New Jersey Federal Tax Evasion & Tax Fraud Lawyer

Tax cases are different from almost every other kind of federal prosecution. Before charges are filed, the IRS and the Department of Justice usually spend months or years reconstructing a person’s finances, and many cases begin as ordinary civil audits that quietly turn criminal. If you are a business owner, contractor, professional, cash-intensive business operator, payroll provider or return preparer in New Jersey and you suspect the IRS is investigating you, a New Jersey federal tax evasion lawyer should be involved before you say another word to the government.

Keith Oliver Criminal Law defends individuals and business owners in federal tax investigations and prosecutions throughout the state. We work with CPAs and forensic accountants, retained through counsel so their work is protected, to evaluate the government’s numbers and build a defense.

The Most Common Federal Tax Crimes

Tax Evasion – 26 U.S.C. § 7201

Tax evasion is the most serious tax charge. The government must prove three elements: (1) a tax deficiency, meaning additional tax was due and owing; (2) an affirmative act constituting an attempt to evade or defeat the tax or its payment; and (3) willfulness. The affirmative act requirement, explained in the Supreme Court’s decision in Spies v. United States, separates evasion from simply failing to file or pay. Examples include keeping a double set of books, making false entries, hiding assets in nominee accounts, handling business receipts in cash to avoid records, and lying to IRS agents. Evasion can involve evasion of assessment (understating income) or evasion of payment (hiding assets from collection).

Filing a False Return – 26 U.S.C. § 7206(1)

Often called the “tax perjury” statute, § 7206(1) punishes willfully signing a return under penalty of perjury that the taxpayer does not believe to be true and correct as to every material matter. The government does not need to prove a tax loss, only that a material false statement was made willfully. Prosecutors frequently use § 7206(1) as a plea charge in place of evasion because it carries a lower maximum.

Aiding or Assisting False Returns – § 7206(2)

This statute targets return preparers and promoters who prepare or advise on false returns, even if the taxpayer did not know the return was false. New Jersey has seen numerous prosecutions of preparers who inflated deductions, fabricated business losses or claimed false credits.

Willful Failure to File, Pay or Supply Information – § 7203

Willful failure to file a return, pay tax, keep records or supply information is a misdemeanor for each year. Although it sounds minor, each year can be charged separately, and the conduct can form part of a larger evasion case.

Payroll Tax Crimes – § 7202

Employers must withhold income and FICA taxes from employees’ wages and pay them over to the government. Willfully failing to collect or pay over these “trust fund” taxes is a felony. Payroll tax cases are a current enforcement priority, and they often involve restaurant, construction, staffing and medical practice owners who used withheld taxes to keep the business afloat.

Conspiracy and Obstruction

Prosecutors frequently add conspiracy to defraud the United States under 18 U.S.C. § 371 (a “Klein conspiracy”) when two or more people work together to impede the IRS. They may also charge corrupt obstruction of the IRS under § 7212(a). After the Supreme Court’s decision in Marinello v. United States (2018), the obstruction charge requires a nexus to a particular proceeding, such as an audit or investigation, that was pending or reasonably foreseeable.

Penalties for Federal Tax Crimes

Tax evasion carries up to five years in prison and a fine of up to $250,000 for individuals ($500,000 for corporations), plus the costs of prosecution. Filing a false return carries up to three years. These maximums apply per count, and a multi-year case commonly charges each tax year separately. On top of the criminal penalties, the taxpayer will owe the unpaid tax, interest and civil fraud penalties of 75% of the underpayment attributable to fraud. Courts typically order restitution of the tax loss as a condition of supervised release or as part of a plea agreement.

How Tax Sentences Are Calculated

Tax crimes are sentenced under Chapter 2, Part T of the Sentencing Guidelines. The key number is the “tax loss,” which is generally the total amount of loss that was the object of the offense, meaning the loss that would have resulted had the offense been successfully completed, including tax loss from all relevant conduct and all tax years involved. Where the precise amount is uncertain, the guidelines provide default percentages: for example, 28% of unreported gross income for an individual, or 34% for a corporation, unless a more accurate determination can be made. Those defaults can overstate the real loss, so presenting a more accurate calculation, including legitimate unclaimed deductions in certain circumstances, is a key defense strategy.

Common enhancements include two levels for failing to report income exceeding $10,000 from criminal activity, two levels for sophisticated means such as offshore accounts or layered entities, and enhancements for preparers who are in the business of preparing returns. Reductions are available for acceptance of responsibility and for zero-point offenders. Judges in the District of New Jersey also take into account whether the defendant has paid the tax owed before sentencing, which can be meaningful mitigation.

How Tax Investigations Unfold

IRS Criminal Investigation (IRS-CI) special agents investigate tax crimes. Cases begin in several ways: a civil revenue agent detects “badges of fraud” during an audit and refers the case to CI; a bank files a Suspicious Activity Report; a whistleblower, former employee or ex-spouse reports the taxpayer; or the tax issue surfaces during an investigation of another crime. Once CI completes its investigation, the case goes to IRS counsel and then to the Department of Justice Tax Division or the U.S. Attorney’s Office for the District of New Jersey for prosecution review.

Warning signs that a civil audit may have turned criminal include a revenue agent who abruptly stops communicating, cancels meetings or no longer responds to your accountant; requests for records going back many years; and contacts with your bank, customers or employees. If any of these occur, consult a criminal defense attorney immediately. Your accountant’s communications are generally not privileged in a criminal tax case, but an accountant retained by your attorney under a Kovel arrangement can work under the attorney-client privilege.

Defenses in Federal Tax Cases

• Lack of willfulness. In Cheek v. United States, the Supreme Court held that willfulness in tax cases requires the voluntary, intentional violation of a known legal duty. A genuine misunderstanding of the complex tax law, even an unreasonable one, can negate willfulness. (Frivolous “tax protester” theories are treated differently.)
• Reliance on a professional. Good-faith reliance on a CPA or tax preparer to whom you made full disclosure can be a defense.
• No tax deficiency. In evasion cases the government must prove that tax was actually owed. Unclaimed deductions, basis, losses and loans can eliminate or reduce the deficiency.
• Challenging the method of proof. When the IRS reconstructs income using bank deposits, net worth or expenditures methods, it must account for non-taxable sources such as loans, gifts, transfers between accounts and cash on hand. Errors in these reconstructions are common.
• Statute of limitations. Tax years outside the six-year window may be time-barred.
• Voluntary disclosure. For taxpayers not yet under investigation, a timely voluntary disclosure can avoid prosecution entirely.

Tax Crimes Connected to Other Federal Charges

Tax counts often appear in cases centered on other conduct. Business owners charged with health care fraud, public corruption or money laundering may face tax charges for failing to report the proceeds. Return preparers may face identity theft and wire fraud counts when false returns use stolen information. A coordinated defense that accounts for all exposure is essential.

Why Early Representation Matters

Tax prosecutions are among the most carefully pre-screened cases in the federal system. Every case must pass review by IRS counsel and, in most cases, the Justice Department, before charges are filed. That review process creates opportunities for defense counsel to present the taxpayer’s side of the story, demonstrate the absence of willfulness and argue for civil resolution instead of criminal prosecution. Once an indictment is returned, those opportunities narrow considerably. If you have received a letter or a visit from IRS-CI, or if you are worried about unfiled returns or unreported income, call us now.

Special Issues for New Jersey Business Owners

Many of the tax cases we see in New Jersey involve closely held businesses: restaurants, construction companies, trucking firms, medical and dental practices, car dealerships, staffing agencies and other cash-intensive operations. These cases raise recurring issues. Owners are often accused of skimming cash receipts, paying personal expenses through the business and deducting them, paying workers off the books, or treating employees as independent contractors to avoid payroll taxes. Each of these theories has an innocent explanation in some cases, and the line between aggressive tax planning and crime turns on willfulness.

Business owners also face personal liability for unpaid trust fund taxes through the civil Trust Fund Recovery Penalty, even if no criminal case is brought. Statements made to a revenue officer while trying to resolve that penalty can later become evidence in a criminal payroll tax prosecution. For that reason, anyone dealing with significant unpaid payroll taxes should obtain advice from criminal counsel before negotiating with collections personnel.

Finally, federal tax cases rarely stay purely federal. The New Jersey Division of Taxation shares information with the IRS, and state charges for failure to file, failure to remit sales tax or filing false state returns may follow. A defense strategy should anticipate both systems so that a resolution in one does not create new problems in the other. Our attorneys coordinate closely with your accountants to manage the federal and state sides together.

Related Federal Defense Guides

• Federal investigations, target letters and grand jury subpoenas
• Money laundering and structuring
• How the federal sentencing guidelines work

Frequently Asked Questions

Can I go to jail for not filing a tax return?

Yes, but it is uncommon for a simple failure to file. Willful failure to file under 26 U.S.C. § 7203 is a misdemeanor punishable by up to one year per year not filed. Most non-filing is resolved civilly, but repeated non-filing combined with concealment can lead to felony evasion charges.

What is the statute of limitations for federal tax crimes?

For most tax felonies, including evasion and filing a false return, it is six years under 26 U.S.C. § 6531. The period usually runs from the date the return was filed or due, or from the last act of evasion.

What does it mean if an IRS special agent contacts me?

Special agents work for IRS Criminal Investigation and investigate crimes, unlike revenue agents and revenue officers who handle civil audits and collections. A visit from a special agent means you should stop and speak with a criminal defense lawyer before answering questions.

Should I file amended returns if I am under investigation?

Not without legal advice. Amended returns are admissions and can be used as evidence of the original understatement. Timing and content must be coordinated by counsel.

Does the IRS still offer voluntary disclosure?

Yes. The IRS Criminal Investigation Voluntary Disclosure Practice allows taxpayers who have not yet come to the IRS’s attention to come forward, pay and generally avoid criminal prosecution. Eligibility ends once the IRS has started an examination or investigation, so timing is critical.

Talk to a New Jersey Federal Defense Lawyer Today

Federal cases are won or lost early, often before an indictment is ever filed. If an agent has contacted you, a search warrant has been executed, or you have received a target letter or grand jury subpoena, call Keith Oliver Criminal Law at (732) 858-6959 or contact us online for a confidential consultation. We defend clients throughout New Jersey in the U.S. District Court in Newark, Trenton and Camden, with offices in Monmouth, Mercer and Somerset Counties and Jersey City. Learn more about our federal criminal defense practice and attorney Keith G. Oliver.