Tax Evasion vs. Tax Avoidance

We Defend Companies and Individuals Nationwide Accused of Crossing the Line from Tax Avoidance to Tax Evasion

Tax avoidance involves making sure you don’t pay state or federal authorities any more than you owe. It is a legitimate—and important—part of an overall tax strategy. Companies and individuals can lawfully avoid unnecessary tax in a variety of different ways, from delaying the recognition of gain or loss to taking advantage of credits and exemptions offered by the Internal Revenue Service (IRS) and its state-level counterparts.

But, in many cases, there is a fine line between tax avoidance and tax evasion. Some companies and individuals will walk as close to the line as possible, and this, too, is absolutely legal. But, stepping over the line can quickly lead to serious tax evasion allegations—even if the misstep is completely inadvertent.

Put our highly experienced team on your side

Brian J. Kuester

Former U.S. Attorney

Former DA

Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown

Former U.S. Attorney
& Former District Attorney

Local Counsel

John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Linda Julin McNamara

Former Chief, DOJ Appeals

Local Counsel

Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach

Former Special Agent (OIG)

Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

Former DOJ Prosecutors and IRS CI Special Agents Defending Companies and Individuals in Tax Evasion Cases Nationwide

At The Criminal Defense Firm, our defense team relies on centuries of combined relevant experience to defend companies and individuals in tax evasion cases nationwide. We have significant experience successfully defending tax avoidance strategies during investigations, grand jury proceedings, pre-trial proceedings, and state and federal trials. As several of our defense lawyers and consultants previously worked for the U.S. Department of Justice (DOJ), IRS Criminal Investigation (IRS CI), we understand these cases from the government’s perspective, and we are able to use this understanding to execute efficient and effective defense strategies on behalf of our clients.

Understanding the Difference Between Tax Evasion and Tax Avoidance

When facing allegations of tax evasion in connection with the execution of a tax avoidance strategy, it is important to ensure that you have a clear understanding of where the line lies. In many cases, tax evasion and tax avoidance strategies can look similar on their face, but their underpinnings and motives are very different. Being able to identify these differentiating factors is often the key to asserting an effective defense to tax evasion allegations.

• Motive and Intent – Tax evasion involves acting with a specific motive and intent to pay less than the full amount of tax a company or individual rightfully owes. This frequently involves making misrepresentations to state tax authorities or the IRS. As the Legal Information Institute (LII) explains, these misrepresentations, “may take the form either of underreporting [a taxpayer’s] income, inflating deductions, or hiding money [or the taxpayer’s] interest altogether in offshore accounts.”
• Means and Methods – With tax avoidance planning, individual and corporate taxpayers use the Internal Revenue Code and/or state tax laws to develop strategies that avoid triggering unnecessary tax liability. With tax evasion, taxpayers fail to accurately report and pay the amount they are legally required to pay.
• Outcome and Consequences – Similarly, with lawful tax avoidance, the outcome is legitimate tax savings—and the consequences should be nil. Again, there is nothing wrong with making use of provisions in the law to avoid paying more than necessary. With tax evasion, however, the outcome is that the taxpayer ends up underpaying the taxpayer’s liability, and this can lead to civil enforcement action or criminal prosecution.

Examples of Lawful Tax Avoidance Strategies

Taking these differentiating factors into account, it is possible to identify several types of lawful tax avoidance strategies. This includes strategies focused on minimizing taxpayers’ income tax liability as well as their liability for employment, gift, estate, and other state and federal tax obligations. Some of the more-common examples of lawful tax avoidance strategies include:

• Delaying recognition of income to report it in a subsequent year under a lower tax rate
• Delaying recognition of income indefinitely through like-kind exchanges and other transactions
• Selling capital assets prior to the end of the tax year in order to recognize loss
• Waiting to sell assets until they qualify for capital gains tax instead of ordinary income tax
• Maximizing available credits, deductions, and exemptions
• Utilizing charitable contributions, conservation easements, trusts and foundations, limited liability companies, partnerships, and other tax planning tools to minimize tax liability
• Structuring relationships with workers so that they qualify as independent contractors rather than employees

Examples of Unlawful Tax Evasion

For every lawful tax avoidance strategy, there is a counterpart that crosses the line to tax evasion. There are a variety of other forms of tax evasion as well. Under the federal tax evasion statute (26 U.S. C. Section 7201), for example, practices that can lead to criminal prosecution by the DOJ include:

• Claiming personal expenses as business expenses
• Claiming credits or exemptions for which the taxpayer is ineligible
• Improperly classifying employees as independent contractors
• Underreporting taxable income
• Failing to disclose offshore accounts or other foreign financial assets
• Keeping two sets of books and records
• Misrepresenting information to the IRS or state tax authorities

Defending a Tax Avoidance Strategy When Faced with Allegations of Tax Evasion

As with all types of state and federal allegations, when facing allegations of tax evasion, executing an effective defense strategy requires a clear understanding of the relevant facts and law. This means that defense counsel must be able to quickly gain a comprehensive understanding of the target’s or defendant’s tax avoidance strategy and analyze the strategy in light of the specific statutory allegations at issue. When we defend companies and individuals in tax evasion cases arising out of their execution of tax avoidance strategies, our process involves:

1. Analyzing the Legality of the Tax Avoidance Strategy

When facing allegations of tax fraud in relation to the execution of a tax avoidance strategy, the first step is to thoroughly analyze the strategy’s legality. If the strategy’s legality can be confirmed, this can form the basis of a strong (and complete) defense. On the same token, if the strategy runs afoul of any state or federal tax laws, knowing this will be crucial to making informed decisions.

2. Intervening and Interfacing with the Investigating or Prosecuting Agency

When engaged as defense counsel for tax evasion investigations, we immediately intervene in the investigative process and begin interfacing with the investigating agency. We do this to gather as much information as possible while also ensuring that we have adequate time to conduct a comprehensive analysis of our client’s tax avoidance strategy. From this point forward, we continue to interface with investigators and prosecutors on behalf of our client.

3. Identifying and Targeting a Specific Outcome

Based on our analysis and the allegations at issue, we will identify and target a specific outcome. Depending on the circumstances, this could range from working to resolve an investigation without charges to negotiating a plea or preparing to defend our client at trial.

4. Building and Executing a Defense Strategy Based on the Facts at Hand

Once we have determined what outcome to pursue (while working in close coordination with our client), we build and execute a defense strategy based on the facts at hand. We challenge the government’s case from all angles, and we take a coordinated and forward-thinking approach that ensures we are always prepared for the government’s next move.

5. Working Toward a Favorable Pre-Trial Resolution While Preparing for Trial as Necessary

Going to trial in tax evasion cases is relatively rare, especially when these cases arise out of efforts to execute a lawful tax avoidance strategy. With that said, the possibility of going to trial should never be taken off the table until a case has been fully and finally resolved. We work to resolve our clients’ cases as quickly, efficiently, and discreetly as possible; but, in doing so, we make clear to prosecutors that we are fully prepared to challenge their accusations in court if necessary.

FAQs: Defending Tax Avoidance Strategies in State and Federal Cases

Schedule a Confidential Consultation at The Criminal Defense Firm

If you need to know more about defending your (or your company’s) tax avoidance strategy against allegations of tax evasion, we encourage you to contact us promptly. Please call 866-603-4540 or contact us online to arrange a confidential consultation as soon as possible.