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The Penalties for Severe Tax Crimes in Colorado

What happens when they go unpaid, evaded or are fraudulent?

Tax laws are complicated. Everyone makes an occasional mistake when filing an income tax return. And sometimes we have difficulty making on-time tax payments due to a temporary cash flow problem. While such issues will not necessarily land you in trouble with the IRS or the Colorado Department of Revenue, more serious offenses, such as evasion or filing a fraudulent return, and when that happens you need to contact an experienced Colorado tax crimes attorney.

What Happens If I Don't Pay or Remit My Taxes?

Under Colorado statutes, it is a Class 5 felony to “willfully” attempt to “evade or defeat” any tax administered by the state. Along those same lines, it is a Class 5 felony to willfully fail to “collect or truthfully account” for a tax that you are legally responsible for remitting to the state, such as sales tax receipts or withholding from employee wages. If convicted of either offense, an individual faces one to three years in prison and a fine of up to $100,000. In addition, a corporation convicted under the statute may be fined upwards of $500,000.

Colorado's law mirrors the Internal Revenue Code, which similarly prohibits any willful attempt to “evade or defeat” any federal tax. If convicted of a felony under this section, a person faces up to five years in federal prison. The fine structure is the same as Colorado state law: up to $100,000 for an individual and $500,000 for a corporation.

The term “evade or defeat” actually covers two distinct types of tax crimes. The first is evasion in the assessment of the tax itself. Basically, this means filing a tax return that understates your income and thereby creating a “deficiency” in calculating the amount of tax owed. So if you deliberately fail to report income—legal or otherwise—or claim deductions you are not legally entitled to, you can be prosecuted for tax evasion.

Then there is evasion of payment. Even if you file a valid tax return, you can still be charged with a crime if you engage in any “affirmative act” designed to avoid payment. We're not necessarily talking about a situation where you actually lack the ability to pay, but rather a scenario where you attempt to hide assets from the IRS or the Department of Revenue.

How Much Will Tax Evasion Cost Me?

Even if there is no criminal prosecution, you still face potential civil penalties for failing to file or pay your taxes on time. Both the IRS and the Colorado Department of Revenue assess penalties and interest from the date a tax becomes due, regardless of when the return is actually filed. For example, the IRS assesses a late filing penalty of 5% for each month a return is overdue, and one-half of 1% for each month your tax payment is late (up to 25% of the total amount due). Separately, you will owe interest accrued on any late taxes, which is compounded daily based on the current federal short-term rate plus 3%.

If you want more information on this area of law, see our tax overview.

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