Michigan woman imprisoned for income tax evasion

According to a press release posted March 26, 2013 on the U.S. Attorney's Office for the Western District of Michigan's website, a Michigan woman was sentenced to one year in prison for tax evasion and ordered to pay nearly $1,000,000 in restitution.

The woman, who owns and operates five movie theaters in Michigan, had earlier plead guilty to felony income tax evasion relating to corporate and personal income taxes. During the years 2004-2010, the woman evaded corporate income taxes by underreporting the number of tickets sold, receipts from concessions, number of gift certificates purchased and other revenue-producing transactions in her theaters. During the same period she evaded personal income taxes by using the cash from the underreported sales for personal use and not reporting the cash as personal income.

Civil tax penalties

Violations of tax law do not have to be intentional or willful to result in a penalty. Filing late income tax returns, failing to pay income taxes on time and filing a return with inaccurate information are situations in which taxpayers will be penalized even if there was no intent to evade taxes or defraud the IRS.

Failing to file or to pay income taxes. A taxpayer commits a civil tax offense by failing to file an income tax return in a timely manner, failing to pay income taxes at all or both. When penalties for both not filing and not paying are assessed, the failure to pay penalty can be offset by the failure to file penalty.

The penalties for failing to file a tax return or pay taxes due are assessed each month or part of a month until the return is filed and/or taxes paid. A tax return too incomplete to allow the IRS to process it, although filed, is subject to the failure to file penalty until deficiency is corrected. Failing to make required tax deposits or writing a bad check to pay taxes both constitute a failure to pay and will subject the taxpayer to additional penalties beyond those generally assessed for the failure to pay.

Providing inaccurate information. Except in cases of minor, insignificant errors, the IRS will penalize taxpayers who provide inaccurate information with respect to income taxes because of negligence or intentional disregard for the rules. The IRS will treat errors resulting from the failure to keep adequate records as negligence on the part of the taxpayer and impose a penalty.

Reasonable cause. A taxpayer shown to have violated a tax law, provided the violation was not intentional or willful, may nonetheless escape liability if there was reasonable cause for the violation. The taxpayer has the burden of proving reasonable cause by a preponderance of the evidence. In general, reasonable cause requires evidence of good faith and fair dealing.

Criminal tax penalties

The possible penalties for criminal tax offenses include imprisonment in addition to fines. Whether a violation of tax law is a civil or criminal act turns on the taxpayer's "willfulness." A taxpayer who voluntarily and intentionally violates a known legal duty has acted willfully and therefore committed a crime by violating the tax law. Because the Federal sentencing guidelines provides for imprisonment in almost all cases of criminal tax violations, a person convicted of a criminal tax offense will almost certainly be sentenced to some period of confinement in a prison.

Speak to a tax attorney

If you have questions about penalties related to income tax violations, contact a tax attorney to schedule a consultation to discuss your case.