How do you know that you're not guilty of tax evasion if you don't really know what it is?
After recent events and having the recent 'fortune' to spend 'quality time' with some of the IRS's finest attorneys as well as our friendly revenue agents at the Wisconsin Department of Revenue, I've learned that their definition of tax evasion is applied far broader than I originally thought; furthermore, both agencies (IRS & WIDOR) are cracking down on individuals and businesses who are involved in tax evasion tactics.
"Tax evasion" should be distinguished from "tax avoidance." Tax evasion is the prohibited act of trying to hide one's tax liability. Tax avoidance, on the other hand, is perfectly legal, and simply involves using laws strategically, to reduce one's actual tax liability as much as possible.
Tax fraud or tax evasion is intentionally failing to pay or underpaying your taxes, it’s illegal in Wisconsin, and they're cracking down.
Tax evasion is a crime in Wisconsin and Wisconsin law provides for civil, criminal, and administrative penalties for this crime. Any individual, franchise manager, corporation, or tax preparer can commit tax fraud and be penalized for it.
One of the most common prevalent tactics of tax evaders in Outagamie County, Wisconsin is to attempt to make it appear to an outside observer that their tax liability is lower than it truly is, such as by concealing income, fraudulently transferring property, and others.
According to the U.S. Small Business Administration, failure to comply with city and state government requirements for issuing business licenses (including a Wisconsin Seller's Permit) can result in expensive fines, and, in some cases, may have its operation suspended and its owner charged with criminal conduct.
Wisconsin Tax Fraud and Tax Evasion Laws
Statutes Chapter 71: Income and Franchise Taxes for State and Local Revenues
Civil penalties for tax fraud or evasion are generally fines paid to the tax collector, in addition to any other taxes owed.
Repeatedly filing tax returns late is considered intent to evade taxes. Any person making incorrect tax reports or failing to make a report, if the intent is to evade taxes, owes 100% of the unpaid part of the tax. This is an additional tax for purposes of assessment/collection.
Anyone, individual or owner/employee, with a duty to act here, is required to withhold or pay any tax who intentionally fails to do so will owe a penalty equal to the total amount of the tax, plus interest and penalties on the unpaid tax.
Any person, including corporation officers or partnership members with a duty to do this, is required to provide a written statement to an employee, but provides a false statement or intentional fails to provide one as required, is subject to a $20 penalty for each failure.
Employees who file withholding exemption certificates with the intent to evade taxes must pay the amount that should've been withheld minus the amount actual withheld during that fraudulent certificate time period.
Anyone who fraudulently files an inaccurate tax refund or credit claim owes a penalty of 100% of the amount claimed minus the amount he or she should've claimed.
If a person owes a federal income tax penalty for medical savings or health savings account fraud then he or she owes a penalty to the Wisconsin Department of Revenue equal to 33% of the IRS penalty.
Tax evasion laws that are punished criminally are divided into misdemeanor and felony violations.
Signing or refusing to file a return when required, willfully making a false statement or report, or willfully failing to make payments is a misdemeanor with a maximum fine of $10,000 and up to 9 months in jail.
Willfully making any tax return or statement that you believe isn’t true or correct can be punished by up to a $10,000 fine and 9 months in jail.
Violating the confidentiality law by divulging any information derived from any tax return or claim (except, for example, state statisticians, documentation for divorce proceedings, newspapers, etc) or browsing tax returns for information can be punished with a $100-$500 fine and 1-6 months imprisonment.
Failing to comply with the construction surety bond requirements for non-residents is fined $300 to $5,000.
Employers who coerce their employees to prepay their taxes can be fined from $25 to $200 for each violation.
Employees who willfully give their employers false information to evade the proper tax withholding amount can spend up to 6 months in jail and be fined up to $500, plus the cost of prosecution.
Anyone giving a false income tax return with the intent to evade any tax assessment or get a refund with fraudulent intent is guilty of a Class H felony, punishable by at most 6 years in prison and a $10,000 fine.
Any officer of a corporation required to make or sign franchise or income tax returns who does so fraudulently with the intent to evade taxes is guilty of a Class H felony.
Anyone who removes or conceals any property that can be taxed with the intent to evade the tax assessment or collection is guilty of a Class I felony, punishable by up to 3.5 years in prison and up to a $10,000 fine.
Anyone filing a claim for a tax credit that is false or excessive or helps in its filing and it’s filed with fraudulent intent is guilty of a Class H felony.
In addition to the fines, tax evaders convicted of felonies
need to pay for the cost of prosecution.
Some administrative penalties tax evaders face include that if a person or partnership that's required to file an income tax return fails to do so within the allowed or extend time, then a late fee of $50 is added to the tax bill. The fee is $150 for late returns by corporations and companies.
If a person files a fraudulent claim for a tax credit, then the person can't file a tax credit claim for 10 tax years after the fraud. If the person filed a tax claim recklessly, meaning an improper claim for credit done with intentional disregard of the tax laws, then for the next two tax years the person can't file a claim for a tax credit. The Department of Revenue can impose requirements that must be met for the person subject to this disallowance period can still make a credit claim, just less easily.
My best advice... if you're not operating your business legally, be prepared to face the massive penalties when you get caught, especially if your choices put you under a 'legal spotlight'.