Difference Between Tax Fraud And Tax Evasion In NY

by ECL Writer
Tax Fraud And Tax Evasion In NY

Tax season can be a stressful time for many, and the last thing anyone wants to deal with is the possibility of being accused of tax fraud or tax evasion. Although the terms may seem interchangeable, there are important distinctions to be made between the two offenses. In New York, tax fraud and tax evasion are serious crimes that can result in hefty fines and even imprisonment. As a highly legal writer, I have researched and uncovered the key differences between tax fraud and tax evasion in New York.

In this article, Eastcoastlaws.com will break down the definitions of each crime, the penalties that can be imposed, and what you can do to protect yourself from these allegations.

Whether you’re a business owner or an individual taxpayer, understanding the nuances of tax law is crucial to avoid potential legal repercussions. So, let’s dive in and shed some light on the difference between tax fraud and tax evasion in NY.

What Is Tax Fraud?

Tax fraud is a deliberate act of deceiving the IRS or state tax authorities in order to reduce the amount of tax owed. This can be done in a variety of ways, including falsifying documents, lying about income or expenses, and failing to report income. Tax fraud is a serious crime that can be prosecuted at both the federal and state level.

One of the most common types of tax fraud is underreporting income. This occurs when a taxpayer intentionally fails to report all of their income on their tax return. For example, if a business owner doesn’t report all of their cash transactions or if an individual fails to report income from a side job, they could be charged with tax fraud.

Another type of tax fraud is claiming false deductions or credits. This occurs when a taxpayer claims deductions or credits that they are not entitled to. For example, claiming a deduction for a home office when the taxpayer doesn’t actually have a home office or claiming credit for education expenses that were not actually incurred.

Tax fraud can also occur when a taxpayer fails to file a tax return. This is a serious offense and can result in both civil and criminal penalties. If a taxpayer knows that they are required to file a tax return but fails to do so, they can be charged with tax fraud.

Types Of Tax Fraud

There are several different types of tax fraud that can be committed. Here are a few examples:

Tax Preparer Fraud

Tax preparer fraud occurs when a tax preparer intentionally prepares a false tax return in order to obtain a larger refund or to reduce the amount of tax owed. This can be done by inflating deductions, claiming false credits, or underreporting income.

Offshore Tax Evasion

Offshore tax evasion occurs when a taxpayer hides money or assets in offshore accounts in order to avoid paying taxes on that income. This can be done by setting up offshore corporations or trusts, or by simply not reporting offshore income.

Identity Theft

Identity theft occurs when a fraudulent tax return is filed using someone else’s personal information. This can result in the victim’s refund being stolen or the victim being falsely accused of tax fraud.

Examples Of Tax Fraud Cases In NY

Tax fraud is a serious crime that can have severe consequences. Here are a few examples of high-profile tax fraud cases in New York:

  • The Trump Organization

In 2018, the New York State Department of Taxation and Finance launched an investigation into the Trump Organization’s tax practices. It was alleged that the organization had engaged in tax fraud by undervaluing properties in order to reduce the amount of taxes owed. The investigation is ongoing.

  • Al Sharpton

In 2014, it was reported that civil rights activist Al Sharpton owed millions of dollars in back taxes. It was alleged that Sharpton had failed to pay taxes on his income for several years and had also failed to pay payroll taxes for his businesses.

  • Marc Dreier

In 2009, New York lawyer Marc Dreier was sentenced to 20 years in prison for tax fraud and other crimes. Dreier had created a fake law firm and used it to defraud investors out of millions of dollars. He also failed to pay taxes on the money he had stolen.

What Is Tax Evasion?

Tax evasion is the deliberate act of not paying taxes that are owed. This can be done in a variety of ways, including failing to file a tax return, underreporting income, and claiming false deductions or credits. Tax evasion is a serious crime that can result in both civil and criminal penalties.

One of the most common types of tax evasion is failing to file a tax return. If a taxpayer knows that they are required to file a tax return but fails to do so, they can be charged with tax evasion. Failing to pay taxes that are owed is another form of tax evasion. If a taxpayer knows that they owe taxes but intentionally fails to pay them, they can be charged with tax evasion.

Types Of Tax Evasion

There are several different types of tax evasion that can be committed. Here are a few examples:

Cash Economy

Cash economy tax evasion occurs when a taxpayer fails to report all of their cash transactions. This is common among businesses that deal primarily in cash, such as restaurants and bars. By failing to report all of their cash transactions, these businesses can avoid paying taxes on a significant portion of their income.

Payroll Taxes

Payroll tax evasion occurs when a business fails to pay payroll taxes that are owed. This is a serious offense and can result in both civil and criminal penalties. The IRS takes payroll tax evasion very seriously and will pursue criminal charges against businesses that engage in this practice.

False Deductions

False deduction tax evasion occurs when a taxpayer claims deductions that they are not entitled to. This can include claiming deductions for personal expenses or claiming deductions for business expenses that were never actually incurred.

Examples Of Tax Evasion Cases In NY

Tax evasion is a serious crime that can result in severe penalties. Here are a few examples of high-profile tax evasion cases in New York:

  • Wesley Snipes

In 2008, actor Wesley Snipes was sentenced to three years in prison for tax evasion. Snipes had failed to file tax returns for several years and had also claimed false deductions on his returns.

  • Leona Helmsley

In 1989, hotel magnate Leona Helmsley was sentenced to four years in prison for tax evasion. Helmsley had claimed personal expenses as business expenses on her tax returns in order to reduce the amount of taxes owed.

  • Al Capone

In 1931, infamous gangster Al Capone was sentenced to 11 years in prison for tax evasion. Capone had failed to report his income from illegal activities and had also failed to pay taxes on that income.

Penalties For Tax Fraud And Tax Evasion In NY

Tax fraud and tax evasion are serious crimes that can result in severe penalties. The penalties for these crimes can include fines, interest, and even imprisonment. The severity of the penalties will depend on the specific circumstances of the case, including the amount of taxes owed and the taxpayer’s criminal history.

In New York, tax fraud and tax evasion can result in both civil and criminal penalties. Civil penalties can include fines and interest, while criminal penalties can include imprisonment.

How To Avoid Tax Fraud And Tax Evasion

Avoiding tax fraud and tax evasion is crucial to avoid potential legal repercussions. Here are a few tips to help you avoid these crimes:

Keep Accurate Records

Keeping accurate records of all your income and expenses is crucial to avoiding tax fraud and tax evasion. Make sure to keep all receipts and invoices and to track all cash transactions.

File Your Tax Returns on Time

Filing your tax returns on time is crucial to avoiding tax fraud and tax evasion. If you know that you are required to file a tax return, make sure to do so by the deadline.

Hire a Professional Tax Preparer

If you’re unsure about how to file your taxes or if you have a complicated tax situation, consider hiring a professional tax preparer. A professional can help ensure that your taxes are filed accurately and can help you avoid potential legal issues.

Conclusion

Tax fraud and tax evasion are serious crimes that can result in severe penalties. In New York, these crimes are prosecuted aggressively, and taxpayers who are accused of these crimes can face significant legal repercussions. By understanding the differences between tax fraud and tax evasion and by taking steps to avoid these crimes, individuals and businesses can protect themselves from potential legal issues. Remember to keep accurate records, file your tax returns on time, and consider hiring a professional tax preparer if you have a complicated tax situation.

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