Unreported Income: Criminal Penalties: Tax Preparers
Filed under: IRS, irs tax audit, tax preparer, unreported income
Clients, with unreported income, may subject tax preparers to criminal penalties, fines, costs of prosecution and up to 10 years imprisonment (2 felonies, 2 misdemeanors):
1. Any person who willfully attempts in any manner to evade or defeat any tax or payment of any tax imposed by the Code is guilty of a felony.
A person convicted of tax evasion may be fined up to $100,000 ($500,000 for a corporation) or imprisoned not more than five years or both, together with the costs of prosecution. This penalty is in addition to any other penalties provided by law. (IRS § 7201.)
2. Any person required by the Code or regulations to file a return, keep any records or supply any information who willfully fails to file the return, keep the records or supply the information is guilty of a misdemeanor.
A person convicted of this offense may be fined up to $25,000 ($100,000 for a corporation) or imprisoned not more than one year or both, together with the costs of prosecution. This penalty is in addition to any other penalties provided by law. (IRC § 7203.)
3. Any person who willfully aids or assists in, or procures, counsels, or advises the preparation or presentation of a return, affidavit, claim, or other document under the tax laws that is fraudulent or false as to any material matter is guilty of a felony. This provision applies regardless of whether or not the taxpayer knows or consents to the falsity or fraud.
A person convicted of this offense may be fined up to $100,000 ($500,000 for a corporation) or imprisoned not more than three years or both, together with the costs of prosecution. (IRC § 7206.)
4. Any person who fails to comply with a summons issued under the Code that calls for testimony or for the production of books or documents and neglects to appear or to produce the books or documents has committed a crime.
A person convicted of this offense may be fined not more than $1,000 or imprisoned not more than one year or both, together with costs of prosecution. (IRC § 7210.)
Unreported Income (IRS): CPA Liability
Filed under: IRS, irs tax audit, tax preparer, unreported income
The IRS has a new method for identifying returns with a high probability for unreported income (i.e., Unreported Income Discriminate Index Function (UI DIF)). Unreported income is both civil tax fraud and criminal tax evasion.
Taxpayers who have unreported income may be subject to up to 6 years in prison, 100% penalties and fines, and expose their accountants to civil and criminal liability.
1. Statutes of Limitations
a. Civil Tax Fraud: No statute of limitations on assessment (tax can be assessed at any time)
b. Criminal Tax Evasion: For crimes, the statute of limitations is either 3, 5 or 6 years, only on the prosecution of the crime (i.e., tax evasion, not the assessment of tax owed)
2. Burdens of Proof
a. Civil Tax Fraud: “Clear and Convincing Evidence”
b. Criminal Tax Evasion: “Beyond a Reasonable Doubt”
3. Penalties/Fines
a. Civil Tax Fraud
i. Fraudulent Failure to File Tax Return: (IRC §6651(f))
ii. Fraudulent Tax Return Filed: (IRC §6663(a))
Maximum Penalty: 75% of tax due
iii. Failure to Pay Tax:
Shown on Return (IRC §6651(a)(2)),
Not Shown on Return (IRC §6651(a)(3))
Maximum Penalty: 25% of tax due
b. Criminal Tax Evasion
i. IRC §7201: Evade Tax
Fine: $100,000 (individual) $500,000 (corporate)
Imprisonment: not more than 5 years (or both fine and imprisonment)
ii. IRC §7203: Failure to File or Pay Tax
Fine: $25,000 (individual) $100,000 (corporate)
Imprisonment: up to one year (or both fine and imprisonment)
As a tax preparer, if a client has unreported income:
1. What is your liability re: IRC §6694 preparer penalties?
2. If you advise the client to report the income, do you prepare the tax return, or advise the client to engage an attorney to hire a CPA to prepare the tax return (for attorney-client privilege)?
3. If you advise your client to file or amend a tax return, is it a voluntary disclosure with no criminal liability? Is there any criminal liability for you?
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