Most people live in fear that the Internal Revenue Service will one day come knocking at their door to conduct an audit or, even worse, access penalties and interests. Federal prosecutors could even authorize criminal charges for tax evasion in egregious cases. The looming threat of the IRS seems to overshadow or downplay the threat posed by state revenue collection agencies ensuring that their own tax dollars are collected. However, state governments may be quicker and more aggressive in pursuing what is due to them. Failure to file and pay will result in civil and criminal consequences.
The Michigan Department of Treasury is no different and will assess the following penalties if state taxes are not filed or paid timely.
- If a taxpayer fails or refuses to file a return or pay a tax on time, “a penalty of 5% of the tax shall be added if the failure is for not more than 2 months, with an additional 5% penalty for each additional month or fraction of a month during which the failure continues or the tax and penalty is not paid, to a maximum of 25%” (plus interest). MCL 205.24(2).
- If a taxpayer fails to remit income tax withholding within the time specified, “a penalty of 0.167% of the tax shall be added for each day during which the failure continues or the tax and penalty are not paid” to a maximum of 25% plus interest. MCL 205.24(3)(b).
- If a taxpayer fails or refuses to file “an information return or other informational report required by a tax statute, within the time specified, a penalty of $10.00 per day for each day for each separate failure or refusal may be added. The total penalty for each separate failure or refusal shall not exceed $400.00.” MCL 205.24(5).
The Michigan Department of Treasury may waive the penalties if the failure to comply was due to reasonable cause and not willful neglect. In addition, a penalty for failure to pay estimated tax shall not be imposed if the taxpayer was not required to make estimated tax payments in the taxpayer’s immediately preceding tax year. MCL 205.24(6). However, in all circumstances, interest is not waivable.
In addition to the civil penalties, a taxpayer may be charged with a crime for any of the following:
- Fail or refuse to make a return or payment within the time specified, make a false or fraudulent return or payment, or make a false statement in a return or payment. MCL 205.27(1)(a).
- Aid, abet, or assist another in an attempt to evade the payment of a tax, or a part of a tax, or file a false claim for credit as provided in statutes administered under this act. MCL 205.27(1)(b).
- Make or permit to be made for himself or herself or for any other person a false return or payment, a false statement in a return or payment, or a false claim for credit or refund, either in whole or in part. MCL 205.27(1)(c).
The penalties for any of the above-mentioned prohibited conduct are as follows:
- A person who violates any of these provisions with intent to defraud or to evade or assist in defrauding or evading the payment of a tax, or a part of a tax, is guilty of a felony, punishable by a fine of not more than $5,000.00, or imprisonment for not more than 5 years, or both. MCL 205.27(2).
- A person who violates any of these provisions with intent to defraud or to evade or assist in defrauding or evading the payment of a tax, or a part of a tax AND knowingly swears to or verifies a false or fraudulent return or a false or fraudulent payment, or a return or payment containing a false or fraudulent statement, with the intent to aid, abet, or assist in defrauding the state, is guilty of perjury punishable by up to 15 years in prison. MCL 205.27(3).
- A person who knowingly violates these provisions but DID NOT do so with intent to defraud or to evade or assist in defrauding or evading the payment of a tax, or a part of a tax, is guilty of a misdemeanor, punishable by a fine of not more than $1,000.00, or imprisonment for not more than 1 year, or both. MCL 205.27(4).
Both the attorney general and the county prosecutor have concurrent jurisdiction to prosecute tax crimes. MCL 205.27(5). However, this does not mean that you are going to jail if you are a few day late on your taxes. Showing a crime requires the prosecuting authorities to prove that the taxpayer knew he or she had a duty to file or pay but intended to avoid this duty. This is easier said than done. A taxpayer may reasonably believe their income was not subject to state taxation (e.g. federal benefits), or the taxpayer’s underpayment was due to a mathematical error on a filed return. Mistakes or reasonable misinterpretations of state tax laws are not crimes. The Michigan Department of Treasury would not likely make a referral for a criminal investigation unless the situation was particularly egrigeous or they suspected a pattern of illegal activity over time.
When facing substantial civil penalties with the Michigan Department of Treasury, a skilled tax professional may be able to help get you into compliance and negotiate a reduction in your penalties. If you are charged with any tax crime, you need the expertise of an experienced criminal defense lawyer in your corner. The attorneys at Kershaw, Vititoe & Jedinak PLC can assist you no matter how big or how small your tax problems are. Do not hesitate to contact us today for the best resolution of your Michigan tax issues.