Criminal Tax Defense Problems: Failure To File Returns, Fraud and False Statements, Tax Evasion

Criminal problems usually start with (a) a visit from criminal tax investigators; (b) a notice from a financial institution that a criminal tax investigator is obtaining your records; or, sometimes, (c) a letter from criminal tax investigators to you informing you that they are commencing an investigation.

You can divide criminal tax issues into two types:  not doing something you were supposed to do, and affirmatively doing something that the law states that you may not do.  

FAILURE TO FILE OR PAY OVER

The first category is generally "failure to file" your returns, that is, not sending in your returns on time.   Under Hawaii law, failure to file is a special misdemeanor subject to a maximum of one year imprisonment and a $25,000 fine ($100,000 corporate) per year.  See, HRS 231-35.  Federally, failure to file is also a misdemeanor with punishment dependent on various factors including amount of tax not paid. 

Under Hawaii law, failing to pay over employment taxes is a Class C Felony under a new law passed in 2009 and effective July 1, 2009.  HRS 231-36.4.  This provision is targeted at unpaid employment taxes and contains similar text ("collect, account for, an pay over") to 26 U.S.C. 7202 (also a felony).

FALSE AND FRAUDULENT STATEMENTS AND TAX EVASION

The second category ranges from what the tax authorities perceive to be the actual situation from what you reported, typically described as a false statement, to outright tax evasion.  Evasion can be loosely described as intentionally attempting to evade the tax authorities' efforts to determine the amount due or collect tax due.  Typical acts of evasion include avoiding the use of records, putting assets in someone else's name, creating double books, etc., and significantly there is no requirement that the 'evasive' acts be illegal or improper in themselves.

In general, FTF type of problems have shorter investigations, lighter punishments, and are easier to come out of without significant financial damage.  Fraud and evasion may have longer investigations, relatively substantial punishments including incarceration, and can well mark and impose a definitive and lasting change to your overall financial picture. 

It is extemely important during the course of a criminal investigation not to engage in activity that makes matters worse.   

For more about Hawai'i Tax Crimes, please review my article here.

Richard Paul McClellan III, 820 Mililani Street, Suite 701, Honolulu, Hawaii 96813 (808)523-0449