California State Tax Fraud and Evasion - Revenue and Taxation Code 19705 RTC
In California, the issue of paying state taxes is taken very seriously. While filing taxes is an "honor system," violating that honor system by willfully submitting fraudulent information to underpay your taxes can be met with serious penalties, including possible criminal charges.
It's illegal to deliberately pay less than you owe in taxes. The most common behavior that leads to tax evasion charges is under-reporting income, lying on your tax return, and failing even to file a tax return.
Notably, for a prosecutor to convict you of tax evasion, they must be able to prove you knew the information was false and that it was provided with the intent to avoid paying taxes.
California Revenue and Taxation Code 19705(a) RTC says, “(a) Any person who does any of the following shall be guilty of a felony and, upon conviction, shall be fined not more than $50,000 or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or both, together with the costs of investigation and prosecution:
(1) Willfully makes and subscribes to any return, statement, or other document that contains or is verified by a written declaration that it is made under penalty of perjury, and they do not believe to be true and correct as to every material matter.
(2) Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the Personal Income Tax Law or the Corporation Tax Law of a return, affidavit, claim, or other document, that is fraudulent or is false as to any material matter, whether or not that falsity or fraud is with the knowledge or consent of the person authorized or required to present that return, affidavit, claim, or document.
(3) Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the Personal Income Tax Law or the Corporation Tax Law, or by any regulation pursuant to that law, or procures the same to be falsely or fraudulently executed or advises, aids in, or connives at that execution.”
If you're found guilty of tax fraud under California Revenue and Taxation Code 19705 RTC stipulations, you could face significant fines and even prison time.
What is Tax Fraud?
Under RTC 19705, tax fraud generally involves the intentional manipulation or falsification of information on a tax return (or any other tax-related documentation) with the intent to avoid paying the total amount of tax owed. Specifically, it's a crime to do any of the following, among other things:
- To willfully submit returns or other related documentation, asserting under penalty of perjury that the information is accurate when you don't believe it is true.
- To assist in the preparation of falsified tax documentation as mentioned above. This provision applies to tax preparers and professionals preparing others' taxes.
- To conceal or remove taxable assets to evade paying taxes on them.
- To conceal assets or destroy or falsify documentation related to settling a tax balance (e.g., offer in compromise).
To convict you of tax fraud under California's Revenue and Taxation Code 19705, the prosecution must prove beyond reasonable doubt that:
- You made a false statement or representation on your state tax return or related documentation.
- You knew the statement was false.
- The statement was made with the intent to defraud and
- The statement led to an understatement of the tax owed.
What Are Some Examples?
EXAMPLE 1: Fred is self-employed and runs an e-commerce business. He intentionally inflates business expenses on his tax return to decrease taxable income. He claims he purchased several high-cost equipment for his business that he never bought. Fred can be charged under RTC 19705 as his action involves willfully making a false statement on a tax return.
EXAMPLE 2: Martha is a CPA who knowingly helps a corporation evade taxes by creating fake financial statements and fraudulent tax returns to hide the company's actual profits and lower its tax liability. This violates RTC 19705 as it involves aiding or assisting in preparing or presenting a fraudulent or false return.
EXAMPLE 3: Alex owns a construction company and has been underreporting the total income earned by his business for several years. When audited, he tries to hide evidence of this fraud by destroying financial records and documentation. This can be charged as tax fraud under RTC 19705 as it involves concealing assets to evade taxes.
What is a Related Law?
California Revenue and Taxation Code 19706 RTC says, “Any person or any officer or employee of any corporation who, within the time required by or under the provisions of this part, willfully fails to file any return or to supply any information with intent to evade any tax imposed by Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001), or who, willfully and with like intent, makes, renders, signs, or verifies any false or fraudulent return or statement or supplies any false or fraudulent information, is punishable by imprisonment in the county jail not to exceed one year, or in the state prison, or by fine of not more than $20,000, or by both the fine and imprisonment, at the discretion of the court, together with the costs of investigation and prosecution.”
What Are the Potential Penalties?
State tax fraud is a felony offense in California. If you are convicted of violating RTC 19705, you could face:
- Fines of up to $50,000 (up to $200,000 for corporations), plus the costs associated with investigating and prosecuting you and
- 16 months, two years, or three years in state prison.
You'll also likely be required to make restitution by paying back the tax owed, plus interest and penalties. Factors such as the amount of tax evaded, the frequency of violations, and your overall cooperation with authorities can affect the severity of the penalties.
What Are the Possible Defenses?
While state tax fraud charges under RTC 19705(a) are serious, an experienced California criminal defense attorney can still employ several key defenses to counter the charges. These include, but are not limited to:
- Lack of Intent: You didn't intend to commit fraud or evade taxes. This could involve proving that any inaccuracies were due to honest calculation mistakes or misunderstandings rather than willful deceit. Since the key element of proving tax fraud is showing that you did so willfully, showing a lack of intent is one of the most common defenses against these charges.
- Insufficient Evidence: The prosecution hasn't provided enough evidence to prove beyond a reasonable doubt that you committed tax fraud.
- Duress: You committed tax fraud under threat or force, which could absolve you of legal responsibility for your actions. For example, you were preparing taxes for a corrupt businessperson who threatened your family.
- Statute of Limitations: The state has waited too long to bring charges against you, exceeding the legal time limit for prosecuting the alleged crime.
It's crucial to consult with a legal professional if you're facing accusations of tax fraud. They can provide advice tailored to your specific circumstances and help you navigate the complexities of the law. Remember, being accused doesn't mean you're guilty; everyone is entitled to a fair defense.
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