment taxes for several quarters, despite being obligated to ensure such taxes were paid to the IRS. Instead, he directed payments to other creditors and to his own personal expenses. The total tax loss to the IRS from O’Connell’s conduct is more than $550,000.

      • O’Connell is scheduled to be sentenced on June 24, 2021, and faces a maximum sentence of five years in prison. He also faces a period of supervised release, restitution, and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors. 

Murray

• • • Acting United States Attorney Bob Murray announced today that Paul Edman, age 53 and a Certified Public Accountant, of Rock Springs, Wyoming, pled guilty before U.S. District Court Judge Alan B. Johnson to aiding or assisting in the preparation of a false document filed with the Internal Revenue Service.  According to the charges, on or about April 15, 2015, Edman willfully counseled taxpayers in the preparation of Internal Revenue Service Form 1040 for calendar year 2014, knowing the Form 1040 was false.

    • Edman faces a prison sentence of up to 3 years; up to one year of supervised release, and a fine of up to $100,00.00.  Edman is scheduled to be sentenced on June 1, 2021. 

Fortune

• • • A Maryland tax return preparer pleaded guilty today to conspiracy to defraud the United States and aiding in the preparation of a false tax return.

    • According to court documents and statements made in court, Anita Fortune, 56, of Upper Marlboro, provided return preparation services under multiple business names, including Tax Terminatorz Inc. Fortune prepared and filed returns using co-conspirators’ electronic filing identification numbers and identifiers, which they provided in exchange for fees and office space. For the tax years 2011 to 2018, Fortune and her associates fraudulently reduced their clients’ tax liabilities and increased their refunds by adding fictitious or inflated itemized deductions and business losses to the clients’ returns. In total, Fortune caused a tax loss to the IRS of $189,748.

    • Fortune is scheduled to be sentenced on June 4, 2021, and faces a maximum sentence of five years in prison for the conspiracy count and three years for the preparing a false return count. Fortune also faces a period of supervised release, restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Tax Evasion Definition

Tax Evasion is a criminal offense, in which a Taxpayer may be convicted and incarcerated. In order to be found guilty of tax evasion (as compared to a civil tax violation), a Taxpayer must be referred for criminal prosecution, charged with a crime, and the government must prove its case beyond a reasonable doubt.

While a Conviction for Tax Evasion is not very common, the US Government has continued to prioritize tax evasion as an enforcement priority.

26 USC 7201

• • • Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.

As further summarized by the IRS: 

• • • “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined* not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution. * As to offenses committed after December 31, 1984, the Criminal Fine Enforcement Act of 1984 (P.L. 92-596) enacted as 18 U.S.C. § 3571, increased the maximum permissible fines for felony offenses set forth in section 7201.

    • The maximum permissible fine is $250,000 for individuals and $500,000 for corporations. 1-1.02 Generally [1] Two kinds of tax evasion. Section 7201 creates two offenses: (a) the willful attempt to evade or defeat the assessment of a tax, and (b) the willful attempt to evade or defeat the payment of a tax. Sansone v. United States, 380 U.S. 343, 354 (1965). See also, United States v. Shoppert, 362 F.3d 451, 454 (8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Mal, 942 F. 2d 682, 687-88 (9th Cir. 1991) (if a defendant transfers assets to prevent the I.R.S. from determining his true tax liability, he has attempted to evade assessment; if he does so after a tax liability has become due and owing, he has attempted to evade payment). [a] Evasion of assessment.

    • The most common attempt to evade or defeat a tax is the affirmative act of filing a false return that omits income and/or claims deductions to which the taxpayer is not entitled. The tax reported on the return is falsely understated and creates a deficiency. Consequently, such willful under reporting constitutes an attempt to evade or defeat tax by evading the correct assessment of the tax. [b] Evasion of payment.

• • • This offense generally occurs after the existence of a tax due and owing has been established (either by the taxpayer reporting the amount of tax or by the I.R.S. assessing the amount of tax deemed to be due and owing) and almost always involves an affirmative act of concealment of money or assets from which the tax could be paid. As discussed in Section 1-1.04 below, it is not essential that the I.R.S. have made a formal assessment of taxes owed and a demand for payment in order for tax evasion charges to be brought. Tax deficiency can arise by operation of law when there is a failure to file and the government later determines the tax liability. United States v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992).”

Tax Evasion & the Internal Revenue Manual (IRM)

While the Internal Revenue Manual (IRM) is not codified law, it is oftentimes relied upon by IRS personnel in  assessing tax disputes — including evaluating Taxpayer behavior for tax evasion.

As provided by the IRS (IRM):

• • “Evasion involves some affirmative act to evade or defeat a tax, or payment of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.

• • • Common evasion schemes include:

    • Intentional understatement or omission of income;

    • Claiming fictitious or improper deductions;

    • False allocation of income;

    • Improper claims, credits,

    • or exemptions; and/or

    • Concealment of assets.”

Important Questions Surrounding Convictions for Tax Evasion

The prison sentence stemming from a conviction for tax evasion can vary substantially. There are various facts and circumstances that will help determine what a person’s sentence may be — and no two tax evasion cases are identical.

Common Questions involving Tax Evasion include:

• Is tax evasion criminal?
• Will the IRS prosecute me?
• Will I go to jail or prison?
• Will I lose my house?
• How long is the jail sentence?

International Tax Evasion

Tax evasion is more common than you may think.

And, since there is no bright-line test for willfulness, Taxpayers are at a serious disadvantage in situations in which the IRS wants to pursue criminal tax enforcement.

Nevertheless, even if there are lingering issues of fraud or evasion, that does not mean the person will be subject to criminal prosecution or guilty of tax evasion.

It depends on the facts and circumstances of the taxpayer’s case and whether the government believes the case is a priority — and worthy of criminal enforcement.

IRS Alternatives to Criminal Investigation

The IRS is low on staff and resources.

Oftentimes, the IRS can achieve their desired result (getting your money) without having to pursue a criminal investigation against you.

Instead of pursuing criminal tax evasion, the IRS can draw facts from the same nucleus of facts — and use them to pursue other tax violations, such as tax fraud and FBAR/FATCA noncompliance (offshore) — which are primarily civil in nature.

FBAR Civil Willful Enforcement

When the matter involves offshore compliance, the IRS has several tricks up their sleeve.

One way the IRS can pursue significant monetary penalties against taxpayers without having to ever refer the matter out for criminal investigation is by enforcing FBAR penalties.

FBAR is the Foreign Bank and Financial Account Reporting form (aka FinCEN Form 114).

If you are required to file the form but miss the deadline, the penalties can be staggering.

Not only that, but the IRS only has to prove the FBAR case by preponderance of the evidence and not the criminal standard of beyond a reasonable doubt.

If a person knowingly or intentionally failed to report their foreign accounts (see Manafort), the IRS may be able to obtain a CIVIL penalty valued at a hundred percent of the maximum balance of the accounts.

The way the IRS achieves this is by issuing multiple 50% max balance penalties over several years.

*In years prior, the IRS could collect up to 300% (6 years, 50% Penalty) of the maximum value of the unreported accounts, but in recent years this has been capped at 100%.

Tax Fraud

Tax Fraud is the civil violation equivalent of tax evasion.

Depending on the facts and circumstances of a taxpayer’s violation(s), the IRS may pursue significant civil fines or penalties without having to refer the matter for criminal investigation.

If the IRS determines that the facts are so egregious as to require the government to pursue a criminal investigation, then typically the IRS will refer the matter to the IRS Special Agents for them to conduct a criminal investigation and determine whether the government should recommend criminal charges be filed.

How to Avoid a Conviction for Tax Evasion

Presuming the money was from legal sources, if you were willful, your best options are either the Traditional IRS Voluntary Disclosure Program.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm for assistance with getting compliant.