What is Tax Fraud?

It’s the end of the year, which means most people will be doing their taxes within the next four months or so. Tax time can make anyone nervous—there’s no government agency that scares people more than the IRS.

It’s a good time to talk about the difference between making an honest mistake on your tax return and committing actual tax fraud or evasion.

Tax Negligence

Tax negligence is an unintentional mistakes. The IRS sometimes corrects these themselves and then charges a 20% penalty on the underpayment, but they do not seek criminal charges when they think they’ve caught an honest mistake.

The IRS knows that most people don’t have a very good understanding of the tax code. If there’s no evidence of criminal activity, they’ll typically assume you just didn’t know what you were doing.

Tax Fraud

Tax fraud, or tax evasion, occurs when a person intentionally fails to file or prepares false returns in the hopes of avoiding tax liability. The key here is that the attempt to defraud the IRS must be intentional. Examples might be underreporting your income, attempting to hide assets, or falsifying documents.

Sometimes employers commit tax fraud as well. They often underreport workforce numbers, fail to collect payroll taxes, and fail to pay those to the IRS. Paying payroll taxes is part of an employer’s legal responsibilities. There is no getting around it in any sort of a legal way.

Another way companies commit tax fraud is by failing to file regulatory reports. This is often seen as an attempt to hide wealth from the IRS.

Some tax preparers commit fraud as well. This happens when a tax preparer files false tax returns on their client’s behalf, or makes false statements on the client’s behalf. The client may still be charged if the client either had knowledge or should have had knowledge that a false tax return got filed.

Failure to file charges can come with up to one year in prison and a fine of up to $100,000, whereas attempts to evade taxes are punishable with up to 5 years in prison and up to $250,000 in fines.

Embezzlement: A Common White-Collar Crime

Recently, a Rockland County teacher was charged with embezzling money from a youth soccer club. A private school also made news by embezzling $3 million from the federal government, money that was intended to pay for the daily meals of students.

Embezzlement is a form of fraud, which is in its turn a form of larceny. A crime is classified as embezzlement when a person who has been entrusted to hold and manage property on behalf of the rightful owner instead takes it for their own use. Often, the victim is an employer or a client.

It is covered by New York Penal Law Section 155.

Penalties for Larceny by Embezzlement

The severity of the crime depends on the amount stolen. It can be classified as a Class E felony all the way up to a Class B felony.

• $1000 to $3000: Class E
• $3,000 to $50,000: Class D
• $50,000 to $1,000,000: Class C
• $1,000,000+: Class B

A Class B felony is punishable by 8 to 24 years in prison.

The crime is not classified by each individual instance of embezzlement, but by the total amount stolen and held over time.

Other charges may also be added, such as forgery.

Defending Charges of Larceny by Embezzlement

There are several defenses we can use.

• You had a right to the property and a right to use it, and/or the money was taken for legitimate purposes.
• You did not commit the crime at all.
• You did not intend to commit embezzlement.
• You were under duress at the time.
• The government committed entrapment.
• Lack of evidence that the embezzlement took place.

Can you convince an employer to avoid filing charges?

Sometimes. A criminal defense lawyer may even be able to help with that if you agree to pay back what you took and are faithful to your payment plan. However, your employer may still go to the police at any time. It’s still worth a try, as coming to an agreement with your employer can be used as a positive factor in your case.

For example, we may be able to use it to show that you made an honest mistake (lack of intent) and did everything you could to rectify the mistake, besides.

Types of White-Collar Crimes

White-collar crimes are non-violent offenses typically committed for financial gain, often involving deception or abuse of trust. These crimes, such as fraud, embezzlement, and insider trading, are usually carried out by individuals in professional or business settings. They can have significant economic and social impacts, making it crucial to understand their various forms to prevent and address them effectively.

Insider Trading

If you own stocks and are engaged in buying them and selling them then there are laws which govern your involvement in the market. One of those laws is that the playing field must be even. If you have information about a company or stock that is not available to the public and you act on that information, then you could be guilty of insider trading.

Fraudulent Business Practices

One white collar crime that the Department of Justice is cracking down on quite hard of late is “bid rigging.” Bid rigging is the process of undermining the competitive process whenever businesses compete by submitting bids to a buyer. The Department of Justice takes an especially dim view of this practice when the government is the one soliciting the bid.

Market Manipulation Crimes

A price fixing scheme is a white collar crime that involves colluding with competitors to decide what prices will be. Antitrust laws require companies to establish prices and other competitive terms without consulting with competitors. You are allowed to conduct market research to see what other people are charging for similar products, but you are not allowed to make agreements as this undermines competitive corrections in the market and usually results in harm to consumers through higher prices.

Bribery and Kickbacks

On December 21, 2021, the owner of a telemedicine company pled guilty to a conspiracy to both pay and receive health care kickbacks. Additionally, on December 16, 2021, a former Netflix executive was sentenced to 30 months in prison for receiving bribes and kickbacks from tech companies who wanted lucrative contracts from Netflix.

Kickbacks are a crime of corruption. One party pays the other illegally to get a bigger benefit or unfair competitive advantage. Both paying and receiving kickbacks is illegal.

Inflated Invoices

In this scheme, a vendor inflates an invoice. Someone at the company approves the invoice knowing it’s inflated, and gets a portion of the difference in return. It is a method for defrauding the company purchasing services from the vendor.

Foreign Corrupt Practices

Some US businesses try to get a competitive advantage by bribing foreign officials. This practice was outlawed under the Foreign Corrupt Practices Act of 1977. It also specifically forbid bribing foreign officials to do or fail to do any act in violation of their lawful duty.

Contract Fraud

In this scheme, a person who is in a position of power to choose a particular vendor or contractor receives a gift, bribe, or favor in return for recommending that vendor or contractor to the company or government agency. This is the crime that Michael Kail of Netflix was guilty of. He got massive stock options from nine companies who he consistently chose to recommend to Netflix.

Medical Fraud

These are agreements between medical providers to falsify information in the hopes of defrauding Medicaid, Medicare, or TRICARE and then paying one another a portion of their ill-gotten gains.

For example, in the above-mentioned telemedicine scheme, Elizabeth Turner, the owner of a telemedicine company got kickbacks from marketers in exchange for providing signed doctor’s orders for cancer testing. They targeted Medicare and Medicaid patients. A lab called Crestar Labs then billed Medicare and Medicaid for the tests and then paid Turner a small portion of those profits.

Charged with Tax Crimes?

If you’ve been charged with tax crimes you need a federal white collar crimes lawyer to help you navigate the charges. You’re facing a federal investigation and federal prison, as well as an agency that has nearly unlimited resources to push their side of the case.

We have the experience to help. Contact our team to get help today.

See also:

4 Mistakes to Avoid If You’re Under Investigation for a White Collar Crime

How to Resolve a Federal Criminal Case Before Charges Are Filed

Should You Go To Trial if Accused of A White Collar Crime