Can Failing to Pay IRS Collections Lead to a Criminal Conviction?

The United States has a long-standing tradition of freedom from debtors’ prisons. This tradition is rooted in the belief that people shouldn’t be imprisoned for their inability to pay their debts. However, there are some cases where the failure to meet financial obligations can be considered a crime.

In recent years, there has been an uptick in cases involving criminal failure to pay. This trend has raised eyebrows in legal circles, as it blurs the lines between civil and criminal liability. So the question is, when does one’s inability to pay the Internal Revenue Service (IRS) become criminal activity?

Situations That Raise IRS Suspicions

The types of cases that are typically considered criminal in the eyes of the IRS involve substantial sums of money. These cases often involve trust fund penalties, which are penalties that are imposed on businesses that fail to withhold payroll taxes from their employees.

Trust fund penalties are significant. For example, if a business fails to withhold $10,000 in payroll taxes, the owner or anyone who is deemed to be a “responsible person” could be held personally liable for the trust fund portion.  A “responsible person” is anyone who is responsible for remitting the taxes withheld from employees to the IRS. 

In addition to trust fund penalties, criminal failure to pay can also involve cases where individuals willfully fail to accurately collect, account for, and pay taxes. Based on past criminal cases, IRS convictions come about due to a considerable amount of fraudulent activity or avoiding to file tax returns in an effort to hide said activity. Convictions can lead to long prison sentences, tax repayment with interest, and additional penalties. Businesses that willfully fail to pay can be fined, lose their tax-exempt status, and be barred from doing business with the government.

The Concept of Willfulness

One of the key elements in these cases is the notion of willfulness. The IRS must prove that the individual had the financial means to pay their debt but chose not to. This can be a difficult task that requires the IRS to take a deep dive into every detail of the defendant’s finances and the circumstances that lead to the investigation. The IRS will look at a number of factors to determine whether an individual’s failure to pay was willful. These factors include the individual’s income, assets, and expenses. The IRS will also consider the individual’s history of tax compliance.

For those who are caught in the crosshairs of criminal failure to pay, the situation can be dire. They may be facing significant financial penalties, even if they are unable to pay them. The intersection of criminal failure to pay and making honest accounting errors is complicated, which makes working with a tax attorney as soon as possible absolutely critical.

Tipping The Scales in Your Favor

There is a delicate balance between punitive measures and individual financial constraints. On the one hand, the government has a legitimate interest in collecting taxes. On the other hand, the government should not punish people who are unable to pay their taxes due to financial hardship. The IRS will spend considerable resources in an attempt to prove that a defendant willfully acted in bad faith. 

No matter what circumstances bring individuals and businesses to this point, working with a skilled tax attorney is the best chance to improve the outcome. It’s often possible to negotiate more lenient terms or structure feasible payment plans. Don’t let financial hardship or oversight prevent you from living a normal life. If you’re in need of legal assistance for criminal allegations or are under investigation, call the office of Weisberg Kainen Mark for a free consultation at (305) 374-5544.

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Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

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