Posted On January 14, 2019

Can a Tax Lien Become Cause for Criminal Prosecution?

Tax liens rarely become a cause for criminal prosecution but Nevada business owners should take steps to reduce the impact or eliminate the lien altogether. A person or business can only face criminal prosecution connected to a tax lien if the IRS can prove that the party acted intentionally to evade taxes. Tax liens give the IRS priority over other creditors if the business becomes insolvent. Criminal tax evasion requires willful, intentional acts for the purpose of evading taxes.

Understanding Tax Liens

A tax lien is a notice to other creditors that a taxpayer or business owes a tax debt that must be paid before other creditor claims if the assets are sold. The IRS may place tax liens on the assets of businesses that have failed to pay all of their taxes. In some cases, the IRS may hold some of the business executives responsible for the unpaid taxes as well and may assess penalties.

Many penalties that are filed in the U.S. are because of unpaid payroll taxes. New business owners might not be aware of their responsibility to file their payroll taxes. Others may fail to file and pay payroll taxes because of cash shortages. It is best for businesses to file their tax returns even if they do not have the money to pay.

Tax Crimes

Whether a taxpayer’s failure to pay taxes amounts to a crime depends on the taxpayer’s intent. If the IRS believes that an individual taxpayer or business took affirmative steps to evade taxes, the IRS may refer the case to its criminal division for investigation. Taxpayers may be criminally prosecuted if the IRS is able to prove beyond a reasonable doubt that the taxpayers engaged in deliberate acts to violate the tax laws. Some examples might include:

  • Creating false receipts and invoices to obtain deductions
  • Filing tax returns that are false
  • Hiding income or underreporting income
  • Running a cash business and not reporting receipts

Businesses that believe that they might face potential criminal prosecution for tax problems should take steps to remedy the situation as soon as possible. Businesses can file amended returns to correct problems and negotiate with the IRS for payment plans. They can also try to get the tax liens discharged.