Tax-deferred retirement accounts are a popular legal strategy for reducing tax liability. But that also means the Internal Revenue Service is very serious when prosecuting violations relating to these accounts. Criminal charges for tax evasion are possible, and that's just the tip of the iceberg when it comes to possible charges. Let's consider some other surprising ways the government may prosecute those who commit retirement account-related wrongdoing.
False Statements and Concealment of Facts: Taxpayers must be honest when requesting withdrawals from retirement plans. If they are not, under The Employee Retirement Income Security Act of 1974 (ERISA), they can be prosecuted for making false statements and concealment of facts in documents. Punishment for false statements or concealment can include fines and up to five years in prison.
For example, on June 2, 2022, Niraj Patel pleaded guilty to those crimes: He had made two hardship withdrawals from his retirement plan that were not for permitted reasons.
False Tax Return: Taxpayers can also be prosecuted for filing a false tax return if they fail to disclose retirement plan distributions in their tax returns. Filing a false tax return can be punished with up to three years in prison. (Patel also failed to disclose his distributions in his return, so he was charged with that, too.)
Mail Fraud/Wire Fraud: If a wrongdoer submitted those false filings and communications with the intent to deceive the IRS and used the postal service to send those false communications (e.g., a false tax return was mailed to the IRS), those involved might also see charges of mail fraud or wire fraud. Mail fraud can be punished with up to 20 years in prison and a $250,000 fine.
If you are concerned about your criminal liability relating to misuse of a retirement account, don't hesitate. Contact an attorney specializing in tax law today. If you need help, 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.