Most people assume that tax evasion is only a federal crime. However, tax evasion is also a serious white collar crime in California, and is governed by Revenue and Taxation Code section 19706, which defines tax evasion as the willful attempt to evade or defeat the assessment, collection, or payment of any tax. Individuals or entities found guilty of violating California Revenue and Taxation Code section 19706 can face severe penalties.
Proving a Violation of Revenue and Taxation Code section 19706
To establish a case of tax evasion, the prosecution must prove the following elements beyond a reasonable doubt:
- The defendant had a legal duty to file a tax return or pay taxes.
- The defendant willfully attempted to evade or defeat the assessment, collection, or payment of that tax, AND
- The defendant had specific intent to commit tax evasion.
Examples of Tax Evasion
There are several scenarios in which someone may be committing prosecutable tax fraud, including underreporting income and creating fictitious deductions.
Underreporting Income: John, a self-employed consultant, fails to report a significant portion of his income on his tax returns. He also conceals cash payments and inflates deductible expenses to lower his tax liability. This deliberate attempt to underreport income constitutes tax evasion. John’s defense attorney may argue that he made an accounting error or misunderstood the tax rules, making it challenging for the prosecution to prove willful intent.
Creating Fictitious Deductions: Sarah, the owner of a small business, fabricates business expenses and deductions on her tax returns. She invents expenses for nonexistent supplies, travel, and equipment. By doing so, she reduces her taxable income and tax liability. Sarah’s defense may involve claiming that she had a legitimate belief that these expenses were valid deductions, therefore making it difficult for the prosecution that she had the specific intent to evade taxes.
Potential Penalties
When individuals or entities are convicted of tax evasion in California, they can face substantial penalties, including:
Imprisonment: A conviction can result in imprisonment for up to one year in county jail for misdemeanor tax evasion or up to three years in state prison for felony tax evasion.
Fines: A fine of up to $20,000 for individuals and up to $100,000 for corporations.
Restitution: The court may order the defendant to pay restitution to cover the tax liability owed.
Collateral Consequences
There are also severe collateral consequences that come along with a conviction of tax evasion, including revocation or suspension of professional licenses of people who are lawyers, doctors, or accountants, and a severe damage to the defendant’s personal and professional reputation.
Defenses
There are many viable defenses to a charge of tax evasion.
Lack of Willfulness: Demonstrating that the defendant did not have the requisite willfulness to commit tax evasion can be a strong defense. This may involve showing that the taxpayer made an honest mistake or misunderstood their tax obligations.
Lack of Specific Intent: Proving that the defendant did not have the specific intent to evade taxes is another defense strategy. If the prosecution cannot establish that the defendant intended to commit tax evasion, the charges may not hold.
Incorrect Tax Liability: Challenging the accuracy of the tax assessment by the tax authorities is a valid defense. If the defendant can demonstrate that they were assessed an incorrect amount of tax, it may lead to a reduction or dismissal of charges.
Statute of Limitations: The statute of limitations for tax evasion in California is typically three years, starting from the date the tax return was due or filed, whichever is later. If the case is filed more than three years from the date the return was due or filed, then the case may not be prosecuted.
If you are charged with tax evasion on a state level, it is absolutely imperative that you discuss your case with an experienced criminal defense attorney. As a former Deputy District Attorney with over 14 years of prosecutorial experience, Los Angeles criminal defense attorney Michael Kraut has a complex understanding of white collar crime, and the most effective defenses against a charge of tax evasion.
For more information about the criminal justice process, and to schedule your free consultation, contact Michael Kraut at the Kraut Law Group located at 6255 Sunset Boulevard, Suite 1520, Los Angeles, CA 90028. Mr. Kraut can be reached 24/7 at (888) 334-6344 or (323) 464-6453.
