USA Law and Practice Contributed by: Devon M. Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
be enforced by court order, and, if a warrant is signed by a judge, to execute searches within the scope of such warrant. Such searches may be conducted in co-ordination with other agencies of the US govern - ment. The IRS generally must begin an audit or examina - tion of a taxpayer within three to six years of the due date of the tax return for the tax year being audited (unless a taxpayer filed a late tax return or failed to file tax returns, including information returns, for such tax year). The IRS and Treasury also incentivise whistle- blowers and the public to collect information that may lead to the investigation of tax fraud (see 5.2 Anti- Avoidance Mechanisms ). Additionally, IRS agents have access to a forensic laboratory and resources, to review and examine evidence that has been gathered. Under the Code, the IRS has the power to apply pen - alties for a variety of tax-related issues including: • failure to file a tax return (including some informa - tion returns); • failure to pay taxes or failure to timely pay taxes; • accuracy-related issues (ie, where a taxpayer does not declare all their income, or claims deductions or credits that such taxpayer is not entitled to); • underpayment of estimated taxes; • failure to deposit certain taxes; and • erroneous claims for refunds of an excessive amount. 6. Penalties and Sanctions 6.1 Tax Penalties The specific amount of the penalty (or penalty range) is generally specified in the Code. The penalty may be a set amount on a per-occurrence basis (eg, with respect to failure to file certain information returns) or a percentage of the amount of the unpaid or underre - ported taxes. Additionally, while not a penalty, if there is a failure to withhold on a payment subject to US withholding, a US withholding agent (generally a US resident payor) may be pursued by the IRS to pay the amount that should have been withheld, notwith- standing the ultimate tax liability being the liability of the payee.
The IRS generally charges interest on penalties as well as unpaid taxes. The IRS is the principal authority that enforces the payment of tax and may seize property, garnish wages and take other action to collect taxes, interest and penalties. 6.2 Criminal Penalties In addition to the civil or monetary penalties that may be applied, the Code provides for criminal penalties, including criminal fines and/or imprisonment, for tax evasion and fraud. These include: • wilful attempts to evade or defeat any tax imposed by the Code; • failure to file tax returns and pay any tax; • failure to collect and remit taxes required to be col - lected by a person under the Code; • making fraudulent tax returns or statements; • issuing fraudulent withholding exemption certifi - cates; and • concealing property or destroying or falsifying records in connection with an agreement or com - promise with the IRS. For example, if a person is convicted of wilfully attempting to evade or defeat any tax imposed by the Code, such person is guilty of a felony and is fined up to USD100,000 (USD500,000 in the case of a corpora - tion) and/or may be imprisoned for up to five years. 6.3 Interaction Between Tax and Criminal Procedures Criminal investigations can be initiated from infor - mation obtained from an IRS agent (eg, an auditor), revenue collection officer or whistle-blower, or if an investigative analysis detects possible fraud. Spe - cial agents at the IRS review the relevant informa - tion in a preliminary investigation and if a supervisor agrees, a criminal investigation is commenced. Once opened, the IRS special agents work with IRS criminal tax attorneys during the investigation. Following the analysis of information gathered, if a criminal prosecu - tion is supported, a prosecution recommendation is sent from the IRS to the tax division of the US Depart - ment of Justice (in the case of tax investigations). If the Department of Justice accepts the investigation for prosecution, an IRS special agent will assist pros - ecutors in preparation for trial. However, once referred
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