Is Tax Fraud a Federal or State Crime in California?
Tax fraud is one of the few offenses in which dual jurisdiction is common. That means both federal and state agencies could investigate and prosecute you for the same thing.
For residents of California, the primary agencies involved are the Internal Revenue Service (IRS) at the federal level and the Franchise Tax Board (FTB) at the state level. Each operates independently but may coordinate when pursuing complex or high-value cases. If you’re facing a criminal tax case in Los Angeles or anywhere in the state, it’s essential to understand which agency has jurisdiction and how their processes differ.
The Los Angeles white collar defense attorneys at Werksman Jackson & Quinn LLP have an impressive track record when it comes to defending clients in white-collar and financial crimes, including criminal tax charges. Our attorneys include former prosecutors and legal strategists with deep experience responding to IRS and FTB enforcement actions.
Understanding Tax Fraud
Tax fraud occurs when a person or business willfully provides false, misleading, or incomplete information on a tax return to avoid paying taxes. It is different from honest mistakes or negligence; tax fraud requires intentional conduct.
Common examples include:
- Underreporting income
- Claiming false deductions or credits
- Using offshore accounts to conceal assets
- Failing to file tax returns at all
- Falsifying documents or creating fake businesses
Tax fraud is a criminal offense, and depending on the amount of money involved, the duration of the fraud, and the methods used, it may be prosecuted at the federal level, state level, or both.
State & Federal Charges in California
Federal tax fraud is investigated and prosecuted by the Internal Revenue Service Criminal Investigation Division (IRS-CI). The IRS has broad jurisdiction under Title 26 of the U.S. Code, which governs federal tax law.
The IRS investigates crimes such as:
- Filing false federal tax returns
- Failing to report foreign income
- Payroll tax evasion
- Refund fraud
- Identity theft involving tax filings
Federal tax crimes are prosecuted by the U.S. Department of Justice (DOJ) in federal court. Convictions can lead to fines, restitution, and federal prison time. That could mean years behind bars, depending on the severity of the charge.
State Tax Fraud Charges
In California, the Franchise Tax Board (FTB) is responsible for enforcing the state’s income tax laws. The FTB investigates and refers criminal cases to the California Department of Justice or a local District Attorney’s Office.
California tax fraud may include:
- Failing to report income on California returns
- Using fake deductions or dependents on state returns
- Preparing fraudulent returns for others (tax preparer fraud)
- Filing multiple fraudulent refund claims
California prosecutions can result in state prison sentences, heavy fines, and penalties, particularly for large-scale fraud or repeat offenders.
What Is Dual Jurisdiction
Dual jurisdiction occurs when both the IRS and the FTB have the authority to investigate and prosecute the same individual or business for related tax violations.
This is especially common in cases involving:
- High-income earners
- Business owners with complex financials
- Multi-state or international transactions
- Tax preparers involved in systemic fraud
The IRS and FTB often share data through formal agreements and may cooperate during audits and investigations. In some cases, a person may face separate charges in both state and federal court based on the same set of facts.
Defending against dual jurisdiction tax crimes requires a law firm with experience in both federal and state criminal defense, and with the strategic ability to manage multi-agency investigations.
Criminal Tax Cases in Los Angeles
Los Angeles is one of the most heavily scrutinized regions for criminal tax cases in California. It is home to high concentrations of:
- Entrepreneurs and tech startups
- Independent contractors and gig workers
- Entertainment professionals with complex income streams
- International investors and offshore account holders
Both the IRS and FTB maintain strong enforcement presences in Southern California, and high-profile cases are routinely filed in federal and Los Angeles County courts.
If you are contacted by either agency, or if you have been notified of an audit, it is crucial to secure legal representation before making any statements or submitting documents.
How We Can Help
Facing a tax fraud investigation or audit is not just a financial concern; it’s a legal crisis that can lead to felony charges, asset forfeiture, and incarceration. But the burden of proof in these cases is high, and you have the right to a vigorous defense.
At Werksman Jackson & Quinn LLP, we have decades of experience defending white-collar criminal charges at both the state and federal level. We take an aggressive approach that may involve:
- Preventing criminal charges before they’re filed
- Challenging the validity of audits and evidence
- Negotiating with IRS or FTB agents to resolve disputes
- Mounting a strategic trial defense if charges are filed
We understand the difference in approach between IRS vs. FTB prosecution, and we know how to manage the unique pressures of dual jurisdiction tax crime cases in California.
Key Takeaways
- Tax fraud in California can be prosecuted by either the IRS (federal) or the FTB (state) or both, under dual jurisdiction.
- Federal cases are handled by IRS-CI and the DOJ; state cases go through the FTB and local prosecutors.
- The penalties for tax fraud can include prison time, fines, restitution, and lasting professional consequences.
- Los Angeles is a high-risk area for audits and investigations due to its diverse and high-income population.
- Hiring a criminal defense firm with state and federal experience is key to achieving the best outcome.
Speak With a Los Angeles White Collar Defense Lawyer Today
If you’ve been notified of an IRS or FTB investigation, received an audit letter, or you are already facing tax fraud charges, it’s time to act decisively.
Let Werksman Jackson & Quinn LLP protect your rights, your finances, and your future. We know how to deal with the IRS, the FTB, and the prosecutors behind them.
Call (213) 688-0460 to schedule a free consultation right away.
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