Most individual and businesses (corporations, LLCs, partnerships) are required by law to pay taxes on earnings and other sources of income (Yes, even illegally derived income is taxable and must be reported). In order for prosecutors to charge the crime of tax fraud or more precisely, tax evasion three elements must generally be present in order to sustain a conviction. These three essentials must be proven in a court of law, beyond a reasonable doubt. Reasonable doubt is simply a doubt based upon the consideration of all the evidence (facts) and must be premised upon reason. It is not merely a suspicion or speculation. The elements necessary for a tax fraud or evasion charge are:
The individual owes additional taxes
The individual attempted to evade his/her taxes
The attempt was willful (intentional)
Unsubstantiated wealth- An individual who exhibits signs of unexplained wealth. Ownership of substantial assets (e.g. luxury automobiles, jewelry, furs, etc.) without the apparent foundation for sustaining such a standard of living is certainly a red flag indicating possible tax evasion.
Apparent lack of gainful employment- An individual who does not work, keeps odd business hours or is secretive regarding his/her occupation, while still maintaining an affluent lifestyle. Such an individual could be involved in money laundering or other financial crimes in conjunction with others.
Utilization of large amounts of currency- An individual who utilizes unusually large amounts of currency to purchase expensive items rather than writing a personal or business check. The consistent payment of regular and periodic expenses totally in cash may be deemed suspicious.
Questionable banking practices- An individual or business that almost exclusively utilizes bank checks, cashier’s checks, money orders and/or postal money orders to conduct their financial affairs. This odd method of conducting monetary matters is a potential income tax evasion clue.
Fictitious names or nominees- An individual who opens bank accounts or buys assets utilizing someone else’s name and identification or completely fabricated information. Real property, boats, stock and bonds are examples of purchases that are frequently conducted by tax evaders in an effort to legitimize their ill-gotten funds, while avoiding financial scrutiny. Additionally, third party checks for expenditures fall under the same red flag category.