How is Tax Fraud Different Than Tax Avoidance?

While we all wish we could altogether avoid taxes, they are necessary to ensure the government functions. They are also extremely complicated and subject to confusing IRS laws. If you’ve been charged with a tax crime in New Jersey, you need tax fraud defense lawyer Peter Katz. Although tax fraud is a federal offense, tax avoidance is entirely legal.

Defining Tax Fraud in New Jersey

Tax fraud is a specific tax crime charged under 26 U.S.C. § 7206. It generally involves allegations that you made an intentionally false statement on your tax return or tax documents. Tax professionals may also be charged under this section for aiding and abetting an individual or business in committing tax fraud. It also covers concealing any taxable goods with the intent to defraud, withhold, falsify, or destroy certain financial records.

Importantly, criminal tax fraud in New Jersey requires the government to show that you submitted your tax return knowing or believing it was not entirely accurate or correct. Mistakes, such as mis-categorizing certain tax transactions, may result in financial liability but cannot typically support tax fraud charges.

Understanding Tax Avoidance

Unlike tax evasion, even the IRS states that tax avoidance is entirely legal. Tax avoidance is a legal action to reduce your overall tax liability and maximize after-tax income. Examples of tax avoidance include claiming legal deductions for the following:

• Interest paid on a home mortgage
• Student loan interest
• Charitable donations
• Childcare expenses
• Household members
• Healthcare expenses
• Business costs
• Retirement contributions

You may lawfully avoid overpaying taxes by hiring a professional to maximize your tax deductions, credits, and income adjustments. Problems arise, however, when the IRS claims you lied about your eligible deductions. At this stage, legal tax avoidance and criminal tax fraud overlap.

Defending Against New Jersey Tax Fraud Charges

The IRS will argue that examples of tax avoidance that are actually tax fraud can include taking excessive mortgage interest deductions, contributing too much to tax-free retirement accounts, or claiming personal expenses as business expenses. If you know these deductions are inaccurate but submit your tax return anyway, you may be guilty of tax fraud.

An experienced tax crimes defense lawyer in New Jersey can help you negotiate a favorable plea deal and avoid jail time. This can involve recalculating your taxes and paying an IRS penalty. However, dedicated federal tax fraud defense attorneys such as Peter Katz can argue that any alleged fraud was unintentional. Good faith mistakes during tax avoidance, such as claiming donations to a charity without 501(c)(3) status, do not support criminal charges.

Do Not Take on the IRS Alone: Call a NJ Tax Fraud Defense Lawyer

There is a fine line between tax fraud, tax mistakes, and tax avoidance. The IRS will attempt to maximize the crime and associated financial penalties even after good-faith avoidance mistakes. If you’ve been charged with tax fraud or received notice of potential criminal liability in New Jersey, contact federal white-collar defense attorney Peter Katz at (609) 849-3179 or contact us online.