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Suppose that someone bought a used car from a private party for cash (under $10,000) in California, and the seller wrote it was a gift, so that the buyer gets a new title without paying the tax. Then what will happen if somehow the court learns that it was not a gift and it was a tax evasion/fraud?

Should the buyer go to the jail/prison?

How much tax should the buyer pay after they found the real price? How much would be the penalty?

If the buyer claims "I didn't know about the tax law and because of that I did it", will the court accept this?

Is there any specific punishment if the buyer is a US citizen/GC holder or a non-immigrant visa holder like student or worker in US?

PS: If the buyer really didn't know about the law and misguided by the others doing it, how can he pay his obligated tax and getting ride of any bad future effects before IRS or other court be aware of it? Is it possible

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  • Ignorance of the law is not an excuse for breaking it, and is not usually taken into consideration in any charges filed.
    – Ron Beyer
    Oct 25 '21 at 3:16
  • As I understand it, in order to get the tax exemption, someone had to complete and sign Form REG 256, under penalty of perjury. Who signed it in this case - the buyer or the seller? Oct 25 '21 at 3:55
  • @NateEldredge: None of them. There was another simpler form that filled by the buyer.
    – GoodMan
    Oct 25 '21 at 4:08
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    In tax law, ignorance of the law actually can be a valid excuse for breaking it. Criminal liability attaches generally only in a case of a willful violation; a defendant unaware of his obligations in such a situation would therefore not be guilty. This doesn't mean they can avoid paying the tax (plus interest, plus penalties), but they at least avoid imprisonment.
    – bdb484
    Oct 25 '21 at 14:31
  • I added a ps part/
    – GoodMan
    Oct 25 '21 at 16:15
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Failing to pay a required tax is both a civil and a criminal offense. In a case like this, the buyer should have known that there was something suspicious going on, and so had a duty to look into things. In any case ignorance is not a legal defense to an accusation of non-payment of a tax properly due.

By the way, it is not a question of a court learning something, but of a tax official, The tax official could refer to matter to a prosecutor, who could bring charges and take the matter to court.

However, relatively minor tax issues are most often handled as civil matters with a tax penalty or fine being imposed, and even if it were handled as a criminal matter (unusual for a first offense) the Judge would have the option to impose only a fine.

The California sales tax rate on autos is currently 7.25%, so the tax due would have been something less than $725.

The Californium Sales And Use Tax Law section 6476 specifies a penalty of 6% of the tax due but not paid. However, this applies to:

Any person required to make a prepayment pursuant to Section 6471 who fails to make a timely prepayment ...

That would normally be the seller. Remember these taxers are normally collected by the seller from the buyer, and the seller, particularly one whose business is such sales, must make regular payments to the state. I have not found a law or regulation specifying a penalty rate for the buyer in such a situation, but it is probably a similar rate. Note that a later section specifies a 10% penalty instead of 6% when the non-payment is negligent or willful.

The official page "Sales And Use Tax Regulations" from the California Department of Tax and Fee Administration (CDTFA) summarizes a number of regulations and sections of law, particularly Regulation 1703. It reads in part:

(c) (1) (B) Other Late Payments. A penalty of 10 percent of the amount of all unpaid tax shall be added to any tax not paid in whole or in part within the time required by law.

(c) (1) (C) Vehicles, Vessels and Aircraft. A purchaser of a vehicle, vessel or aircraft who registers it outside this state for the purpose of evading the payment of sales or use taxes shall be liable for a penalty of 50 percent of any tax determined to be due on the sales price of the vehicle, vessel or aircraft.

(c) (3) (A) Negligence or Intentional Disregard. A penalty of 10 percent of the amount of the tax specified in the determination shall be added to deficiency determinations if any part of the deficiency for which the determination is imposed is due to negligence or intentional disregard of the Sales and Use Tax Law or authorized regulations.

Generally, a penalty for negligence or intentional disregard should not be added to deficiency determinations associated with the first audit of a taxpayer in the absence of evidence establishing that any bookkeeping and reporting errors cannot be attributed to the taxpayer's good faith and reasonable belief that its bookkeeping and reporting practices were in substantial compliance with the requirements of the Sales and Use Tax Law or authorized regulations.

(c) (3) (C) Fraud or Intent to Evade. A penalty of 25 percent of the amount of the tax specified in a deficiency determination shall be added thereto if any part of the deficiency for which the determination is made is due to fraud or intent to evade the Sales and Use Tax Law or authorized regulations. In the case of a determination for failure to file a return, if such failure is due to fraud or an intent to evade the Sales and Use Tax Law or authorized regulations, a penalty of 25 percent of the amount required to be paid, exclusive of penalties, shall be added thereto in addition to the 10 percent penalty for failure to file a return. Fraud or intent to evade shall be established by clear and convincing evidence.

(c) (3) (E) (8) Relief from Penalty for Reasonable Cause. If the Board finds that a person's failure to make a timely return, payment, or prepayment, or failure to comply with the provisions of section 6074 of the Revenue and Taxation Code is due to reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect, the person may be relieved of the penalty provided by sections 6074, 6476, 6477, 6480.4, 6511, 6565, 6591, and 7051.2 of the Revenue and Taxation Code for such failure.

Any person seeking to be relieved of the penalty shall file with the Board a statement under penalty of perjury setting forth the facts upon which the claim for relief is based. Section 6592 of the Revenue and Taxation Code, providing for the relief of certain penalties does not apply to the 10 percent penalty imposed for failure to make a timely prepayment under section 6478 of the Revenue and Taxation Code.

The page lists contact info for the CDTFA

I cannot judge which of these regulations would apply to the case describes in the question -- they are generally aimed at failures by the seller. But it looks as if 10% to 50% of the tax originally due would be a likely amount.

Penalties, fines, and jail terms imposed should not depend on citizenship or immigration status t all.

Response to PS

First of all, the IRS is not a court. Courts are not law enforcement agencies nor prosecutors in the US. Secondly, this is a state tax, not a federal tax, and the IRS will not be concerned. The California tax authorities may be. (They are not courts either.)

The page "Tax Guide for Purchasers of Vehicles, Vessels, & Aircraft" from the California Department of Tax and Fee Administration (CDTFA) reads:

However, if you purchased a vehicle without completing registration and paying the use tax to the DMV, you must pay the use tax directly to the CDTFA. You can report your purchase of a vehicle and pay the use tax by using the CDTFA's online services and selecting the option to File a Return or Claim an Exemption for a Vehicle, Vessel, Aircraft, or Mobile Home under the Limited Access Functions.

Your tax payment is due on or before the last day of the month following the month of purchase.

Penalty and interest charges will begin to accrue once the due date has passed.

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    When the seller is a private party, normally the buyer does not pay the tax to the seller, but rather pays it directly to the DMV when they go to register the vehicle. cdtfa.ca.gov/industry/… Oct 25 '21 at 4:44
  • I added a ps part/
    – GoodMan
    Oct 25 '21 at 16:16
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    @GoodMan I edited my answer to respond to your PS. Oct 25 '21 at 16:29
  • Thank you. So if he pays the tax through this website, shouldn't he do anything with DMV? Doesn't it have any bad effects when he wrote it was a gift when he brought the car's previous title to the DMV? Will he get a negative point somewhere he doesn't know?
    – GoodMan
    Oct 25 '21 at 16:38
  • A person in that case would do well to ask CDTFA or DMV if additional action is needed. It may be that the title needs to be corrected, I am not sure. But getting the tax paid should probably come first. It may be that the process of paying the tax will take care of adjusting the title. Or perhaps that is separate. Oct 25 '21 at 16:43

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