Tax Evasion in Arizona – Everything You Need to Know

Tax avoidance and tax evasion are not the same thing. Writing off home loan interest is a simple tax avoidance encouraged by the IRS. Pet sitting for someone’s pet and being paid $20 per day is reportable earnings.

Tax evasion is defined as failure to pay taxes, failure to report taxes, or inaccurately reporting taxes. According to the Internal Revenue Code, Section 7201, the government needs to prove the following beyond reasonable doubt – a taxpayer tried to defeat or evade tax payment, there was an additional tax due and owed, and a taxpayer acted willfully.

The penalty for tax evasion can be significant. It may include jail time and monetary fines. The statute refers to ‘any person’ willfully attempting to defeat or evade any imposed tax. The statute applies to individual taxpayers, tax preparers, accountants, and bookkeepers because of its broad scope.

Tax evasion can be used to prosecute corporate officers who attempt to evade corporate tax or administrators of an estate who tried to dodge estate taxes. The loose language of ‘any person’ means people other than taxpayers can be the principals prosecuted for the tax evasion crime, even if the taxpayers aid and abet in the evasion.

The term ‘any manner’ expands the scope to allow any form of evasion to be prosecuted. ‘Any tax’ is a broad description that means tax evasion includes other forms of tax beyond income tax, such as employment taxes, excise tax, and estate tax. The broad spectrum of possible offenses makes it essential for anyone potentially facing tax crime charges to seek counsel from an experienced tax fraud lawyer.

Three Elements of Tax Evasion

The Supreme Court described the statute in Sansone v. United States. The elements are

• Willfulness
• Existence of tax deficiency
• Affirmative act constituting attempted evasion or evasion of the tax

Additional Income Tax Due and Owed

The government needs to prove an additional tax due and owed exits to prosecute a taxpayer. It typically requires the government to demonstrate the taxpayer owed substantially more than reported. It is not necessary to show the exact amount of evaded tax.

There is disagreement among the courts about the government's need to prove the amount of evaded tax was substantial. It may not be necessary for the government to make that showing. It is much easier for the government to prove its case under those circumstances.

The requirement in tax evasion cases usually falls under one of these categories

• Omission or understatement of income
• Fictitious or improper deductions
• False income allocation
• Improper claim of exemptions or credits

The government uses direct or indirect circumstantial evidence to prove the additional tax due or owed. Having direct evidence, the government typically attempts to make its case by presenting specific transactions that affect taxable income not accurately reported on a tax return.

Another method the government uses is looking for unexplained expenditures or net worth that is not reflected on a tax return. They may also look at bank deposits for evidence of taxable income not reported to the IRS.

The Arizona Department of Revenue Criminal Investigation Unit conducts investigations of fraudulent or improper tax activity, egregious tax evasion, and other related issues. Criminal tax violations include:

• Filing fraudulent tax returns to obtain multiple or illegal refunds.
• Structuring income to avoid being taxed.
• Not remitting to the Department of Revenue transaction privilege tax collected.

Affirmative Action that Constitutes Tax Evasion

The IRS recognizes two forms of tax evasion. They are evasion of payment and evasion of assessment. Transferring assets to prevent the IRS from determining tax liability is attempting to evade assessment. Hiding assets after taxes are due and owed is attempting to evade payment.

For evasion of assessment, a taxpayer has to act focused on defeating a tax assessment. More than proof of negligence is required. Intentionally under-reporting is attempting to evade assessment. Acts to evade payment typically involve concealing assets or money for which you could pay tax.

Those acts remove the assets from the IRS reach, like foreign bank accounts. Not paying taxes owed is not payment evasion unless assets are concealed. Unpaid taxes or errors on a tax return are not enough to qualify as tax evasion.

Federal rules state a person is guilty only when affirmative action is taken to evade payment or assessment. Some actions considered to be tax evasion are

• Concealing sources of income
• Destruction of records
• Filing a false return
• Holding property in someone else’s name
• Keeping two sets of books
• Making false invoices
• Overstating deductions

Willful Tax Evasion

Tax laws draw a crooked line between willful and non-willful tax evasion. Willful tax evasion is a felony. It typically means with intent or voluntary. You are aware if you intentionally violate a legal statute.

IRS ‘willful’ calls are hard to predict. Even ignorant taxpayers can be deemed guilty of willful blindness, which means a taxpayer intentionally remains ignorant. For an example of the ‘iffy’ - Permanent residents and US citizens must report foreign income.

A taxpayer may or may not know of the requirement. Penalties for failure to report income can be severe whether the taxpayer was aware or not. In other instances, even unreasonable misunderstanding can result in no penalties if it is deemed to be genuine.

Another Type of Tax Evasion

Arizona also has a Fuel Tax Evasion Unit. It promotes compliance with fuel tax laws by providing information about the laws, increasing awareness of fuel fraud schemes, and allowing suspected fraud or other compliance issues to be reported online.

Illegal or untaxed fuel is a problem for everyone. It robs funds for road construction, pollutes soil and air caused by sulfur content, gives violators an unfair advantage in price, and damages engines. Violations include

• Using red-dyed fuel
• Blending untaxed products with fuel
• Bootlegging fuel into Arizona and not paying fuel tax
• Filing false fuel tax refund claims
• Otherwise, evading fuel taxes

Arizona statute prescribes criminal and civil penalties for fuel tax law violations. Civil penalties are not part of the taxes and interest. They might include a 50% penalty of the assessed tax if the deficiency results from fraud. Criminal fuel tax evasion violations include

• Obstructing or impeding law enforcement
• Illegal use or assisting in the illegal use of dyed fuel
• Attempts to alter or remove the composition or strength of dye in fuel
• Filing false reports or statements, including false tax refund claims

Willful violation can result in imprisonment.

Need for Legal Representation

Whether the act was intentional or the person made a mistake, the taxpayer needs a federal crimes lawyer who can handle tax-related cases. From the moment of the audit, the attorney gives advice needed in cooperating with an audit and how to deal with any actions or suspicions against the client.

If the IRS takes action, the lawyer stands by the client to ensure rights are not violated and brings out facts in a case that result in the least possible penalties or none at all. The goal of the attorney is to achieve the best outcome possible.

A conviction of tax evasion and tax fraud can be devastating. Besides a criminal charge, the conviction may lead to high penalties and time in jail. The lawyer knows it is in the best interest of the client to avoid as many penalties as possible. If a client is innocent, it can be proven. Some degree of guilt does not have to result in the maximum penalty.

If you're facing charges relating to a tax evasion charge, you might want to understand Arizona's law and secure the right legal counsel to ensure a fair trial.

Call the Phoenix Criminal Lawyer criminal law team at (602) 600-0447 to get expert-level legal help with your case.