What is Tax Evasion?

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Are You (or Is Your Company) At Risk for Facing Tax Evasion Charges? If So, We Can Help

Brian Kuester
Attorney Brian Kuester
Tax Evasion Team Lead
Former US Attorney
Former District Attorney
Ellen Comley
Attorney Ellen Comley
Tax Evasion Team Lead
Senior Counsel
Roger Bach
Roger Bach
Tax Evasion Team Consultant
Former Special Agent (OIG)

Tax evasion is a serious felony offense. Individuals charged with tax evasion under the Internal Revenue Code (IRC) can face fines and jail time, and companies charged with tax evasion can face substantial liability. While there are defenses available, asserting these defenses requires skilled legal representation.

At The Criminal Defense Firm, we have extensive experience representing both individuals and companies in federal tax evasion cases. Many of our lawyers and defense consultants also have prior experience pursuing tax evasion charges at the U.S. Department of Justice (DOJ) and the Internal Revenue Service’s Criminal Investigation division (IRS CI). Whether you have concerns about a past filing mistake, you are currently facing scrutiny from the IRS or IRS CI, or you have been indicted on federal tax evasion charges, we can use our experience to protect you (or your company) to the fullest extent possible.

What Constitutes Tax Evasion Under Federal Law?

The Internal Revenue Code (IRC) is inordinately complex. It contains numerous provisions that establish nuanced filing requirements; and, for both individual and corporate taxpayers, understanding what is required can be extremely challenging.

Notably, however, the IRC’s tax evasion section is remarkably simple. Under Section 7201 of the IRC:

“Any person who willfully attempts in any manner to evade . . . any tax imposed by this title or the payment thereof shall . . . 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.”

So, what does it mean to “attempt[] in any manner to evade” a federal tax obligation? The Internal Revenue Code does not define the term “evade,” and this leaves its definition extraordinarily broad. Under Section 7201 of the IRC, almost any willful act undertaken with the intent to avoid fully reporting or paying a taxpayer’s liability can lead to a serious felony charge. This means that individual and corporate taxpayers can face tax evasion charges arising out of allegations including, but not limited to:

  • Failing to Report Income from All Sources – Under the IRC, U.S. taxpayers must report their worldwide income from all sources to the IRS.
  • Underreporting a Taxpayer’s Income from Any Source – When reporting their income from all sources, taxpayers must accurately report the full amount of their earnings.
  • Improperly Claiming Credits, Deductions, or Exemptions – Claiming credits, deductions, or exemptions for which a taxpayer isn’t eligible is also a form of income tax evasion.
  • Failing to Collect, Remit, or Pay Employment Tax – For companies, failing to collect or remit the employee’s share of FICA taxes or failing to pay the employer’s share can also lead to charges for federal tax evasion.
  • Failing to Report Gifts or Inheritances – While many gifts and inheritances are exempt from federal income tax liability, those that are not must be reported in order to avoid allegations of intentional tax evasion.
  • Failing to Disclose Foreign Financial Assets or Income – Taxpayers who fail to properly disclose their foreign assets or income can face tax evasion charges in addition to charges under the Bank Secrecy Act (BSA) and Foreign Account Tax Compliance Act (FATCA).
  • Using Unlawful Tax Shelters – Invalid conservation easements, abusive corporate structuring, and various other types of unlawful tax shelters are red flags for IRS CI.

In all cases, a key aspect of the federal tax evasion statute is its requirement for a “willful” attempt. While inadvertently underreporting or underpaying a U.S. taxpayer’s federal tax liability can trigger liability for interest and civil penalties, it is not a federal crime. As a result, challenging the government’s evidence of willfulness will be a key defense strategy for many taxpayers. This is true for taxpayers that prepare and file their own returns as well as those that rely on an accounting firm or tax preparer.

How Does the Federal Government Prove Tax Evasion?

When conducting tax evasion investigations, IRS CI agents rely on several forms of evidence to substantiate charges. As a result, executing an effective defense strategy during the investigative stage is critical. While it will make sense to cooperate with IRS CI (to an extent) in some circumstances, taxpayers must be extremely careful to avoid voluntarily sharing information that could lead to charges.

How does the federal government prove tax evasion? Some examples of the types of evidence IRS CI agents will typically seek to collect during tax evasion investigations include:

  • Personal or corporate income, employment, and financial records
  • State tax forms and federal tax forms from prior years
  • Communications between taxpayers and their tax preparers
  • Communications between taxpayers and other parties
  • Computer files with metadata that show revisions to taxpayers’ books and records
  • Records from corporate taxpayers’ shareholders, contractors, vendors, and other third parties
  • Records from individual and corporate taxpayers’ financial institutions

Again, these are just examples. When facing a federal tax evasion investigation, taxpayers must avoid making any assumptions about what information is relevant and what information IRS CI may or may not be able to obtain. IRS CI has substantial resources at its disposal, and it routinely works with the DOJ, Federal Bureau of Investigation (FBI), state authorities, and financial institutions to quickly collect extraordinary amounts of data. For taxpayers, understanding what data are available is critical, and taxpayers must work closely with their defense counsel to ensure that they protect any data in their possession to the degree they are able to do so.

How Can You Successfully Defend Against Federal Tax Evasion Allegations?

Taking appropriate steps to protect any sensitive data is a key strategy for defending against federal tax evasion allegations in many cases. But, it is also just one potential strategy among many. There are a variety of ways to defend against tax evasion allegations in federal cases—although the specific defenses that are available in any particular case will depend heavily on the facts and circumstances involved. Some examples of defenses that can prove effective during federal tax evasion investigations include:

  • Challenging the existence or sufficiency of any evidence of willfulness
  • Challenging the existence or sufficiency of any evidence that the taxpayer attempted to evade tax
  • Challenging the existence or sufficiency of any evidence that the taxpayer underreported or underpaid its federal tax liability
  • Affirmatively demonstrating that the taxpayer has fully complied with the Internal Revenue Code
  • Affirmatively demonstrating the use of a lawful tax planning strategy 

Here too, these are just examples. When you engage The Criminal Defense Firm to represent you or your company, our former DOJ prosecutors and IRS CI Special Agents will thoroughly assess the facts and circumstances at hand to determine what we believe is the best path forward. We will then help you make informed decisions about your (or your company’s) defense, and we will work to resolve the investigation as quickly, quietly, and favorably as possible.

FAQs: Facing (and Defending Against) Federal Charges for Tax Evasion

What Are the Risks Involved with Facing a Federal Tax Evasion Investigation?



The risks involved with facing a federal tax evasion investigation are substantial. Individuals convicted of tax evasion can face up to a $100,000 fine and five years in prison under Section 7201 of the Internal Revenue Code. Companies convicted of tax evasion can face up to a $500,000 fine. These penalties are in addition to any other penalties prosecutors may seek under other provisions of the IRC or other federal criminal statutes.

How Likely is a Federal Tax Evasion Investigation to Lead to Criminal Charges?



The likelihood of facing criminal charges as the result of a tax evasion investigation depends almost entirely on how you choose to handle the investigation. If you try to deal with IRS CI on your own, the likelihood that you will face charges is fairly high. However, by engaging experienced defense counsel, you can reduce your risk significantly.

Do I Need a Lawyer if I Am Under Investigation By IRS CI for Tax Evasion?



If you are under investigation by IRS CI for tax evasion, engaging experienced defense counsel is one of the best steps you can take to protect yourself. Once you find out that you are under investigation, you need to speak with a lawyer as soon as possible.

When Should Companies Engage Tax Evasion Defense Counsel?



Companies should engage tax evasion defense counsel upon the earlier of (i) learning of a potential IRC violation, or (ii) learning of an IRS audit or IRS CI investigation. Engaging counsel as early in the process as possible will provide the greatest opportunity to secure a favorable pre-charge resolution.

How Often Do IRS CI Investigations Lead to Tax Evasion Charges?



IRS CI investigations frequently lead to charges for tax evasion. While the risk of facing charges is high, both individual and corporate taxpayers can reduce their risk by engaging experienced tax evasion defense counsel as soon as possible.

What Are the Risks Involved with Facing a Federal Tax Evasion Investigation?


The risks involved with facing a federal tax evasion investigation are substantial. Individuals convicted of tax evasion can face up to a $100,000 fine and five years in prison under Section 7201 of the Internal Revenue Code. Companies convicted of tax evasion can face up to a $500,000 fine. These penalties are in addition to any other penalties prosecutors may seek under other provisions of the IRC or other federal criminal statutes.

How Likely is a Federal Tax Evasion Investigation to Lead to Criminal Charges?


The likelihood of facing criminal charges as the result of a tax evasion investigation depends almost entirely on how you choose to handle the investigation. If you try to deal with IRS CI on your own, the likelihood that you will face charges is fairly high. However, by engaging experienced defense counsel, you can reduce your risk significantly.

Do I Need a Lawyer if I Am Under Investigation By IRS CI for Tax Evasion?


If you are under investigation by IRS CI for tax evasion, engaging experienced defense counsel is one of the best steps you can take to protect yourself. Once you find out that you are under investigation, you need to speak with a lawyer as soon as possible.

When Should Companies Engage Tax Evasion Defense Counsel?


Companies should engage tax evasion defense counsel upon the earlier of (i) learning of a potential IRC violation, or (ii) learning of an IRS audit or IRS CI investigation. Engaging counsel as early in the process as possible will provide the greatest opportunity to secure a favorable pre-charge resolution.

How Often Do IRS CI Investigations Lead to Tax Evasion Charges?


IRS CI investigations frequently lead to charges for tax evasion. While the risk of facing charges is high, both individual and corporate taxpayers can reduce their risk by engaging experienced tax evasion defense counsel as soon as possible.

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