In the criminal law, it is usually necessary for prosecutors to prove that a defendant had a certain mental state. Law students learn a term for this: “mens rea.” This is a Latin phrase referring to the mental element of an offense.
Consider, for example, the crime of tax fraud. There is a big difference between good faith errors in completing a return, on the one hand, and deliberate efforts to mislead the IRS, on the other.
In our recent article on tax fraud charges in a Florida case, we noted the issue of limits on how long the IRS can look back in its investigations of taxpayers. The rule of thumb is that IRS is normally limited to looking back only three years after a tax return is filed to conduct an audit.
If, however, the IRS has reason to believe that a taxpayer has underreported income by more than 25 percent, the normal three-year period is extended. In fact, it is doubled and becomes six years.
But what if the underreporting was deliberate or a taxpayer willfully failed to file taxes?
It is here that the distinction between civil fraud and criminal fraud comes into play. It is often said in cases of fraud, the statute of limitations does not run out. But it is important to be clear whether one is talking about civil fraud or criminal fraud.
Criminal fraud and criminal tax evasion are offenses that involve a whole different level of “mens rea” than honest errors in tax compliance or even civil fraud.