How can accidental tax evasion occur?
People may inadvertently commit tax evasion. Although this usually comes with strict penalties, the IRS may waive them in some cases.
When it comes times to file an annual tax return to the Internal Revenue Service, some people simply have their taxes done by a professional or choose to calculate the numbers on their own. In some cases, tax filers will receive money back from the federal and/or state or they may have to pay the government. What people may not know is that failure to file a return and pay these taxes can result in serious fines, even if people are not currently living in the United States.
When people live overseas for a period of time, they are still required to file a U.S. tax return with the Internal Revenue Service. U.S. citizens living abroad are responsible for reporting all income no matter where it was earned, and paying their taxes, regardless of whether they are living in the country. Similarly, people who live in the U.S. but keep their money in foreign accounts should disclose the amounts held in those accounts to the IRS on their annual tax return as well. Some people may not be aware of the consequences of failing to perform either one of these tasks. However, doing so may be considered tax evasion.
What is tax evasion?
Tax evasion occurs when people or companies use different tactics to avoid paying federal and/or state taxes. For example, people may inflate deductions, hide money in an overseas account, underreport their income or misrepresent their assets in some other way on their tax return. All of these acts are considered tax evasion, and the penalties can be severe. According to the IRS, anyone who performs one of these activities in an attempt to deceive the IRS may be charged with a felony. Convicted tax evaders may be fined a maximum of $100,000 and sentenced to up to five years in prison. There are some situations, however, where these fines and charges may be waived.
According to PBS.org, the IRS has lightened the punishment placed on people who have committed tax evasion accidentally. If people can prove that they were not aware that they were committing the criminal act of tax evasion, the IRS may withdraw any criminal charges and could reduce or even eliminate a portion of the fines. These changes have been made in an attempt to encourage more people to be honest when paying their taxes by disclosing overseas accounts and filing their returns even when they are overseas.
How can you avoid accidental tax evasion?
For the most part, you can avoid accidental tax evasion by understanding that your tax liability may continue no matter where you live and take these proactive steps to stay in compliance.
- Keep records related to wages and business income, investment and interest income, foreign bank accounts, and any deductions you may want to claim organized and accessible.
- File tax returns with the IRS if you are living abroad, even if your income is from foreign sources.
- Hire an accountant or another type of professional tax adviser if you have a complex income or asset situation to ensure you record and report your taxable income properly.
- Answer all IRS notices. This is critical – nothing ever gets better by ignoring IRS correspondence.
- Talk to a tax law attorney. If the IRS has sent you a notice alleging tax evasion or other issues, a lawyer focused on tax controversies with the IRS can help you negotiate with the agency and help you review your best options for resolving the matter.
It’s better to ask questions about avoiding tax evasion before it happens, but a taxation lawyer can assist you no matter how far your tax controversy with the IRS has progressed.
Where to turn for help
Whether you have been charged with tax evasion or you are facing another type of tax-related situation, you may want to speak to a knowledgeable attorney regarding your legal options. It can be difficult to know what decisions to make during such a stressful time. Having a lawyer on your side may help you achieve the best outcome possible for your case.