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Common Defenses for Tax Crimes

Posted by Brandon Keim | Jun 30, 2023 | 0 Comments

Even if the Internal Revenue Service (IRS) has charged someone with violations of a tax crime, it doesn't automatically mean that the taxpayer will be convicted. There are legitimate defenses that a taxpayer can use that may defeat the charges. Let's review a couple of the more common defenses.  

The Taxpayer Doesn't Owe Any Money

Before the IRS can prove someone has committed tax evasion, the IRS must first prove that someone actually owes more in taxes than they've paid. Therefore, if the taxpayer can prove that they have paid all that's owed, then they should be able to defeat the charge.

This defense doesn't pertain only to tax debts identified before charges were made. On the contrary, if a taxpayer can reclassify business expenses in an amount that covers the existing tax debt, that would still count as a defense.

There are other ways this can play out beyond the idea that someone's check wasn't properly credited to their account, such as:

The Income is Related to a Shareholder Distribution

If a taxpayer is a shareholder of a schedule-C corporation and received corporate distributions, they can defend allegations of tax deficiency if they can demonstrate that the corporation doesn't have any current or accumulated earnings and profit. In that case, the distribution shouldn't be classified as income but as the return of capital to the shareholder.

The Taxpayer Paid Foreign Taxes

If a taxpayer can prove that they owe taxes to another nation, that can be considered a foreign tax credit, a defense against a tax evasion charge.

Good Faith Belief

To convict a defendant of a tax evasion-related crime, the prosecution must prove that the defendant acted knowingly. Therefore, known as “the Cheek defense” (from a Supreme Court holding in Cheek v. United States), it is a defense against tax evasion if the taxpayer can prove that they genuinely believed they had complied with the tax laws even if they turned out to be wrong.

The Taxpayer Relied on a Tax Advisor

Related to the Cheek defense, taxpayers may defend against a tax deficiency charge if they reasonably relied on a tax advisor when determining their tax liability. However, this isn't a blanket defense. It only applies in certain situations. For example, the advice must have come from someone legitimately qualified to give tax advice, the advice had to be reasonable, and the taxpayer had to reveal relevant information before the advisor made the recommendation.

If you are worried that you may face criminal charges for tax issues, consult with a tax attorney as soon as possible. Call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.


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