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Understanding the Risks of a Criminal Tax Audit: Two Ways to Get in Trouble for Making False Statements to the IRS

Asset Forfeitures / IRS Audits, Offshore Account Update

Posted on May 31, 2024 |

Criminal tax audits present substantial risks for both individual and corporate taxpayers. While these audits can lead to several allegations, some of the most common allegations involve making false statements to the Internal Revenue Service (IRS). As Boston criminal tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, these allegations can arise in two different—and equally dangerous—ways.

Common Charges Resulting from IRS Criminal Tax Audits

Under federal law, all taxpayers are responsible for accurately reporting their tax liability to the IRS. Making false statements can lead to substantial penalties—including criminal penalties when federal agents and prosecutors have reason to believe that a taxpayer’s false statements were willful.

Criminal allegations of making false statements to the IRS can arise in two different scenarios:

1. Making False Statements on a Federal Tax Return

First, taxpayers can face criminal charges under Section 7206 of the Internal Revenue Code (IRC). Section 7206 provides that any taxpayer who “[w]illfully makes and subscribes any return . . . which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter,” can face up to three years in federal prison and a $100,000 fine (or $500,000 for corporate taxpayers). While prosecutors need affirmative evidence of willfulness in most cases, willfulness can also be presumed or inferred in certain circumstances.

For taxpayers who worked with an accountant to prepare their returns, this can be a defense to criminal culpability under Section 7206 in some cases. To assert this affirmative defense, a taxpayer must be able to demonstrate that the taxpayer “provided the preparer with complete information and then filed the return without any reason to believe it was false.”

2. Making False Statements During an IRS Criminal Tax Audit

Second, taxpayers can face criminal charges for making false statements to revenue agents or investigators during an IRS criminal tax audit. Under 18 U.S.C. Section 1001, it is a federal crime to knowingly and willfully “make[] any materially false, fictitious, or fraudulent statement or representation” during a federal audit or investigation.

Violations of Section 1001 carry fines of up to $250,000 (or $500,000 for corporations) and five years of imprisonment. While taxpayers can (and should) assert the attorney-client privilege and all other available protections during criminal tax audits, they cannot go further and make false statements in order to mislead the IRS.

Request a Confidential Consultation with Boston Criminal Tax Attorney Kevin E. Thorn

Boston criminal tax attorney Kevin E. Thorn has extensive experience representing individual and corporate taxpayers during high-stakes IRS criminal tax audits. If you or your company needs representation for dealing with the IRS, you can call 617-692-2989 or contact us online to arrange a confidential consultation.

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