Tax fraud occurs when an individual or business entity willfully attempts to evade or defeat paying taxes, and most cases have to do with either the assessment or the payment of taxes owed.

While nearly 17% of taxpayers don’t fully comply with the tax code and generally face minimal to no consequences, when the IRS gets a whiff of things truly gone awry, a knowledgeable North Carolina tax fraud attorney can be necessary to fight back against the serious charges of tax fraud and evasion.

In this post, from investigation to conviction, we share what you can expect, the difference between fraud and negligence, and penalties you may face at both state and federal levels.

INVESTIGATION

North Carolina’s Raleigh-based IRS office (the NCDOR), is a cabinet-level executive agency charged with administering tax laws and collecting taxes on behalf of North Carolina in order to fund public services benefiting its citizens.

This agency would aid the IRS Criminal Investigation (CI), the law enforcement branch of the organization, in investigations involving federal or state tax crimes, money laundering, or Bank Secrecy Act violations.

The first major step toward investigation is always an audit. Should signs of fraudulent activity be uncovered during an audit, a criminal investigation usually follows. However, there is a marked difference between simple negligence and outright tax fraud or evasion.

FRAUD VS. NEGLIGENCE

The IRS understands the tax code is complex and that this can make filing difficult if you don’t have an accounting or tax law degree. When careless errors occur but signs of fraud are absent, the IRS usually assumes the errors are honest mistakes – not willful evasion of tax code.

The auditor attributes them to negligence, offers ways you can resolve the matter quickly and efficiently, and basically considers the issue over. Quite frankly, keeping as many citizens as possible paying taxes rather than in the jailhouse is in the best interest of the government.

Fraud, on the other hand, is commonly identified by suspicious activities including but not limited to:

• Overstatement of deductions and exemptions
• Falsification of documents or of personal expenses as business
• Two sets of financial ledgers
• Willfully underreporting income
• Claiming nonexistent child exemptions.

The way state and federal tax fraud charges are prosecuted, fought against, and penalized in North Carolina is very different from how the federal government handles the issues. While the IRS is known to pursue tax collection and punish with imprisonment, state laws generally leverage fines and interest.

NORTH CAROLINA TAX CRIME PENALTIES

Here, tax evasion and fraud are generally punishable by 50% of your unpaid tax bill. The penalties are less severe for late payment, but do increase over time. Simple unpaid taxes are penalized as follows:

• If you do not file by the original due date, you will be charged a monthly penalty of 5% of your total unpaid tax up to 25% of total tax owed.
• Although you may be exempt from this penalty if you have paid at least 90% of taxes owed, North Carolina reserves the right to tack on an extra 10% late payment penalty.
• On top of the monthly penalty and the overall late payment penalty, you may also be charged an amount equal to 20% of your total tax bill (including tax, penalty, and interest) not paid within 90 days after the debt becomes collectible as a collection assistance fee.

While state penalties may seem grave, unless your tax bill is extremely high, these rules are more complex than weighty. Federal penalties for tax fraud, on the other hand, are fairly cut and dry – but they’re also knock-your-socks-off high.

FEDERAL PENALTIES FOR TAX CRIMES

Firstly, understand that you’re going to have to pay every single cent of your unpaid taxes regardless of what else happens. It doesn’t matter if you’re facing felony tax fraud charges or the IRS just says you need to fix any errors you made – that money is gone.

Additionally, if you aren’t charged, there’s still a chance that you will be assessed a penalty of 20 percent. This, of course, includes both the taxes you owe and any interest that has accrued. Oh, and it’s a best-case scenario.

If you are charged and found guilty, it gets a lot worse.

Willfully evading income tax payment is a serious crime that includes a prison sentence of up to 5 years as well as high fines ($500,000 for corporations and $100,000 for individuals).

If you willfully commit fraud or make false statements through the assessment or preparation of tax returns, you can get up to three years in prison and fines similar to those mentioned above.

Even willfully failing to file or supply information within the legally required timeframe is grounds for misdemeanor charges that, upon conviction, can equal one year in prison and $100-$200k in fines (plus the cost of prosecution).

The bottom line is that you may be in for a serious fight if you find yourself accused, and you need to be ready to protect your rights and future with a strong defense.