Clients who are investigated or expect to be investigated for tax evasion often ask whether it will help to avoid criminal prosecution to just pay the IRS the amount in question.
Criminal tax evasion cases are normally referred by the Attorney General, Tax Division to the local US Attorney for prosecution once the Tax Division decides that the case should be prosecuted. However, under 26 U.S.C. Sec. 7122(a) the Attorney General may settle criminal tax cases without prosecution. This said, such settlements don’t happen often because the government, according to its own policy, doesn’t want to create an appearance that tax evaders who are able to buy their way out of prosecution can actually do so.
When the government determines whether potential criminal tax cases should be prosecuted, they don’t consider civil liability or monetary issues. They only consider whether a crime was committed and whether they can secure conviction. In most cases, the government will not discuss any civil liability settlement until the criminal case is over. On some occasions, however, the court will order civil settlement before sentencing.
In many New York federal criminal tax cases, however, the plea agreement will include an admission that the defendant received the unreported income or claimed illegal deductions or improper credits. The plea agreement will also stipulate that the defendant is liable for the fraud penalty under the tax code (26 U.S.C. Sec. 6663) and will include an agreement by the defendant to file, prior to sentencing, complete and correct initial or amended personal returns for the years in question.
If you believe that you may have a criminal tax issue in New York, call our New York City tax crimes attorneys today at (212) 577-6677 to schedule an immediate consultation.